INVL Technology — Investor Presentation 2021

Apr 28, 2021

Enlight Research

INVL Technology

Technology April 26, 2021

Baltics - Lithuania

Commissioned Research – Q4 2020 Update

A good year

Despite Covid, the listed private equity fund, INVL Technology, improved on all metrics in 2020 posting higher sales, profits, and NAV. The share was rewarded accordingly with a gain of 18% in 2020 and 12% so far in 2021.

All 2020 metrics improved

Sales for all portfolio companies increased by 4% in 2020 to EUR 34.3m, while EBIT almost doubled to EUR 1.7m. All segments contributed to both the sales and the EBIT improvement. The NAV increased by 16% in 2020 to EUR 2.77 at the end of the year, driven by an increase in the Fair value of portfolio companies done by an external valuator.

Fair value financial assets +26%

The external valuator increased the Fair value of financial assets (portfolio companies) by 26% or EUR 6.7m in 2020 to EUR 32.7m. The increase was driven by improved financial performance for all segments – NRD Companies (software, consultant), Novian (IT integration, IT infra, software), NRD CS (Cybersecurity).

Base case share price raised

Our sum-of-the-parts (SOTP) Base case motivated value per share is raised to EUR 3.00, implying an upside of around 30%. We lower our estimates due to a longer than expected pandemic but see potential upside from the recently announced EUR 673bn EU Recovery & Resilience program, whereof EUR 2.2bn is provided for Lithuania, of which EUR 440m for digitalization of public services (will benefit from program in Estonia and Latvia as well).

	Fair value range (EUR) BullP/Sales 1.5x 3.66 BaseP/Sales 1.3x 3.00 BearP/Sales 1.0x 2.33
	Key Data Price (EUR) 2.34 Ticker INC1L Country Lithuania Listed Vilnius (Lithuania) Market Cap (EURm) 28.5 Net debt (EURm) -2.4 Shares (m) 12 Free float 35.62 %

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3.50
3.00
2.50
2.00
1.50
1.00
OMXBBGI INVL Technology
04/20 05/20 06/20 07/20 08/20 09/20 10/20 11/20 12/20 01/21 02/21 03/21
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Key figures (MEUR)

ey figures (MEUR)
	2019	2020	2021E	2022E	2023E
Holding company Fair value Financial
assets*	25.912	32.652	36.026	41.216	46.665
Change Financial assets	1.279	6.740	3.374	5.190	5.450
Other income	0.185	0.150	0.170	0.170	0.170
Total income	1.464	6.890	3.544	5.360	5.620
Operating expenses	-0.531	-0.588	-0.787	-0.680	-0.690
Accrued perf. fee	0.000	-1.535	-1.569	-1.621	-1.675
Net profit	0.933	4.767	1.188	3.059	3.255
Portfolio companies
Revenue (m)	32.9	34.3	36.4	40.2	43.9
EBIT (m)	0.9	1.7	2.9	3.9	4.6
Revenue growth	5.0%	4.3%	6.1%	10.4%	9.2%
EBIT margin	2.7%	5.1%	8.0%	9.8%	10.4%
P/Sales	0.85	0.82	0.77	0.70	0.64

	Price range
	52-week high	2.34
	52-week low	1.76
	Analyst
	ResearchTeam@enlightresearch.net

Source: Company data, Enlight Research estimates

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April 26, 2021

Q4 2020 Key takeaways

Solid year

All segments posted increasing sales and profits in 2020 vs. 2019, which we believe illustrates the pandemic resilience of the tech sector. The Novian segment was the biggest contributor to the revenue growth, as Novian BAIP (IT Infrastructure) increased sales by 7% or EUR 1.2m to EUR 18.2m. Novian BAIP is the biggest company in the group making up around two thirds of the Novian segment revenues and a bit more than half of all portfolio companies’ revenues. The NRD Companies (IT solutions for public, retail, and finance sector) and NRD Cybersecurity segments both contributed EUR 0.4m in additional revenues in 2020 vs. 2019, growing sales by 6%, and 14%, respectively. We regard NRD Cybersecurity’s sales growth as especially encouraging given that sales declined by 27% in 2019.

At the EBIT level, the Novian segment added EUR 0.6m in 2020 vs. 2019, while the NRD Companies and the NRD Cybersecurity segments added EUR 0.4m each. It is worth noting that the NRD Companies segment swung from an EBIT loss of EUR 0.07m to a profit of EUR 0.33m. Overall, we regard it as a positive that all segments contributed to both the Revenue and EBIT improvement in 2020 vs. 2019.

