Exelity Monthly Report – May 2023

The net return for Exelity during May amounted to +2.2%, which means that the net return after the first five months of the year adds up to +7.5 %. Since we started to approach our target allocation eight months ago, we have only had one losing month of -0.7 %, compared to three losing months of between -1.2 % and -3.3 % for the exchange's broad index OMXSPI. We therefore now dare to state that we are delivering on our goal of performing stronger in weaker market environments. In this context, however, it must be noted that Exelity's unique composition of different asset classes has no relevant benchmark. The return was again entirely driven by financial transactions, of which +1.0 % and +1.1 % from warranty claims and interest, respectively. Our most important priority continues to be identifying new business in these areas. Future income in 2023 from our existing loans and guarantees totals +4 % in relation to the fund's current asset mass (AUM), which together with this year's development (+7.5 %) means that we see good opportunities to exceed our target of at least 10% return per year.

We have entered into four new warranty agreements during the period, where three of these provide a warranty compensation of 14-15 %, which is significantly higher than both our and the market average. It is proof that sentiment has become tougher and risk appetite weaker. Post-period guarantee exposure to AUM was marginally higher (28 %) after five completed guarantees. In total, we only needed to subscribe for shares to 16% of these commitments, which we are very satisfied with, not least in light of the many less successful issues that have recently been carried out with other players. if we did not win, the loan exposure falls to a lower level of 29 %, compared to 33 % in the previous month. During June, we also expect to repay more loans, including early repayment of our loan to Sivers Semiconductors, but we are working hard to close a number of new loan opportunities. Although we did not manage to land any new major loan agreements during the period, we have had continued success in credit commitments. We can particularly mention Acconeer where we, as one of two players, issue a credit line, with conversion rights, of a total of SEK 60 million, which was received positively by the market. Acconeer is the typical example of the rare combination of a nice loan transaction at low risk and an exciting equity case where we have a potentially valuable conversion right that we can use to convert the loan into shares.

In total, we now have five outstanding credit lines corresponding to 37 % of AUM, but lending is only likely in about half of the total credit commitments, due to various different restrictions in the loan agreements, for example debt ceiling in relation to the market value. This type of well-balanced loan terms leads to higher returns and lower risk.

The Q1 reports from the fund's holdings have been stable. The listed portfolio resisted the market decline (+0.1 %). Positive contributions from the larger holdings in CTT and Paxman were mainly neutralized by Empir, Enea and Smart Eye. We chose to divest the majority of our larger speculative holding in Biovica from the warrant issue in December following slower commercialization in the US, which also resulted in a loss, but as it derives from a warrant, the loss is instead included in our transaction leg. This means that the yield on financial transactions would otherwise have consequently been significantly higher than +1.0 %.

We have made only minor changes to the listed portfolio, with the exception of Awardit, which we bought back and made the fund's third largest holding after Smart Eye and CTT. Having completely stayed out of Awardit since the disastrous Q1 report a year ago, we were able to buy in at the level we sold out at. Our theory then was that it would take about a year for the company to rebuild trust. In short, our view is that today's valuation of 13x EV/EBIT 2023E is far too low for a company with Awardit's dominant market-leading position and sustained competitive advantages.