Heliad Equity Partners — NAV affected by flatexDEGIRO’s de-rating

Heliad Equity Partners (XETRA: HPBK)

Currency in EUR

Last close As at 07/02/2023

EUR5.10

0.02 (0.39%)

Market capitalisation

EUR57m

Heliad Equity Partners — NAV affected by flatexDEGIRO’s de-rating

Heliad Equity Partners (HEP) posted a 35% decrease in net asset value (NAV) per share during Q222, driven mostly by the 51% stock price decrease of flatexDEGIRO (FTK) (alongside the sell-off across listed online brokers), which now makes up roughly half of HEP’s portfolio. Meanwhile, revaluation of private holdings had a minor impact on HEP’s NAV, with only FINN and Klarna closing new funding rounds in Q222. We note that HEP’s management expects the weighted average revenue of its new investments since 2021 to grow 3.6x in 2022 vs the prior year. Management also highlighted that advanced talks on new funding rounds of some holdings may bring HEP’s NAV per share to c €10 (up c 20% from end-June 2022), while the current HEP share price is c 53% lower.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Heliad Equity Partners

NAV affected by flatexDEGIRO’s de-rating

Investment companies
Venture capital

14 October 2022

Price

€4.79

Market cap

€53m

NAV*

€94m

NAV per share*

€8.40

Discount to NAV

43.0%

Yield

0.0%

Ordinary shares in issue

11.2m

Code

HPBK

Primary exchange

Frankfurt (Scale)

AIC sector

N/A

*At end-June 2022

Fund objective

Heliad Equity Partners aims to invest in market-leading private companies and skilled entrepreneurs across sectors and regions to power their next phase of growth and act as a gateway to public equity markets by leveraging its experienced team and strategic partners.

Bull points

Good access to a network of top-tier VC companies and entrepreneurs.

HEP is flexible in that it has no commitments to realise investments within a specified time.

Companies staying private for longer, allowing VC/PE investors to capture more of the value accretion.

Bear points

HEP is yet to build a track record of successful realisations.

Majority of portfolio value still attributable to one listed holding.

Most private investments made close to peak of the recent cycle (H221/Q122).

Analysts

Milosz Papst

+44 (0)20 3681 2519

Michal Mordel

+44 (0)20 3681 2519

Heliad Equity Partners (HEP) posted a 35% decrease in net asset value (NAV) per share during Q222, driven mostly by the 51% stock price decrease of flatexDEGIRO (FTK) (alongside the sell-off across listed online brokers), which now makes up roughly half of HEP’s portfolio. Meanwhile, revaluation of private holdings had a minor impact on HEP’s NAV, with only FINN and Klarna closing new funding rounds in Q222. We note that HEP’s management expects the weighted average revenue of its new investments since 2021 to grow 3.6x in 2022 vs the prior year. Management also highlighted that advanced talks on new funding rounds of some holdings may bring HEP’s NAV per share to c €10 (up c 20% from end-June 2022), while the current HEP share price is c 53% lower.

HEP’s share price performance against FTK and SDAX

Source: Refinitiv, Edison Investment Research. Note: Total returns in sterling.

Why consider HEP now?

HEP aims to provide a convenient route to invest in a diverse set of unlisted growth technology businesses through a listed vehicle. Given the ongoing trend of businesses remaining private for longer, we see potential for institutional investors to provide private capital and capture a greater share of value accretion by successful companies. We note the strong returns generated in recent years by these investors, especially in the late-stage venture capital (VC) segment (29% per year over the last five years to end-June 2021, according to Bain & Company citing Cambridge Associates data).

The analyst’s view

HEP’s portfolio of innovative private businesses may benefit from secular trends such as ongoing business digitalisation, expansion of e-commerce, increasing fintech penetration and clean energy. Weaker public equities (the fintech indices S&P Kensho Alternative Finance, S&P Kensho Future Payments, S&P Kensho Democratized Banking are c 40% down year to date) could affect valuations on new funding rounds in some of HEP’s holdings in the short term. Having said that, we note that HEP focuses on investing in companies with a proven business model and a greater degree of visibility in terms of their path to profitability (and avoids early-stage VC investments). Additionally, around three-quarters of HEP’s investments since 2021 have downside protection through liquidation preference and/or anti-dilution protection (with HEP being compensated in free new shares in the event of a down round).

