axactor - fondsfinans kapitalforvaltningpublish.fondsfinans.no/axaioc090516.pdf · bloomberg ticker...

FONDSFINANS AS, HAAKON VII’S GATE 2, P.O. BOX 1782 VIKA, NO-0122 OSLO, TEL: +47 23 11 30 00, FAX: +47 23 11 30 03, [email protected]

This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. This report is not a product of Fondsfinans Inc. See page 44 of this report for Important Disclosure Information.

Axactor Target Price: NOK 3.0

Initiation of Coverage 09 May 2016 Share Price: NOK 1.8

3 step recipe for full penetration

Enticing pan-European growth strategy

Management team with the necessary skills assembled

Accommodating market conditions

The moat is crossed, ready to storm the wall

Axactor has already overcome many of the extensive barriers to a successful

entry into the credit management service (CMS) industry. They have; (i)

secured a top-notch management that knows how to build a business, (ii)

secured funding; (iii) acquired existing debt collection platforms. They are well

positioned to increase their geographical footprint and to start leveraging their

existing platforms by a ramp-up in portfolio purchases.

Megatrend of increasing portfolio supply – deleveraging Europe

European banks are in a desperate need of deleveraging, and a healthy

secondary debt transaction market is essential in achieving this goal.

Regulation, investors, and politicians are all pressuring banks to divest NPL

portfolios – and we can observe the effect directly in the rapidly increasing

supply of portfolios being brought into the market.

Operational efficiency and technological disruption

The yield bonanza is over in the debt transaction market. In our view, the

equity story of Axactor is one of operational efficiency and technological

disruption. Management’s extensive experience from both the tech- and CMS

sectors suggests they are uniquely equipped to execute their vision of

operational supremacy. We initiate coverage with a BUY and NOK 3 target.

Key figures (SEKm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E

Portfolio interest income 33 180 454 590 650 706 762

Collection costs 13 72 182 236 260 283 306

3PC 72 83 95 110 123 135 142

OPEX 40 46 53 58 61 63 65

EBITDA 72 254 589 760 842 922 996

EBIT 51 144 314 405 451 495 533

Interest expense 28 52 96 122 133 142 150

Net income 18 71 170 221 249 275 298

Portfolio purchases 550 1,000 1,100 600 618 637 656

ERC 1,267 3,378 5,289 5,784 6,226 6,621 6,969

FCFF -479 -767 -569 77 116 171 218

BPS diluted 0.92 1.04 1.29 1.34 1.42 1.51 1.60

EPS diluted 0.02 0.09 0.22 0.29 0.33 0.36 0.39

DPS diluted n.a. n.a. n.a. 0.25 0.25 0.27 0.30

EV/EBIT 33.5x 17.6x 10.1x 8.4x 7.9x 7.5x 7.2x

P/B 1.9x 1.7x 1.4x 1.3x 1.3x 1.2x 1.1x

P/E 75.2x 19.2x 8.1x 6.2x 5.5x 5.0x 4.6x

RoE 2.7 % 9.6 % 19.2 % 22.1 % 23.7 % 24.7 % 25.2 %

RoIC 3.9 % 6.9 % 9.8 % 10.4 % 10.8 % 11.1 % 11.3 %

Source: Fondsfinans Research

Ulrik Årdal Zürcher Fondsfinans AS TEL: +47 21 01 70 13 [email protected]

Geir Kristiansen Fondsfinans AS TEL: +47 23 11 30 11 [email protected]

SELL HOLD BUY

5 4 3 2 1

HIGH - CREDIT RISK - LOW

Share data 9-May-16

Sector Other financials

Bloomberg ticker AXA NO

Risk rating HIGH

Outstanding shares (m) 656.1

Diluted shares outstanding 760.7

Market Cap (NOKm) 1,201

Total assets (SEKm) 910

Shareholder equity (SEKm) 670

jShare price (NOK) versus OSEAX

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

Axactor OSEAX (rebased) OSEAX YTD

European domination - First phase

mailto:[email protected]

Axactor - Initiation of Coverage 09 May 2016

25 May 2016 Fondsfinans Research

Company Overview

Investment Case Business Overview

Listed “start-up” with an ambitious plan

Axactor has in a span of two quarters managed to morph from a mineral mining company into a credit management services firm with a solid foundation for further growth. They have already acquired collection platforms in Spain and Norway, and purchased three NPL portfolios with EUR 700m in face value.