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Source: Company reports

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FX and one-offs affected Q4 2020

Q4/20 Sales and EBIT for the NRD Companies and the Novian segment came in below our forecast, while NRD Cybersecurity came in above the forecast on sales and slightly below on EBIT. The biggest negative deviation came from the Novian segment (mainly IT Infrastructure) that posted EUR 2.4m lower sales, and EUR 0.8m lower EBIT than forecast. Most of the EUR 1.2m negative deviation at the EBIT level can be explained by currency exchange rate movements and items of one-off nature. We estimate the weaker USD and NOK against the EUR resulted in a negative EBIT effect of EUR 0.3m. In addition, we estimate the change of government resulted in a negative EBIT effect of EUR 0.3m (even more on sales) due to frozen projects. Also, we believe the lockdown affected the EBIT negatively by EUR 0.3m as sales of new products is hard to do without face-to-face meetings. Our estimated total negative effect from oneoffs is EUR 0.9m, which explains all but EUR 0.3m of the negative Q4/20 EBIT deviation vs. our forecast. We foresee some catch-up effect this year from projects put on hold last year, and from resumption of new product sales as the economy re-opens.

Estimated EBIT Q4/20 one-offs
Item			(EURm)
FX effect			-0.300
Change of government in Lithuania (frozen or delayed projects)			-0.300
Lock-down effect on newproduct sales			-0.300
Total			-0.900
Q4 2020 Estimate vs. Outcome
(EURm)	Q4/20	Sales	Q4/20 EBIT
Estimate		12.1	1.4
Outcome		9.7	0.2
Difference		-2.4	-1.2
Estimated one-offs			-0.9
Adjusted difference			-0.3

Source: Company report, Enlight Research

EBIT improvements motivate higher multiples

The EBIT margin for NRD Systems and Novian improved significantly in 2020 vs. 2019, while it was unchanged for NRD CS. For the Group, the 2020 EBIT margin improved to 5.1% from 2.7% in 2019. We believe the improved EBIT margin motivates higher P/Sales multiples as there is a clear relationship between the P/Sales multiple and the EBIT margin. Accordingly, we estimate an increase in the Fair value of financial assets of EUR 3.4m this year and EUR 5.2m in 2022.

Fair Value financial assets & Change in Fair value

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50.0 8.0
45.0 7.0
6.0
40.0
5.0
35.0
4.0
30.0
3.0
25.0
2.0
20.0 1.0
15.0 0.0
2018 2019 2020 2021E 2022E 2023E
Fair value financial assets Change Fair value
FV financial assets (EURm) Change in Fair value (EURm)
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Source: Company report, Enlight Research

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Our estimated increase in the Fair value of financial assets is backed up by an increase in peer multiples and the external valuator’s 2020 increase in the Fair value of financial assets (based on improved operational performance). Since our Initiation report in May 2020 (when Covid uncertainty was extremely high), the valuation multiples for all Invalda Technology’s relevant peer groups have increased significantly. The increase was accentuated in Q4/20 when e.g. the P/Sales multiple for the largest segment, Novian, increased to 0.69x from 0.46x in the previous quarter. In Q4/20, the external valuator’s Fair value of financial assets was increased by EUR 5.5m resulting in a full-year 2020 increase of EUR 6.7m, which was significantly higher than our estimated increase of EUR 1.3m. The 2020 year-end Fair value of financial assets amounted to EUR 32.7m, up from EUR 25.9m at the end of 2019. We believe that the outlook is good for a continued increase in the Fair value of financial assets by the external valuator.

Peer multiple development since Initiation May 2020 to Q4/20 Update

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8
6.9
7
6 5.5 5.6
5
4
3.1
2.7
3
2.1 1.9 1.9
2
0.97
1 0.500.700.68 0.450.450.460.69
0
Software Cybersecurity Consulting Infrastructure
28-May (Initiation) 28-Aug (Q2/20 update) 13-Nov (Q3/20 Update) 7 Apr (Q4/20 Update)
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Source: MarketScreener, Enlight Research, Introduce.se, DnB

Base case Sum-of-the-parts (SOTP) valuation

Our P/Sales 2020 Base case sum-of-the-parts (SOTP) valuation per share is raised to EUR 3.00 (EUR 2.59) on the back of improved EBIT margins leading to higher motivated P/Sales multiples (lower discount to peers). Our weighted P/Sales discount to peers is still around 50% which could be considered conservative, but we keep the smaller company size and lower share liquidity in mind.

