Exelity Monthly Report – January 2023

The net return for Exelity during the month of January amounted to +3.2 %, compared to the goal of reaching at least 10 % per year. The fund has no benchmark. The unique profile with an emphasis on financial transactions makes it less suitable to compare with various stock market indices.

The return from financial transactions amounted to 1.3 % of the fund's total current asset mass (AUM). The development was therefore primarily driven by the listed portfolio and preferably the larger holdings in CTT, Protector and Biovica. We have made a number of transactions right around the turn of the month which would have added another 0.8 % to the return if we had received delivery of the shares. Above all, however, the return was dampened by our low share of shares of just under 40 % and the large treasury of 27 %. The cash register must be used as soon as we have identified more transactions that meet our high requirements for risk-adjusted returns and limited downside. A large cash register is therefore not an end in itself but an expression of caution. The goal is absolute return and not losing money is an important part of this equation. This means that the number one priority right now is to increase the proportion of loans from 31 % to closer to 50 %, which is our loan limit (incl. unlisted). Throwing yourself completely on the insanely speeding stock train during January, with the risks it entails, was therefore never an option.

The loan exposure was at the end of January at 31%, excluding new loans with a payment date after the end of the period. Future interest, origination fees and, where applicable, conversions total 5.3 % of AUM. We have entered into two new loans with a monthly interest rate of 2.0 %, which raises the average interest rate, just as we indicated in our last monthly letter. During the period, four of our guarantees have expired without any part of these guarantee commitments having to be called upon. With new commitments, the guarantee exposure at the end of January remains at the same level as in December (5 %), but in addition to that we have already signed a larger guarantee until the beginning of February whose compensation corresponds to 0.5% of AUM.

A number of guaranteed rights issues in the market have been fully subscribed recently, indicating that market sentiment is currently looking brighter. The new proposals we received have therefore increasingly dealt with targeted emissions. During January, Exelity has participated in some such transaction structures with exclusively good results, where we can particularly highlight the Adtraction position that developed +28 %. Adtraction is a digital marketing platform company with a strong growth history of CAGR 27 % from 2016, while the company, despite its small size, has been profitable throughout the last decade. In connection with the issue, Adtraction acquired Adservice, which was the company's biggest competitor in the finance segment, which doubles EBITA on a pro forma level. The two companies together get a market share of 80 % within this niche. The stronger market position enables synergies on the gross margin, which we believe can begin to be realized relatively immediately. Despite the price rise, the valuation for this undiscovered case remains low with a multiple of approximately 8x EBITA.

During the period, a so-called dog portfolio with a number of short-term, smaller New Year's positions in bombed-out stocks such as Fingerprint, Midsona and Truecaller was sold, which resulted in a double-digit return, corresponding to +0.3 % on AUM.

Biovica is currently our largest listed holding after the guaranteed issue at the end of 2022. Our guarantee strategy includes taking larger positions in good companies where we can stay if we acquire shares in the issue. Biovica is now commercializing its tumor diagnostic technology after receiving market approval from the US FDA last summer. The Biovica share is depressed with a low valuation of approximately SEK 270 million, adjusted for the large fund after the issue. We have also started to build positions in a number of other exciting listed holdings that we will have the opportunity to return to later in the year.