Nordic Factoring Fund månadsrapport – april 2023

Nordic Factoring Fund monthly report – April 2023

Nordic Factoring fund AB (publ) reports a NAV rate for April of 101.75. That's an increase of 0.55 %.

During April, the fund set up a new line of credit for financing invoices of approximately SEK 200 million. The fund has now lent out approx. SEK 320m in the last 2 months and is positive about the portfolio's future returns. NAV was positively affected during the month as a result of new lending and reduced liquidity in the fund. The portfolio's underlying return has increased and the fund also sees the possibility of better interest rates going forward, which could have further positive effects for the NAV going forward.

Against the background of the weaker economic outlook for the market, the fund has tightened and continued to expand its routines for monitoring outstanding invoices and the assessment of companies.

During the month, the fund has seen a low percentage of outstanding invoices, which is a positive development and reflects that the fund's strategy is working. The fund focuses its lending towards large and stable counterparties with good balance sheets to ensure good risk and return levels.

The market and the economy
Global key interest rates continue to rise and inflation in the Eurozone rose in April to 7.0 from a previous 6.9 in March. Core inflation decreased by 0.1 but again proves to be sluggish, creating challenges for the ECB. Core inflation in the US continues to decline, but is still well above the target, despite the austerity in the banking sector most likely slowing down the economy. The FED raised the interest rate by 25 basis points this May, which may be the interest rate peak, but core inflation needs to decrease. The ECB is expected to raise at a lower rate of 25 basis points 2-3 times up to and including July. A core inflation that sticks and only marginally decreases justifies continued interest rate increases.

The rental property companies are starting to have problems with profitability as a result of higher financing and operating costs that cannot be offset due to low rent increases. New car sales are reported to have fallen by more than half so far this year, which is a sharp drop that is mostly due to reduced private car sales. It is a bifurcated economy where the large companies have reported above expectations and demonstrated good resilience, while bankruptcies within small and medium-sized companies are increasing sharply and have been doing so for 9 months, which shows the greatly reduced demand in the Nordic economy.

The effect of higher interest rates has not yet been demonstrated in GDP, but there is still a high risk that Sweden will enter a recession in the autumn. Interest rates and inflation affect small and medium-sized companies hard and will continue to affect them in 2023, which increases the likelihood of further bankruptcies within the segment. The fund sees increased risks in several counterparties, above all counterparties that have sales to retail but also exposures to real estate. The market for refinancing and acquisitions has tightened and makes it difficult to both sell and refinance objects.

The reserves in this fund are very low. The fund's entire exposure is in category 1 and the security is over 30,000 invoices pledged in favor of the fund. The invoices are rolled over in 30 to 90 days with credit insurance both with and without recourse. Furthermore, there is property insurance for an eventuality should false invoices appear.

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