Fair value Invalda Technology (Base case)

							Enlight	Enlight
	Weighted P/Sales 2020		W(P/Sales	Sales	Sales	Sales	FV	FV/share
	Base case	Peer avg.	Discount)	2018	2019	2020	(EURm)	(EUR)
Business area: Business climate improvement & e-governance
NRD Companies	2.3	4.9	53%	7.2	6.6	7.0	16.3	1.34
Business area: IT services & software
Novian Companies	0.9	2.0	55%	20.3	23.5	24.1	22.1	1.81
Business area: Cybersecurity
NRD CS	1.4	2.7	47%	3.9	2.8	3.2	4.6	0.37
Business area: Business process outsourcing
FINtime	na	na	na	na	na	na	0.233	0.02
Group total	1.2	2.7	53%	31.4	32.9	34.3	43.1	3.54
Sales growth				17%	5%	4%
Add Net cash:							2.4	0.20
Group total:							45.6	3.74
Less assumed NAV discount:							20%	20%
Less assumed NAV discount (EUR):							9.1	0.75
Enlight Base case Fair Value:							36.5	3.00
Source: Historical figures (Company reports), Forecast figures			(Enlight Research), Peer P/Sales average (MarketScreener, Enlight				Research, Introduce). Based on
peer valuation on 08 April 2021	for Q4/20 and 04 November		2020 for Q3/20.

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INVL Technology

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NAV discount stable since Q2 2020

Since the end of Q2/20, the NAV discount has been stable around 17-18% except for the end of Q4/20 when it was 25%. Our Base case motivated value assumes a 20% NAV discount which could be considered conservative given that it is currently trading at a 17% discount. Compared to other listed investment companies in the region, INVL Technology stand out as lowly valued as the other investment companies trade at a premium to NAV. It should be noted that our peer investment companies are Swedish listed, so a comparison is not fully relevant. In our view, we believe the INVL Technology discount could narrow once the company starts exiting/divesting companies at prices close to the reported fair value.

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Invalda Technology share NAV discount
5%
1%
0%
-5% -1%
-5%
-10%
-15%
-15%
-20% -17%
-18% -18% [-17%]
-25% -22%
-24% -24% -25%
-26%
-30%
-29%
-35% -32%
-33%
-40% -37%
Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18 Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Today
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Source: Company reports, *price on 08 April 2021 (EUR 2.30 per share) based on last reported NAV in quarterly report

Nordic investment companies NAV premium/discount

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70%
Latour
60%
Bure Equity
50%
40%
30%
Traction
20%
Öresund Lundbergs
10%
Investor Industriv.
0%
-10%
-20%
Invalda Technology
-30%
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Source: Company reports, prices on 16 April, last reported NAV
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April 26, 2021

EU Covid recovery program to boost Lithuanian Public IT spending

The EU Recovery and Resilience Facility is aimed to mitigate the economic and social impact of the coronavirus pandemic. The total size of the facility is EUR 672.5bn whereof EUR 312.5bn are grants and EUR 360bn are loans. One of the flagship areas of the facility is the digitalization of public administration. The program entered into force on 19 February this year and countries must submit national plans of investments during this year. The first payments from the facility to the countries must be done at latest five months after the plan is submitted i.e., this is a relatively expedient program as one objective is to kick-start the EU economies (funding will run until 2026). If Lithuania’s investment plan is approved by the EU Council, EUR 2.2bn in grants and EUR 3bn in loans can be provided whereof 20% shall be allocated to digitalization. We believe the EUR +1bn allocated for digitalization will boost the Lithuanian IT market in general, especially when it comes to the digitalization of public administration, which is one of INVL Technologies’ core areas. In 2020, NRD Systems and NRD Cybersecurity had over 50% or revenues from Public clients, while Novian had around 30%.

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Source: ec.europa.eu

Share of revenues to Public clients by Segment for year 2020

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100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
NRD Systems Novian NRD Cybersecurity
Public clients Other clients
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Source: Company presentation

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Q4 Estimates vs. Outcome and Estimate changes

Portfolio companies estimates vs. outcome

Q4/20 Group Sales was 19.7% below our estimate. The main reason for the negative deviation was the Novian segment that came in EUR 2.4m below our forecast, which was mainly due to one-off effects such as negative foreign exchange (FX) movements, and delayed Public sector projects as Lithuania changed government in the quarter. The lower than expected sales for the NRD Companies segment was offset by higher than expected sales for the NRD CS (these deviations were relatively small at around EUR 0.1m negative/positive).

Q4/20 Group EBIT was EUR 1.2m below our forecast, whereof EUR 0.9m was due to one-offs (FX effect, frozen projects due to change of government in Lithuania, lockdown) i.e., our estimated underlying negative deviation was just EUR 0.3m.