Ramp-up ahead

The company targets a pan-European growth strategy and is currently looking into acquiring collection platforms in Italy and Germany. Management has indicated that they will invest roughly EUR 60m in NPL portfolios 2016E and up to 300m thereafter.

Competitive edge and valuation

With zero legacy systems/issues and pan-European growth plans from the beginning, Axactor will attempt to create a truly 21

st century debt collection marvel – with unprecedented

operational efficiency. While the implementation risk is great, it is our opinion that the potential payoff is even greater. We initiate coverage with a BUY and NOK 3.0 target price.

Targets unsecured NPL retail portfolios

Axactor will focus on acquiring unsecured retail claims from financial institutions. These claims differ from other type of smaller receivables in that they are larger and more complex. Concerning pricing, this implies that Axactor’s collection curve is flatter, while the money multiple is higher than that of more diversified peers.

Balanced mix of 3PC and portfolio purchases

Axactor aims at achieving a relatively balanced business mix between third-party collection (3PC) and portfolio purchases. 3PC is a more stable source of income and allows you to get part of the collection business of hedge funds and other major purchasers of debt, which lacks collection platforms.

Accommodative market

The European debt transaction market is one-third the size of the market in the United States, even as the level of NPLs in the European bank system is many times that of the States. With continued pressure on banks in Europe to de-risk and de-lever, and a low degree of market maturity – we see no reason the recent trend of increased supply will subside.

SWOT Analysis

Strengths Weaknesses

The management team assembled

“Fresh start,” no cross-border legacy systems

Excellent platforms acquired

Very limited operating history

Economies of scale / small size

Current board structure

Opportunities Threats

Increasing supply of NPL portfolios

Growing 3PC market

Take advantage of FI carving out collection businesses

Increasing competition

Yield pressure on portfolios

“Winners curse,” failure to estimate potential collections

EU Bank sector (NPL % of gross loans)

4.6%

3.3%2.9%

2.6%2.3%

2.0%1.8%

2.2%

2.8%

4.7%

5.4%5.8%

6.7%6.4%

5.6%

6.2%

Face value (FV) transactions (EURbn)

11

3646

64

91

141

2010 2011 2012 2013 2014 2015

Belgium

France

Netherlands

Portugal

Other

Ireland

UK

Italy

Germany

Spain

Sources: Fondsfinans Research, World Bank, PWC

10 Largest Shareholders No. Shares (m) % Management & Board of Directors

Artic Funds 40.41 6.2 %

Solan Capital 36.02 5.5 %

Tvenge Torstein Ingvald 29.98 4.6 %

Lopez Sanchez Andres 22.90 3.5 %

Martin Ibeas David 22.90 3.5 %

Swedbank Generator 19.48 3.0 %

Alfred Berg Norge 19.35 3.0 %

Handelsbanken 18.83 2.9 %

Alfred Berg Gamba 14.70 2.2 %

DNB SMB 14.04 2.1 %

Total 10 largest 238.61 36.4 %

Others 417.45 63.6 %

Total 656.06 100 %

Executive Management:

CEO Endre Rangnes

CFO Geir Johansen

EVP Strategy & Projects Johnny Tsolis

COO Oddgeir Hansen

EVP HR Siv Farstad

Board of Directors:

Chairman Einar J. greve

Board member Gunnar Hvammen

Board member Per Dalemo



Valuation summary

Ambitious CAPEX plan

High risk, higher reward

Axactor planned CAPEX for portfolio purchases is roughly EUR 60m in 2016 and up to EUR 300m in 2017, plus collection platforms in Italy in Germany. It is our opinion that the current amount of equity is not sufficient to support these levels of investments – even with a large increase in gearing, as their equity ratio will drop to a level too low given the maturity of the company. We keep it simple and do not assume any equity issues, thus our CAPEX level is below that of the company’s target. In this regard, we believe our valuation is conservative.

