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VEF marked down its portfolio by 13% QOQ in Q3, putting YTD NAV growth at 11% (in USD), still lagging behind its portfolio peers (up 20-80% in USD). Its share price is down 19% YTD, implying a 56% discount to a fairly conservative NAV. We believe too much focus is placed on balance sheet concerns; our impression is that investors are focused on the bond maturing in Q2 2025, which could drive VEF to strengthen its balance sheet in the next 12-24 months. We note VEF's high-beta characteristics and expect a continued recovery in long-duration growth valuation multiples, should interest rates peak. We have updated our fair value to SEK3.6-6.0 (3.8-5.6).
Q3 takeaways. 1) VEF marked down its portfolio by 13% QOQ in Q3, split 12% from peers' multiples contraction and 2% from negative FX changes, offset by 1% new investments and other. This corresponds to a 11% YTD NAV rise in USD, which means that VEF has still marked down its NAV by 40% from end-2021 highs (adjusted for net investments), which reflects conservatism, in our view; 2) value changes in Q3 were (on the positive side) TransferGo (+42%) and Nibo (+10%) and (on the negative side) Creditas (-14%) and Juspay (-11%); 3) we see encouraging trends in the Brazilian market, with tailwinds from a decreasing central bank rate, although our impression is the timing of an IPO of Creditas (43% of VEF's NAV) now looks more like H1 2025e than H2 2024e; and 4) the underlying portfolio performance remains strong; however, VEF slightly lowered its portfolio-weighted 2023 revenue growth expectations to ~40% YOY as its earlier-stage companies focus on extending runways.
Gringo (4% of VEF's NAV) raised USD30m in a series-C round, validating its reported NAV. We note the round was led by an external investor (Valor Capital), where VEF took roughly its pro-rata share (USD3m), and see it as a sign of strength that its solidly performing holding was able to raise capital in the current tough VC environment at a higher valuation than its previous round, while also validating VEF's fair reported NAV (to which the stock is trading at a 56% discount).
VEF values its portfolio at a weighted 2023 EV/sales of ~5x, in line with fintech peers on our calculations, despite offering a c2x higher revenue growth profile on a path to profitability. VEF remains consistent in its valuation processes, with 90%+ of its NAV based on marked-to-model valuations (tied to public markets).
Fair value changed to SEK3.6-6.0. VEF expects an end-2024 cash position of USD21m, as it expects to use ~USD14m of its USD35m cash available over the next 15 months, as ~93% of its NAV is funded for break-even with existing capital positions and the remaining ~7% of NAV with a weighted cash runway of 27 months. We believe too much focus is placed on balance sheet concerns; our impression is that investors are focused on the bond maturing in Q2 2025, which could drive VEF to strengthen its balance sheet in the next 12-24 months.
Best regards
Joachim Gunell | DNB Markets | Equity Research Sweden
Email: joachim.gunell@dnb.se