Q4/20 Q4/20 Diff. Q4/20 Sales byholdingcompanies(EURm) Estimate Outcome EURm %	Q4/20 Q4/20 Diff. Q4/20 Sales byholdingcompanies(EURm) Estimate Outcome EURm %
NRD Companies 1.638 1.524 Novian 9.124 6.741 NRD CS 1.339 1.448	-0.114 -7.0% -2.383 -26.1% 0.109 8.2%
Group sales 12.100 9.713 -2.387 -19.7% Q4/20 Q4/20 Diff. Q4/20 Salesgrowth Estimate Outcome EURm Bps
NRD Companies -11.9% -18.2% Novian 11.2% -17.9% NRD CS 31.4% 42.1%	nm -622 nm -2906 nm 1074
Group sales growth 9.2% -12.4% nm -2157 Q4/20 Q4/20 Diff. Q4/20 EBIT byholdingcompany (EURm) Estimate Outcome EURm %
NRD Companies 0.192 -0.072 Novian 1.014 0.177 NRD CS 0.178 0.116	-0.264 -137.4% -0.837 -82.5% -0.062 -34.8%
Group EBIT 1.384 0.205 -1.179 -85.2% Q4/20 Q4/20 Diff. Q4/20 EBIT margin bySegment Estimate Outcome EURm Bps
NRD Companies 11.7% -4.7% Novian 11.1% 2.6% NRD CS 13.3% 8.0%	nm -1646 nm -849 nm -528
Group EBIT margin 11.4% 2.1% nm -933 Source: Company reports, Enlight Research

Holding company estimates vs. outcome

The Holding company (listed entity) full-year 2020 Total income was EUR 6.9m above our forecast, which was due to a EUR 5.4m higher than estimated change in the Fair value of financial assets. Until divestments are made (expected 2025-26), the Total income line will mainly consist of change in Fair value of financial assets. The Operating expenses were EUR 0.1m lower than forecast. There was an accrued performance fee of EUR 1.5m compared (estimate was zero) which we regard as a positive sign as it means the company estimates the total investor return to exceed the minimum return barrier (initial investment + 8% annual return over the company

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entire life which should be at least until 2026). If returns do not reach the company’s estimate, the performance fee provision will be reversed. The 2020 EBIT was almost EUR 4m higher than forecast, which is an effect of the positive change in the Fair value of financial assets. Nothing happens below the EBIT line i.e.; the deviation is the same at the Net profit line.

at the Net profit line.
	2020	2020		Diff.
Holdingcompany (EURm)	Estimate	Outcome	EURm		%
Fair value Financial assets	27.218	32.652	5.434		20.0%
Change in Financial assets	1.306	6.740	5.434		416.1%
Other income	0.170	0.150	-0.020		-11.8%
Total income	1.476	6.890	5.414		366.8%
Operating expenses	-0.687	-0.588	0.099		-14.4%
Accr. performance fee	0.000	-1.535	-1.535		na
EBIT	0.789	4.767	3.978		504.2%

Source: Company reports, Enlight Research

Portfolio companies Estimate changes

Our Sales estimate for all portfolio companies is lowered by 10-12% in the forecast period 2021-23E, which is mainly due to a lowering of the Novian segment estimate. Our EBIT for all portfolio companies is lowered by 22% this year, 6% in 2022, and 1% in 2023.

Estimate changes
Sales allportfolio companies(EURm)	2021E	2022E	2023E
Old estimate	41.6	45.7	48.8
New estimate	36.4	40.2	43.9
Change	-5.2	-5.5	-4.9
Change(pct)	-12.5%	-12.0%	-10.1%
EBIT allportfolio companies(EURm)	2021E	2022E	2023E
Old estimate	3.8	4.3	4.6
New estimate	2.9	3.9	4.6
Change	-0.9	-0.3	-0.1
Change(pct)	-23.8%	-7.7%	-1.7%

Source: Company reports, Enlight Research

Holding company Estimate changes

We raise our Fair value of financial assets by 75% for 2021 and 100% for 2022 following the encouraging value increase in 2020, and positive outlook supported by EU’s pandemic recovery program. Our estimated Total income for the Holding company is close to the change in the Fair value of financial assets. Our EBIT estimate is slightly lowered by EUR 0.2m in 2021 and raised by EUR 0.9m in 2022 (Net profit line is the same as EBIT). Important to note is that the Holding company Income statement mainly consists of non-cash flow items e.g., the Change in Fair value of financial assets will not be converted to cash until an exit is made, and the performance fee provisions will not become a cash outflow until it is paid out at the end of the company life (2026 or later). See next page for estimate changes table for Holding company.

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Holding company Estimate changes
Fair value financial assets	2021E	2022E
Old estimate	27.2	29.2
New estimate	36.0	41.2
Change	8.8	12.1
Change(pct)	32.4%	41.4%
Change FV financial assets	2021E	2022E
Old estimate	1.9	2.6
New estimate	3.4	5.2
Change	1.4	2.6
Change(pct)	74.7%	99.5%
Total income	2021E	2022E
Old estimate	2.1	2.8
New estimate	3.5	5.4
Change	1.4	2.6
Change(pct)	68.7%	93.4%
EBIT	2021E	2022E
Old estimate	1.4	2.1
New estimate	1.2	3.1
Change	-0.2	0.9
Change(pct)	-15.4%	43.4%

Source: Enlight Research

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Valuation

Peer valuation

Since our Initiation of coverage report in May 2020, the average multiples for all the relevant peer groups have increased substantially, especially for the software peer group where the average P/Sales multiple has more than doubled to 6.9x. During the same time period, the Infrastructure average peer multiple has increased from 0.45x to 0.69x, which has a significant impact on the INVL Technology valuation as infrastructure (Novian segment) make up around 55% of all portfolio companies’ sales. Interesting to note is that the Cybersecurity peers’ P/Sales multiple has recovered to 2.7x after having bottomed at 1.9x in Aug-Nov 2020.