We recognize that any base case valuation will be exposed to considerable uncertainty. In order to have an opinion about this risk, we randomly distribute all the parameters (within boundaries we find reasonable) in our model and create 1001 valuations of Axactor around our base case. Although the risk is considerable (20% risk of no upside), it is our opinion that the potential reward outweighs the potential downside. We recommend BUYING the share and believe the intrinsic value of the share to be NOK 3.0 (fully diluted).

Target NOK 3.0 Blended average of the four models we apply is NOK 2.87 Roughly 20% risk of the share value being below the current share price

1001 scenarios – DDM & FCFF combined

0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%100%

0

10

20

30

40

50

60

70

-0.1

-0.3

0.4

-0.5

0.7

-0.8

0.9

-1

1.1

-1.2

1.3

-1.4

1.5

-1.6

1.7

-1.8

1.9

-2

2.1

-2.2

2.3

-2.4

2.5

-2.6

2.7

-2.8

2.9

-3

3.1

-3.2

3.3

-3.4

3.5

-3.6

3.7

-3.8

3.9

-4

4.1

-4.2

4.3

-4.4

4.5

-4.6

4.7

-4.8

4.9

-5

5.1

-5.2

5.3

-5.4

5.5

-5.6

5.7

-5.8

6-6

.1

6.3

-6.4

Value per share (frequency) 0.5

Target price Current share price

Fitted distribution Fitted cumulative distribution

Frequency Probability


Axactor multiple at target is reasonable

If we look at current EV /ERC multiples; we can compare this to our base case. We find that our target price looks reasonable compared to peer multiples. The discount (post- steady state 2018) is fair, as Axactor will not target potentially higher yielding markets – in which Intrum, Kruk and B2 Holding all have a presence.

EV / ERC (EV current, ERC 2015)

1.86x

1.55x

1.11x

0.89x 0.67x 0.63x0.55x

Intrum J. Kruk B2 Holding Hoist Encore PRA Arrow

Average 1.04x

Median 0.89x

Running EV / ERC Axactor

2.08x

1.02x

0.77x 0.74x

1.36x

0.75x0.60x 0.59x

2016 2017 2018 2019

Axactor Axactor @ target

Average 1.04x

Median 0.89x

Source: Fondsfinans Research, Bloomberg, company data



Table of contents

Corporate profile 4

Opportunity arises out of the ashes 4

Current legal structure and recent augmentations 5

Business model & potential competitive edge 7 Acquisitions to date

ALD Abogados 11

Ikas 12

Management, Board of Directors & Corporate Governance 13

Industry dynamics 15

The secondary debt market 15

The credit cycle 16

Market maturity 17

Regulatory pressure on sellers 18

Megatrend of increased supply of debt portfolios 19

Determinants of profitability 20

Axactor’s yield profile – laser sharp focus 21

Pricing in the NPL market – a look back at history 24

Where we are at in Europe 25

Axactor’s target markets

Spain – still plenty of opportunities 26

Italy – from fight for survival to deleveraging 27

Germany – keeping it in-house 28

Scandinavia – different fundamentals 29

Valuation 30

Pricing relative to peers – accounting for growth 30

DCF models – blended average of models 32

Scenario analysis – a night at the Monte Carlo opera 33

Underlying assumptions 35

Appendix 38

Abbreviations 38

Competitors 39

Top most active buyers and sellers 40

RoE decomposition 41

Political view on NPL loan resolution 42

Key figures 43

Disclaimer 44



Corporate Profile

Listed “start-up”

