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

HEP’s NAV decreased by 35% in Q222, which has also affected long-term performance, with a five-year annualised NAV decrease at 1.3% compared to SDAX’s 1.8% increase per year (in total return terms). This was primarily due to HEP’s high weighting towards a single, relatively mature listed holding (FTK), with some additional negative impact from other minor listed holdings. At end-June 2022, HEP’s portfolio consisted of 19 companies, valued at €111.5m (compared to €162.5m at end-March 2022). Most of the private holdings remain valued as at the latest financing round prior to end-March 2022, except for Klarna and FINN (which completed new funding rounds in Q222) and Celsius (written down given its distressed situation).

FTK’s share price is down 59% ytd (at 13 October 2022), similar to other online brokers. This followed a stock rally of 370% in 2020 and H121 (reaching its peak in July 2021) on the back of rapidly increasing transaction volume and customer base, stimulated by growing popularity of online trading amid COVID-19 lockdowns and higher availability of capital from fiscal stimulus. With the current unfavourable conditions in equity markets, the customer interest is somewhat tuned down, with FTK reporting 282k new accounts in H122 compared to 532k in H121, which may have encouraged investors to re-assess the prospective growth path in the online brokerage business. Meanwhile, FTK operating performance appears robust compared to major peers, with its newly opened accounts being higher than for its three direct peers combined (Avanza, Fineco, Nordnet). While the average number of transactions declined 37% y-o-y in Q222 (broadly in line with peers), FTK’s revenue per trade increased 24% y-o-y. Despite the growth moderation, analysts see significant upside potential for the stock, with the mean target price 115% above current share price, according to Refinitiv consensus (based on 11 contributors). The consensus estimates indicate a top-line growth at 10% pa and bottom-line growth at 19% pa in 2021–24.

With respect to other listed holdings, MagForce’s stock price declined by 5% during H122, although it had dropped by 85% in July after the company filed for insolvency, which seems to have come as a surprise for the markets. In its 2021 annual report, the company pointed out that, based on its available credit lines, the business activity can be financed for FY22 and FY23 (it also successfully placed €3.5m bearer bonds in 2022). The company recently stated that it is in restructuring talks with investors.

The remaining portfolio components had a minor impact on HEP’s NAV performance, as only two companies have closed new financing rounds in the period. FINN closed a US$110m series B round (after securing US$720m in asset-backed debt over the previous six months) at a US$390m pre-money valuation, resulting in an upward revaluation within the HEP portfolio. On the other hand, Klarna (which made up only 1% of HEP’s portfolio at end-March 2022) closed a new financing round of US$800m, which valued the company at US$6.7bn – 87% below the US$45.6bn valuation in June 2021 but representing a valuation three times higher than in 2018.

Meanwhile, HEP’s three largest private holdings (Enpal, Modifi, Springlane), which make up c 44% of its private portfolio, show positive operating developments. Enpal is benefiting from the spike in demand for photovoltaics in Germany, expecting FY22 revenues at €340–400m (4x the FY21 level) and reaching its breakeven point in FY22. Modifi expects to triple its top-line this year (according to HEP’s management) and has extended its management team by several high-profile members, while Springlane targets €60m net revenues in FY22, which implies over 25% y-o-y growth.

Some indication of the overall good financial performance across HEP’s portfolio is the fact that HEP sees a near-term upside potential for a c €1.5 increase in its NAV per share (up c 20% from end-June 2022) arising from private holdings which are in advanced talks on new funding at higher valuations.

HEP also reported a downward revaluation of Celsius in H122 related to its distressed situation, as the company was hit by the downturn in crypto markets coupled with internal risk management deficiencies (it filed for bankruptcy after HEP’s reporting date). We note, however, that HEP had invested only US$1.0m in Celsius.

HEP’s only new investment during Q222 was its participation in a series B funding round at WorkMotion (as part of which HEP acquired preferred shares in the company). WorkMotion is an HR tech firm which offers a workforce management platform including hiring, onboarding and HR management across over 160 countries. In June 2022, it closed a US$50m financing round (US$40m equity, supplemented by debt) led by Canaan Partners, and which included follow-on investments from Activant Capital, XAnge and Picus Capital. HEP was a first-time investor alongside GR Capital.

At end-2021, HEP had €18.8m in short-term liabilities to banks representing cash collateral received to secure possible claims from put options on FTK’s shares, which HEP purchased as part of a collar strategy it entered in H221 (with a term until end-March 2022). Part of these collar transactions was terminated in H122 (reducing HEP’s liabilities by €10.5m), while the remaining part (representing a cash collateral of €9.4m) was extended. Meanwhile, HEP obtained a credit line from HypoVereinsbank of up to €23m (of which €10m was drawn at end-June 2022), with part of the FTK shares pledged as collateral. The drawn amount of the credit line and outstanding liabilities associated with the collar transactions translated into HEP’s net gearing at 14% of NAV at end-June 2022. Together with its cash at end-June 2022, this translated into liquid resources available for investment of c €19m.

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.

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).