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P/Sales 2020 multiple development since Initiation May 2020 to Q4/20 Update
8
6.9
7
6 5.5 5.6
5
4
3.1
2.7
3
2.1 1.9 1.9
2
0.97
1 0.500.700.68 0.450.450.460.69
0
Software Cybersecurity Consulting Infrastructure
28-May (Initiation) 28-Aug (Q2/20 update)
13-Nov (Q3/20 Update) 7 Apr (Q4/20 Update)
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Source: MarketScreener, Enlight Research, Introduce Research, DnB research

Peer tables
IT Infrastructure services
				Mcap			EBIT
			Price	(m)	P/Sales	P/Sales	marg.	EBIT marg.
Company	Ticker	Ccy	(last)	(last)	2020	2021E	2020	2021E
Dustin	DUST	SEK	94.03	8,335	0.63	0.60	2.9%	4.0%
Proact IT	PACT	SEK	299.00	2,736	0.75	0.70	5.1%	5.3%
Atea	ATEA	NOK	152.00	16,877	0.43	0.40	2.2%	2.5%
CGit	CGIT B	SEK	47.50	75	0.93	0.71	3.5%	3.5%
Average					0.69	0.60	3.4%	3.8%
Median					0.69	0.65	3.2%	3.7%
Cybersecurity
				Mcap			EBIT
			Price	(m)	P/Sales	P/Sales	marg.	EBIT marg.
Company	Ticker	Ccy	(last)	(last)	2020	2021E	2020	2021E
Clavister Holding	CLAV	SEK	7.46	390	3.0	2.3	-35.7%	-14.8%
Freja eID Group	FREJA	SEK	117.50	629	28.7	16.8	-197.3%	-59.4%
Advenica	ADVE	SEK	5.08	168	2.0	1.9	-22.0%	-5.6%
F-Secure	FSC1V	EUR	4.05	641	2.9	2.8	10.4%	9.5%
Average					9.2	5.9	-61.1%	-17.5%
Median					3.0	2.5	-28.9%	-10.2%
Average excludingextremes					2.7	2.3	-16%	-4%

Source: MarketScreener, Enlight Research, Introduce Research, DnB research

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Software

Software
				Mcap			EBIT
			Price	(m)	P/Sales	P/Sales	marg.	EBIT marg.
Company	Ticker	Ccy	(last)	(last)	2020	2021E	2020	2021E
Agillic	AGILC	DKK	23.2	219	4.3	4.4	-17%	-12%
Artificial Solutions	ASAI	SEK	9.66	469	8.7	8.0	-157%	-81%
Briox	BRIX	SEK	7.22	264	59.1	44.0	-518%	-378%
Efecte Oyj	EFECTE	SEK	14.5	88	5.9	5.2	-2%	2%
FormPipe Software	FPIP	SEK	34.25	1,831	4.5	4.3	13%	9%
Fortnox	FNOX	SEK	420.8	25,592	36.9	27.7	38%	36%
LeadDesk Oyj	LEADD	EUR	25.8	115	8.4	4.5	2%	3%
Lime Technologies	LIME	SEK	367.9	4,887	14.4	12.0	25%	24%
Litium	LITI	SEK	24.5	323	6.7	5.2	-37%	-19%
Siili Solutions Oyj	SIILI	EUR	17.84	125	1.5	1.3	6%	9%
Zutec	ZUTEC	SEK	4.83	214	8.0	5.2	-133%	-14%
Average					14.4	22.2	-70.8%	-38.3%
Median					8.0	5.2	-2.2%	1.8%
Average excludingextremes					6.9	5.6