Ticking the boxes

Opportunity arises out of the ashes

Axactor is a newly established company within the credit management service industry, created from the ashes of the publicly listed mineral company Nickel Mountain Group. The company has pan-European growth ambitions and has already purchased debt collection platforms in Spain and Norway. Additionally, they are in the process of acquiring platforms in Germany and Italy. Axactor’s targeted business model is to offer 3

rd party collection services and non-performing loan (NPL) relief to

financial institutions – backed by more technologically efficient platforms than employed by the current incumbents. Off to a flying start. In our opinion, Axactor has already overcome many of the extensive barriers to a successful entry into the credit management service industry:

1. Secure a top-notch management that knows how to build a business Companies in the industry frequently sites personnel risk as one of their major challenges/ constraints. There’s not an abundance of management candidates with the operational experience to run a modern debt collection business. Axactor has already secured an experienced top management. Their operational management in Spain is the same which built up Lindorff’s Spanish operations.

2. Show that you can secure funding and lines of credit

Once you have the right leader, preferably one who can attract further talent, acquiring funding becomes paramount. Building a NPL portfolio business is highly capital intensive as you need to both build scale and reinvest constantly. Axactor is already listed and have raised a total of NOK 566m through two private placements and a repair issue. Additionally, they have secured a EUR 25m loan from DNB with an accordion option of EUR 25mx3 more.

3. Acquire existing debt collection platforms Greenfield entry into the industry is close to impossible, as you will be far behind on the experience curve without the data foundation of peers – crucial in e.g. NPL portfolio auctions or third party collection processes. Furthermore, you will have no efficient way of collecting on the portfolios you acquire. Axactor has already purchased a legal collection platform in Spain and started an amicable collection center on the back of this. In Norway they have recently acquired an amicable collection company.

Axactor has in a span of two quarters managed to morph from a mineral mining company into a credit management services with a solid foundation for further growth. While we believe there’s upside in the share price, the future of the company will be determined during the upcoming ramp-up period and the portfolios they purchase in this phase.

Timeline

October November December January February March

4th 3rd

Closing of ALD transaction Portfolio acquired

FV cEUR 18m

11th

Repair issue NOK 60m 12th

Portfolio aquired

FV cEUR 500m

16th 16th

Private placement NOK 400m Ikas acquisition signed

17th 17th 17th

EGM approves acquisition of Private placement NOK 106m Portfolio acquired

ALD Abogados 18th 18th FV cEUR 220m

Term sheet debt facility with New collection center opened

DNB in Valladolid

19th

Company announces 23rd 20th

Mr. Endre Rangnes as CEO EGM elects new board 3rd party collection consumer

31st finance contract signed

Sold nickel operations to the

Swedish operator Archelon

2015 2016

Source: Axactor, Fondsfinans Research



Incorporated in Sweden

Listed on the Oslo Stock Exchange

Current legal structure and recent augmentations

Axactor has to date undergone two major augmentations: (i) the acquisition of the Spanish legal debt collection agency ALD Abogados, and the subsequent creation of the call-center in Valladolid; (ii) the acquisition of the Norwegian amicable collection platform Ikas. The legacy mineral activities related to Nickel Mountain Group AB were fully divested end of 2015. Axactor is now a fully focused credit management services company.

Legal structure

Axactor is listed on the Oslo Stock Exchange under the ticker AXA. The company is incoporated in Sweden.

Legally, the company has to follow both Norwegian law related to listed company requirements and Swedish corporate law (pluss country specific laws for where it operates). In our opinion, the legal structure has evolved naturally based on the company’s history. To our knowledge there are no legislation that threatens the current structure.


Group companies

Company Describtion

Axactor AB Incorporated in Sweden. Listed on the Oslo Stock Exchange. No employees.