Heliad Equity Partners is a research client of Edison Investment Research Limited

Peer group comparison

HEP’s recent NAV performance is below the peer group’s average, due to share price performance of FTK. The significant decrease in FTK’s valuation has also influenced the longer-term results, with HEP’s NAV total return being below average over three and five years. HEP’s shares are trading at a 43% discount to NAV (43% after accounting for FTK’s share price change after end-June 2022), which is wider than the peer average. It is worth noting that VC trusts (VCTs) trade at quite a narrow discount, while some of the other peers (eg Molten Ventures and FinLab) trade at more substantial discounts. For illustrative purpose, if we applied the 31.7% average peer discount to HEP’s NAV at end-June 2022 (adjusted for the subsequent movement in FTK’s share price), we arrive at a fair value per share of €5.74. HEP’s ongoing charges ratio is higher than its peer group median, although we note the recent changes to HEP’s fee structure (see our initiation note for details). HEP does not intend to pay dividends for now, contrary to VCTs, which normally distribute dividends on a regular basis.

Exhibit 4: Peer group comparison at 6 October 2022* in sterling terms

 

Market cap (£m)

NAV TR
1-year

NAV TR
3-year

NAV TR
5-year

Discount
(ex-par)

Ongoing
charge (%)

Perf. Fee

Net gearing

Dividend
yield (%)

Heliad Equity Partners

47

(58.7)

34.4

(6.5)

(43.0)

3.8

Yes

114

0.0

Albion Enterprise VCT

107

6.2

25.7

60.3

(6.3)

2.5

Yes

100

5.4

Kings Arms Yard VCT

95

3.2

25.6

39.9

(14.2)

2.4

Yes

100

11.3

Northern 2 VCT

108

0.2

20.5

30.5

(7.3)

2.4

Yes

100

6.2

FinLab

48

(20.4)

42.3

82.0

(70.0)

3.1

No

100

0.0

British Smaller Companies VCT2

99

5.3

46.4

60.0

(7.8)

2.0

Yes

100

14.4

ProVen Growth and Income VCT

169

6.3

8.8

20.7

(8.9)

2.4

Yes

100

10.4

Augmentum Fintech

160

19.0

41.6

N/A

(40.3)

1.7

Yes

100

0.0

Vostok Emerging Finance

182

2.4

21.6

85.4

(48.4)

1.6

Yes

100

0.0

Molten Ventures

374

26.1

78.8

27.1

(82.1)

1.6

Yes

100

0.0

Average (excl. HEP)

149

5.4

34.6

50.7

(31.7)

2.2

N/A

100

5.3

HEP’s rank in sector

10

10

5

9

7

10

N/A

10

6

Source: Morningstar, Edison Investment Research. Note: TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared). *12-month performance based on latest available ex-par NAV: end-June 2022 for HEP, FinLab, Vostok Emerging Finance, British Smaller Companies VCT2, Albion Enterprise VCT, Kings Arms Yard VCT, Northern 2 VCT; end-May 2022 for ProVen Growth and Income VCT; end-March 2022 for Molten Ventures and Augmentum Fintech.

Scenario analysis

We believe that forecasting the results of an investment company like HEP is very difficult (if not impossible), as these depend on a number of parameters relating to its existing investments, such as holding period, realised multiple of invested capital (MOIC) and prospective new investment activity. Moreover, HEP’s future earnings will also depend on FTK’s share price performance and realisation path. Having said that, we have updated our scenario analysis which we included in our initiation note published in July 2022 (see Exhibit 5).

Exhibit 5: HEP’s prospective NAV TR under different scenarios

FY21

FY22e

FY23e

FY24e

FY25e

FY26e

FY27e

Average MOIC at 2.5x, FTKs share price at average sell-side target price

EPS (diluted, €)

1.67

(5.45)

0.88

1.09

1.36

1.42

1.91

IFRS NAV per share (€)

14.15

8.70

9.58

10.68

12.04

13.46

15.36

NAV TR

 

(39%)

10%

11%

13%

12%

14%

Average MOIC at 3.0x, FTK’s share price at average sell-side target price

EPS (diluted, €)

1.67

(5.25)

1.14

1.45

1.87

2.12

2.89

IFRS NAV per share (€)

14.15

8.90

10.03

11.49

13.36

15.48

18.37

NAV TR

 

(37%)

13%

14%

16%

16%

19%

Average MOIC at 2.0x, FTK’s share price flat

EPS (diluted, €)

1.67

(5.68)

0.62

0.73

0.87

0.74

1.01

IFRS NAV per share (€)

14.15

8.47

9.08

9.82

10.69

11.43

12.45

NAV TR

 

(40%)

7%

8%

9%

7%

9%

Source: HEP, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Heliad Equity Partners and prepared and issued by Edison, in consideration of a fee payable by Heliad Equity Partners. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Heliad Equity Partners and prepared and issued by Edison, in consideration of a fee payable by Heliad Equity Partners. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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