IT Consulting

IT Consulting
				Mcap			EBIT
			Price	(m)	P/Sales	P/Sales	marg.	EBIT marg.
Company	Ticker	Ccy	(last)	(last)	2020	2021E	2020	2021E
B3 Consulting Group	B3	SEK	49.3	415	0.48	0.43	4.9%	5.8%
CAG Group	CAG	SEK	73	485	0.91	0.77	6.9%	8.6%
Digia Oyj	DIGIA	EUR	7.98	213	1.53	1.39	10.1%	8.8%
	EMPIR
Empir Group	B	SEK	13.6	75	0.37	0.43	-0.9%	-1.4%
Solteq Oyj	SOLTEQ	EUR	5.02	97	1.61	1.45	8.8%	10.9%
Time People Group	TPGR	SEK	22	160	0.77	0.66	6.3%	5.6%
Innofactor Plc	IFA1V	EUR	1.925	72	1.09	1.03	3.8%	8.3%
Average					0.97	0.88	5.7%	6.7%
Median					0.91	0.77	6.3%	8.3%

Source: MarketScreener, Enlight Research, Introduce Research, DnB research

Sum-of-the-parts valuation (SOTP)

In our Base case scenario, our Fair value for all the business areas is EUR 43.1m, which including the Net cash of EUR 2.4m (including bonds) sums up to EUR 45.6m or EUR 3.74 per share. Applying a NAV discount of 20% leaves a Fair value of EUR 3.00 per share indicating an upside of around 30% (based on a share price of EUR 2.30). The corresponding values for our Bull and Bear scenarios are EUR 3.66, and EUR 2.33, respectively. The wide span between our scenarios depicts the high risk but also opportunity inherent in small technology companies, especially in the software area. Note that the SOTP valuation also includes FINTime equal to the external valuation of EUR 0.2m reported in the Q4 2020 report.

SOTP valuation scenarios

								Net
						External		cash/		NAV/		Motivated
							Net					share
	Sales 2020E		FV	FINTime	FV	valuation	cash	share	NAV	share	NAV	price	Upside/
Scenario	(EURm)	P/Sales	(EURm)	(EURm)	(EURm)	(EURm)	(EURm)	(EURm)	(EURm)	(EUR)	discount	(EUR)	Downside
Bull	34.3	1.5	53.0	0.2	53.2	32.7	2.4	0.20	55.7	4.57	20%	3.66	59%
Base	34.3	1.2	42.9	0.2	43.1	32.7	2.4	0.20	45.6	3.74	20%	3.00	30%
Bear	34.3	1.0	32.8	0.2	33.0	32.7	2.4	0.20	35.5	2.92	20%	2.33	1%

Source: Company reports (historical), Enlight Research (forecast), *calculated on share price of EUR 2.30

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Enlight Fair value vs. External valuation

Compared to the external valuation of the financial assets of EUR 32.7m given in the Q4/20 report, our estimated Fair value is EUR 10.5m or 32% higher (before net cash, and NAV discount). The main valuation difference is for NRD Companies where our valuation is EUR 9.1m higher, followed by Novian companies where our valuation is EUR 2.3m higher. For NRD CS (Cybersecurity), we are slightly more conservative than the external valuator.

Compared to the valuation made in connection with Q3/20 report, our valuation has increased by 17% or EUR 6.1m, while the external valuation has increased by 20% or EUR 5.6m.

Fair Value vs. External valuation Q4/20		Q4 2020
	Enlight Research	External valuation
Company	Fair Value(EURm)	Fair Value(EURm)	Diff.(EURm)	Diff.(%)
NRD Companies	16.3	7.1	9.1	128%
Novian Companies	22.1	19.7	2.3	12%
FINTime	0.2	0.2	0.0	0%
NRD CS	4.6	5.5	-1.0	-18%
Total	43.1	32.7	10.5	32%

Fair Value vs. External valuation Q3/20		Q3 2020
	Enlight Research	External valuation
Company	Fair Value(EURm)	Fair Value(EURm)	Diff.(EURm)	Diff.(%)
NRD Companies	11.3	5.8	5.5	94%
Novian Companies	20.8	16.1	4.7	29%
FINTime	0.2	0.2	0.0	0%
NRD CS	4.7	5.0	-0.3	-7%
Total	37.0	27.1	9.9	36%
Source: Enlight Research, Company report

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Risk factors

Below is a list of what we believe are some of the most important risks, however, this list should not be regarded as a complete list of risks.

COVID-19 risk

So far, the effect of the Covid-19 on INVL Technology’s portfolio companies has been limited. However, a prolonged period of travel restrictions due to Covid-19 will most likely affect the sales of new products as it is dependent on face-to-face meetings.

Risk of change of technology

The technology sector is in constant change. Failure to adapt and learn a new technology could result in a drop in sales and earnings and hence lower the Fair value of the company.

The state of the M&A market

If the market for mergers and acquisitions is depressed during the exit phase (mainly 2026 with a possible 2 years extension), the deal valuations could be lower than expected and it could be hard to sell portfolio companies.

Political risk

A significant share of clients are public institutions and hence the company has exposure to public sector contracts, which entails political risks.

Intellectual Property risk

A significant share of the company’s assets consists of intellectual property in the form of proprietary software and technology know-how. Therefore, the risk that somebody will try and steal intellectual property is present.