Axactor ASIncorporated in Norway. All staff in Norway is employed in this entity. Will function as a cost

center and will charge corporate cost out to the operating entities.

Axactor Portfolio Holding ABIncorporated in Sweden. All debt portfolios are owned by this entity. Has SLAs established with legal

entities owned by Platform Holding for servicing the debt portfolios. No employees.

Axactor Platform Holding ABIncorporated in Sweden. Holding company for all platform companies in all countries. No employees.

Will provide equity and debt to the platform companies.

Axactor Incentives ABIncorporated in Sweden. No employees. Established in order to be the owner of employee stock

options as per Swedish law. No other activities. No employees.

IKAS Holding

A holding company will be established in Norway for the purpose of owning all shares in all the 6

IKAS entities which were acquired on March 16th 2016. The acquired companies are IKAS Norge

AS, IKAS AS, IKAS Øst AS, IKAS Nord AS, IKAS Nordvest AS, IKAS Vest AS.

Aguamenti Investment S.L. Holding company for Spanish platform companies. No employees.

ALD Abogados S.L.

Platform company acquired in December 2015. Will service the debt portfolios acquired in Spain.

Has SLA with Portfolio Holding. Operates call centers and collection activity in Spain. Will have

employees.

Supan (to be reneamed)Established in February 2016. The entity will be focusing on tax collection on behalf of municipalities

in Spain. Will have employees.


From commodities to financial services

Short on the legacy: Before the strategic shift, Axactor was called Nickel Mountain Group and was in the “mineral exploration and exploitation” business. The company had long been spiraling downwards; both in terms of profits, outlook and ambitions. When the Group’s last remaining mineral project was deemed unsustainable the company decided to temporarily stop its development (c2Q15). The board was then approached (fall 2015) by one of the Group’s major shareholders with the suggestion they shift their focus to credit management services (CMS), as an experienced CMS management team (Endre Rangnes and Johnny Tsolis) was available, and an investment opportunity in a Spanish debt collection service provider, ALD, had revealed itself.

The rationale for using the ‘empty shell’ approach was, in our opinion, to gain access to capital markets in an efficient manner. Axactor currently has no deferred tax assets.



Business model & potential competitive edge

Axactor will focus on 3rd

party debt collection (the collection of claims on behalf of others) and the acquisition and collection of unsecured non-preforming loans (NPLs) from financial institutions.

Axactor’s position in the value chain

Modern debt collection is becoming increasingly sophisticated, with use of big data and multichannel tracing and contact surfaces towards debtors

Sources: Axactor, Fondsfinans Research

3rd

party debt collection (3PC) and NPL portfolio acquisitions are highly symbiotic businesses, as they involve many of the same processes. See the above figure.

Using NPL portfolio business to achieve scale

Present in Spain and Norway; Italy and Germany next

The NPL business can be done without a collection platform, but then you have to outsource the actual collection and your margins will be lower (i.e. many hedge funds approach it this way). Axactor will use the NPL business to achieve scale faster and leverage customer relationships between the 3PC and NPL businesses.

The company has pan-European growth ambitions and has already purchased two collection platforms: ALD Abogados in Spain and Ikas in Norway. Additionally, they have purchased three NPL portfolios in Spain (discussed later). The company is currently looking into acquiring collection platforms in Germany and Italy.

First phase target countries




A reasonable entry strategy

Do they have an edge?

Axactor’s entry strategy Edge or not


For Axactor to be an attractive long-term investment we consider it paramount that they can build and sustain an edge over the competition. For example, B2 Holding had a first-mover advantage into the Balkans that made them stand out. A first-mover advantage is highly beneficial in the industry as it allows you to build data libraries and attain customer relationships. So, when the competition follows they’ll be at an informational and client disadvantage. Axactor clearly has no first-mover advantage moving into its targeted markets, as most of the target markets are close to mature and all the larger players are present. Although, in our opinion, they are not disadvantaged either - due to managements experience and their strategy of purchasing existing 3PCs.

