Exelity Monthly Report – February 2023

The net return for Exelity during the month of February amounted to +0.6 %. The return so far this year thus adds up to 3.8 %, which can be compared with the goal of reaching at least 10 % per year. There is no index that can be compared to the fund's unique profile.

The return from financial transactions amounted to +1.6 % in relation to the fund's total current asset mass (AUM), which is roughly half explained by a successful conversion of the Intellego loan. The continued large treasury once again slowed the return. We reiterate the message from January that the fund is ready to be immediately put to work in low-risk business opportunities that support our goal of delivering an annual absolute net return of at least 10 %. With our book of upcoming financial transaction revenues in 2023 at 5 % of AUM, almost 90 % of that target is already within reach.

During February, two more of our underwritings were fully subscribed. This means that six in a row of our guarantee commitments did not need to be claimed at all. In total, this is roughly 1.1 % in pure return from the guarantee compensation. We do not expect this trend to continue, nor is it necessary. In the 34 guarantees the fund has made since its inception, an average of 31 % of our commitments have been actualized, which has meant continuously profitable guarantee business, in a largely challenging issuance environment. In total, we have now guaranteed issues for SEK 111 million, with an average compensation of 11 %.

The loan exposure fell to 26 % after the conversion of Intellego, which excludes 2 % from new loans with payment after the end of the period. However, given our good pipeline, we are not concerned about our goal of increasing loan exposure. In terms of guarantee exposure, we remained at roughly the same level as before (6 %), after two new commitments. If this relatively low level is maintained, it nevertheless results in revenues equivalent to as much as 7-8 % on an annual basis. I want to point out that our good liquidity gives us the opportunity to multiply the guarantee commitments, which we also intend to do, but we are disciplined and wait for no-brainers where we can take a substantial size.

The listed portfolio developed weakly (-0.9 %), which was due to CTT, which during the period traded down -18 % after the year-end statement. The report offered strong guidance, 33% growth and 31% EBIT margin despite a negative currency effect. We see the price reaction primarily as a result of sales flows and thin liquidity. Otherwise, the movements were generally small in our 15 listed positions. The portfolio consists almost exclusively of companies in sectors with structural (non-cyclical) growth and high barriers to entry, which means that most of the holdings (gaming companies excluded) are found in SaaS software, automotive, aerospace, defense and medical technology. We want to build a portfolio for all weathers. It is therefore no coincidence that the portfolio is heavily underweighted towards industrial and commodity companies.

Through block transactions and targeted issues, we have taken a position in a couple of new cases where we are very enthusiastic about the potential, but we ask to return to these holdings in future monthly letters. The biggest news in the listed portfolio is otherwise our new holding in Smart Eye where, via good advisor contacts, we got hold of a large amount of cheap subscription rights in connection with the rights issue. The entire position in Smart Eye was sold immediately when the ill-fated issue was announced in early December, with the aim of buying back cheaper. Empirically speaking, an issue without a set subscription price usually always puts considerable pressure on the stock, but in Smart Eye's case the company took its two largest contracts ever (a total of SEK 1.2 billion) the week after, which completely halted the decline. On Monday, the company also won an order for trucks of SEK 150 million with an additional potential of SEK 400 million. With the issue completed, a replenished coffers and the new contracts in the order book, we can see ahead that the recovery for the share can finally begin.