Valuation risk

The fair value of the holding companies is done by an independent external valuation firm. However, there is no guarantee that the final exit price of a portfolio company will be according to the external valuation, nor to our valuation.

NAV discount risk

Even though the NAV of INVL Technology increases, there is no guarantee that the share price will increase as the NAV discount could increase as well.

Liquidity risk

The trading activity (liquidity) on the Nasdaq Baltic Exchange is low relative to most Western European markets. Therefore, it may be hard to buy and sell large amounts of INVL Technology shares without affecting the share price.

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Income Statement	2019	2020	2021E	2022E	2023E
Net sales	1	7	4	5	6
Total operating costs	-1	-2	-2	-2	-2
EBITDA	1	5	1	3	3
Depreciation	0	0	0	0	0
Amortizations (total)	0	0	0	0	0
Impairment charges	0	0	0	0	0
EBIT	1	5	1	3	3
Associated companies'	0	0	0	0	0
profit/loss
Net financial items	0	0	0	0	0
Exchange rate differences	0	0	0	0	0
Pre-tax profit (PTP)	1	5	1	3	3
Net earnings	1	5	1	3	3
Balance Sheet	2019	2020	2021E	2022E	2023E
Assets
Cash and cash equivalent	1	2	1	3	6
Receivables	0	0	0	0	0
Inventories	0	0	0	0	0
Other current assets	2	1	1	1	1
Current assets	3	3	2	4	7
Tangible assets	0	0	0	0	0
Associated Companies	0	0	0	0	0
Investments	26	33	36	36	36
Goodwill	0	0	0	0	0
O intangible rights	0	0	0	0	0
O non-current assets	0	0	0	0	0
Total non-current assets	26	33	36	36	36
Deferred tax assets	0	0	0	0	0
Total (assets)	29	35	38	40	43
Liabilities
Short-term debt	0	0	1	0	0
Non-ib current liabilities	0	0	0	0	0
O current liabilities	0	0	0	0	0
Current liabilities	0	0	1	0	0
Long-term debt	0	0	0	0	0
Lease liabilities	0	0	0	0	0
O long-term liabilities	0	0	0	0	0
Convertibles	0	0	0	0	0
Total Liabilities	0	0	1	0	0
Deferred tax liabilities	0	0	0	0	0
Provisions	0	2	2	2	2
Shareholders' equity	29	34	35	38	41
Minority interest (BS)	0	0	0	0	0
Minority and equity	29	34	35	38	41
Total (liabilities)	29	35	38	40	43

Capital structure	2019	2020	2021E	2022E	2023E
Equity ratio	99.6%	95.3%	92.6%	95.8%	96.1%
Debt / Equity ratio	0.0%	0.0%	3.2%	0.0%	0.0%
Capital invested	27.6	31.5	34.9	34.9	34.9
Capital turnover rate	0.1	0.2	0.1	0.1	0.1
Profitability	2019	2020	2021E	2022E	2023E
ROE %	3.3%	15.2%	3.5%	8.4%	8.2%
ROCE%	3.3%	15.2%	3.4%	8.3%	8.2%
ROC%	3.6%	17.3%	3.8%	8.8%	9.3%
EBITDA %	63.7%	69.2%	33.5%	57.1%	57.9%
EBIT %	63.7%	69.2%	33.5%	57.1%	57.9%
Net Margin	63.7%	69.2%	33.5%	57.1%	57.9%
Valuation	2019	2020	2021E	2022E	2023E
EV	21.0	23.1	28.5	25.4	22.2
P/E	24.0	5.3	24.0	9.3	8.8
P/E diluted	24.0	5.3	24.0	9.3	8.8
P/Sales	15.3	3.7	8.0	5.3	5.1
EV/Sales	14.3	3.4	8.0	4.7	3.9
EV/EBITDA	22.5	4.9	24.0	8.3	6.8
EV/EBIT	22.5	4.9	24.0	8.3	6.8
P/BV	0.8	0.8	0.8	0.8	0.7
Per share measures	2019	2020	2021E	2022E	2023E
EPS	0.08	0.39	0.10	0.25	0.27
EPS, adjusted	0.08	0.39	0.10	0.25	0.27
CEPS	0.08	0.39	0.10	0.25	0.27
Operating CF/share	0.05	0.49	0.10	0.25	0.27
Capital empl./share	2.26	2.59	2.87	2.87	2.87
BV/share	2.38	2.77	2.87	3.12	3.39
Tangible BV/share	2.38	2.77	2.87	3.12	3.39
Div. per share	0.00	0.00	0.00	0.00	0.00
Payout	0.0%	0.0%	0.0%	0.0%	0.0%
Dividend yield	0.0%	0.0%	0.0%	0.0%	0.0%
Shareholders			Capital		Votes
UAB LJB Investments			5.672		19.91 %
AB Invalda INVL			4.083		14.33 %
Irena Ona Miseikiene			3.430		12.04 %
AB Lietuvos draudimas			2.128		7.47 %
Kazimieras Tonkunas			1.581		5.55 %
Alvydas Banys			1.447		5.08 %

