Exelity Monthly Report – June 2023

The net return for Exelity during June amounted to +2.0 %, which means that the net return after the first half of the year adds up to +9.7 %.

We have thus already almost reached our annual target of at least 10 %. Financial transactions continued to be a strong contributing factor to the development, of which +0.6 % from guarantees and +0.7 % from interest. Future interest during the year from existing loans totals +4 % in relation to the fund's current asset mass (NAV). Then it should also be added that the majority of our loans expire in 2024.

The diligent reader will remember that the loan exposure fell back slightly to 29 % in May after early repayment of a number of loans. We generally don't mind faster repayment as it leads to better annualized returns, but with our relatively short maturities it can lead to short-term fluctuations in loan exposure. We are happy to have now once again raised the loan exposure to new record levels, corresponding to 37 % of NAV, and we have more loans in the pipeline. During June, we closed a total of five loan transactions in the form of a mixture of credit lines, bridging loans and convertibles. The total credit volume of the five deals amounts to 25 % of NAV, of which approximately 43 % of this volume is utilized right now. With rising loan exposure, our IFRS9 provisions also increase to 0.5 % of NAV, but we have had no credit losses so far.

During the period, four issues were resolved in which Exelity participated as guarantor, of which three were fully subscribed. A total of 11 of the 18 issues we guaranteed in 2023 have been fully subscribed and in total we have only subscribed for an average of 15 % of our total guarantee commitments. Without going into other issue outcomes in detail, we dare to say that our development is clearly better than the average. Risk appetite among our industry colleagues is generally low right now and several testify to a tough market. Our good returns in guarantees, despite the bad market, are a consequence of our disciplined process. During June, we refused all new warranty requests.

The listed holdings were generally negative with declines in most positions, similar to many other small cap and technology focused portfolios. The return from listed cases nevertheless amounted to +0.7 %, which was entirely driven by a larger block deal where we were able to buy into BPC Instruments at a good discount. BPC is an undiscovered and small but fast growing and profitable niche market leader with 90 % share in biogas analysis instruments. The company has a high level of insider ownership and exudes high quality in general. BPC is in a period of accelerating growth driven by several product launches.

On the news front, June was generally relatively undramatic for our 15 portfolio companies, where the cornerstones continue to be Smart Eye, CTT, Awardit and Empir. During June, we started to initiate a number of new positions, in e.g. Nordisk Bergteknik which is up 15 % since purchase. Furthermore, we have increased in Enea, where the share took a leap after the period on the announcement of large savings of SEK 60 million annually and that the CEO is being replaced by the chairman and also the former CEO who steered the company successfully for many years. Smart Eye's first aftermarket agreement (AIS) with Linde is also worth highlighting. Linde controls a third of the world market for industrial gas and Smart Eye sees the deal as an important reference deal for the many other customer dialogues it has. AIS has around a 50 times higher price point and much shorter lead times compared to the company's DMS business and can therefore quickly become a meaningful share of sales, which in our view is not priced in.