Key people CEO Kazimieras Tonkunas Chairman Kazimieras Tonkunas

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P/E EPS
Price per share
Profit before extraordinary items and taxes – income taxes +
Earnings per share minority interest
Number of shares
P/Sales DPS
Market cap
Sales Dividend for financial period per share
P/BV CEPS
Price per share Gross cash flow from operations
Shareholders’ equity + taxed provisions per share Number of shares
P/CF EV/Share
Price per share Enterprise value
Operating cash flow per share Number of shares
EV (Enterprise value) Sales/Share
Sales
Market cap + Net debt + Minority interest at market value – share of
Number of shares
associated companies at market value
Net debt EBITDA/Share
Interest-bearing debt – financial assets Earnings before interest, tax, depreciation and amortization
Number of shares
EV/Sales EBIT/Share
Enterprise value Operating profit
Sales Number of shares
EV/EBITDA EAFI/Share
Enterprise value Pre-tax profit
Earnings before interest, tax, depreciation and amortization Number of shares
EV/EBIT Capital employed/Share
Enterprise value
Operating profit Total assets – non-interest-bearing debt
Number of shares
Div yield, % Total assets
Dividend per share
Balance sheet total
Price per share
Payout ratio, % Interest coverage (x)
Total dividends Operating profit
Earnings before extraordinary items and taxes – income taxes + minority interest Financial items
Net cash/Share Asset turnover (x)
Financial assets – interest-bearing debt Turnover
Number of shares Balance sheet total (average)
ROA, % Debt/Equity, %
Operating profit + financial income + extraordinary items Interest-bearing debt
Balance sheet total – interest-free short-term debt – long-term advances Shareholders’ equity + minority interest + taxed provisions
received and accounts payable (average)
ROCE, % Equity ratio, %
Profit before extraordinary items + interest expenses + other financial costs Shareholders’ equity + minority interest + taxed provisions
Balance sheet total – non-interest-bearing debt (average) Total assets – interest-free loans
ROE, % CAGR, %
Profit before extraordinary items – income taxes Cumulative annual growth rate = Average growth rate per year
Shareholders’ equity + minority interest + taxed provisions (average)
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Disclaimer

Enlight Research OÜ’s main valuation methods are discounted cash flow valuation and peer valuation with common multiples such as Price to Earnings, Enterprise Value to EBITDA, dividend yield etc. Aforementioned methods are used to estimate a company’s fair value according to the following three scenarios: Bull (positive), Base (main scenario), and Bear (negative).

This report is commissioned by the company covered in this report which means Enlight Research OÜ receives compensation to write research on the company. The compensation is pre-determined and does not depend on the content in the report. This report is not to be considered investment research under MiFID regulations. Enlight Research OÜ does not issue investment recommendations or advice.

This report is for informational purposes only i.e. it should not be considered as an offer to sell or buy. Investors are encouraged to make their own research and not rely solely on this report when making their investment decisions. The decision to invest or not to invest is fully the responsibility of the investor i.e. Enlight Research OÜ takes no responsibility nor gives any guarantees with regards to investment decisions made by investors. Investing in equities entails risk e.g. the price of an equity decreases. Past performance is not a guarantee for future performance.

This report is based on information and sources that Enlight Research OÜ deemed to be reliable. However, Enlight Research OÜ cannot guarantee the accuracy or completeness of the information. All forward-looking statements and financial forecasts entail uncertainty and are subject to change without notice. Enlight Research OÜ accept no liability for any loss or damage resulting from the use of this report.

The analyst(s) writing this report own shares in the company in this report: Yes

The analyst(s) responsible for this report are not allowed to trade in any financial instruments of the company in this report until one trading day after the analyst report has been published, or if other conflict of interest exist e.g. advisory related.

Investors should assume that Enlight Research OÜ is seeking, or is performing, or have performed advisory services or other revenue generating services for the company in this report. An analyst’s compensation is never directly related to advisory projects. An analyst working on advisory projects will be taken over the “Chinese wall” as soon as relevant regulations and/or guidelines require this.

The document may not be copied, reproduced, distributed, or published to physical or legal entities that are citizens of or domiciled in any country where relevant laws and/or regulations prohibit this.

This report may not be copied, reproduced, distributed, or published other than for personal reasons without written permission by Enlight Research OÜ. To apply for permission, send an email to below address:

ResearchTeam@enlightresearch.net

© Copyright 2019 Enlight Research OÜ

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