Competition is plentiful

Competitive landscape

Source: Company reports, Fondsfinans Research

Under the radar for now

The same holds for points 2, 3, 4, and 6 in the “Axactor’s entry strategy” table above. While we believe Axactor is not necessarily disadvantaged concerning those bullets – the problem is that all the other players are doing the same things. Everyone else wants to grow through NPL portfolio acquisitions (2), take the business of FI’s carve outs (3), leverage their 3PC business (although to different extents) (4), and most are opportunistic by nature (6).

Concerning point 2, we believe Axactor has a slight advantage as they have not yet reached the scale of their competitors. Therefore, they can fly “under the radar” for now, and focus on smaller portfolios versus what makes sense for their large competitors.



Moving into relatively mature markets

Development level and characteristics of debt collection markets

Source: Axactor, Hoist, Fondsfinans Research.

Incumbents are vulnerable

Axactor’s true advantage is their clean slate and management. The industry has seen a rapid technological advancement in recent years with the diffusion of big data collection systems, advanced skip tracing, and multichannel contact surfaces towards debtors. While we believe, like in the banking sector, that most companies have more or less the same access to cutting-edge technology – the bottleneck in effective utilization of technological advances is legacy issues. Example of legacy issues would be; platform integration patchwork from acquisitions, antiquated core-systems, and inefficient cross-border data communication.

Biggest threats are old and large

History

Axactor; 2015

Kruk; 1998

Hoist; 1996

B2; 2011

PRA; 1996

EOS; 1974

Intrum Justitia; 1923

Lindorff; 1898

0

5

10

15

20

25

30

1890 1910 1930 1950 1970 1990 2010

Co

untr

ies p

rese

nt

Year founded

Investment in debt (EURm)*

28

162

234

395

401

467

Axactor YTD

B2 Holding

Intrum Justitia

Lindorff

PRA

Hoist

Source: Companies, Fondsfinans Research Source: Companies, Fondsfinans Research *2016 YTD Axactor, rest FY 2015, European purchases PRA

Axactor have the means to build one of Europe’s most efficient platform

Tech savvy management

The golden carrot

Axactor’s strategy is based on a Pan-European integration strategy from the beginning. Furthermore, they probably have a uniquely equipped management for building a truly 21

st century debt-collection marvel.

The CEO (Mr. Rangnes) have spent most his career at tech companies like IBM and EVRY, in addition to leading one of the world’s large debt collection companies (Lindorff). The COO (Mr. Hansen) has spent his career at IBM and the IT company EDB Business Partners – again, in addition to being COO for Lindorff. The EVP for Strategy & Projects (Mr. Tsolis) have extensive experience from post-merger integration and cost improvements, from Lindorff and others.

Lastly, we believe the company is well-positioned to acquire the necessary 3PC platforms in Germany and Italy without running the risk of overpaying. The reason for this is can be summed up in one word: (part) share settlement. Basically, what Axactor can offer to local 3PC owners is to be part of something bigger. When the former CEO of Lindorff comes knocking on your door with funding and the goal of Pan-European domination – we believe most local operators would at least listen very carefully to what is on the table.



Axactor’s competitive edge – Integrated best practises & technological disruption


Key risks at current stage in business development

Overall, we believe it’s possible for Axactor in the medium term to become one of the larger players in the CMS industry by utilizing unparalleled integrated financial technology (“Fintech”) processes – it’s already been done in the bank sector and airlines industry. In our opinion, it appears Axactor has the means to execute this strategy. Due to the high barriers to entry in place for the CMS industry we view it as unlikely that “Axactor copies” will start popping up if their business model should prove successful. Nevertheless, we identify some key risk factors at this stage:

1. The value of unproven technology is highly uncertain a. The implementation risk is great b. The value of successful implementation can be inadequate to sustain a

competitive advantage c. Corporate culture integration risk

2. Inadequate return on the upcoming ramp-up stage portfolios

a. Without any vintage portfolios, the purchases they make as they leverage up relatively quickly now will be extremely important for future profitability

b. Adverse macroeconomic development after/ during the ramp-up stage can leave them highly leveraged with poor collection outlook (cash flow)

c. Competitive pressure can drive up portfolio prices (industry poison pill)

3. Failure of upcoming acquisitions a. Risk of overpaying for suboptimal platforms in Italy and Germany b. Planned CAPEX can fail to materialize (e.g. due to price pressure) c. Cost base too high to sustain current valuation without an ramp-up

Demand megatrend is supportive

Up until now we have only defined how we see Axactor’s potential competitive advantages and potential position within the industry. Thus, when explaining why we believe Axactor can succeed, we have implicitly assumed the demand & supply balances of the market are accommodative. The reason for this approach is laid out in short below: The demand for CMS services is strong and the European industry is currently experiencing a megatrend of increased demand for asset relief (sale of NPL portfolios). Nevertheless, the competition in the industry is intense – both from yield hungry investors that are not integrated and more direct peers. In sum, it is our opinion that the positive aspects of the demand side currently outweigh increasing competition and the accelerating sophistication of sellers. We discuss the market and more technical matters relating Axactor in detail from page 15.



Platform to support debt purchases in Spain

Strong growth since inception in 2012

Acquisitions to date ALD Abogados – the first building block

The ALD Abogados acquisition was approved at the EGM 17th of October 2015.

Axactor will/ paid NOK ~144m in cash (included earn outs etc.) and NOK 46m in shares for the company. ALD has primarily been focused on the pre-trial and trial steps of the debt collection process, with an extensive network of lawyers and solicitors. The office in Madrid currently has ~120 FTE positions and a network of roughly 675 lawyers and solicitors. Axactor is building upon this setup and the 18

th of January 2016 they

opened a new call center in Valladolid to improve their amicable collection capabilities. The call center currently has ~60 FTE positions and management has indicated this can be increased to a ~1000 at the current facilities.

Revenue and EBITDA (SEKm)

6 8

45

95

3 3

23

38

50 %

38 %

51 %

40 %

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

-10

10

30

50

70

90

110

2012 2013 2014 2015

Revenue EBITDA EBITDA margin

Key information

Established in 2012

Top ~15 position in the Spanish market*

FTE ~90 (legal debt collection)

FTE ~90 (call centre)

FTE capacity call centre at current facility ~1,000

Network of 675 external lawyers and solicitors

EUR ~4.5bn debt under management

Ten largest clients 80% of revenue (2014)

Source: Axactor, Fondsfinans Research Source: Axactor, Fondsfinans Research *Company estimate

Locations Spain

Spanish HQ (Madrid)

Call centre (Valladolid)

Source: Axactor, Google, Fondsfinans Research At year-end 2015 ALD served approximately 70 clients and had EUR 4.5bn of debt

under management. Notables include Savia Asset Management and Deutsche Bank. In 2014, the ten largest clients accounted for 80% of ALD’s total revenue. This high degree of concentration appears a bit risky, yet the recent year’s improvement in revenue is likely due to ALD being able to land large clients – a trend we do not expect will end now that they are improving their platform. The 20

th of February 2016, Axactor announced that they had signed a contract with

Santander Consumer Finance in Spain for the legal collection area (there were no specification of the size of the contract or impact on revenue).



Cash flow generation from day one

Ikas – the Nordic connection

The Ikas acquisition was signed the 16th of March 2016. Axactor paid NOK 291m for

Ikas, with 70% (NOK 204m) paid in cash and 30% (NOK87m) in shares. They utilized part of their DNB facility for the cash settlement. Ikas is a supplier of invoice administration and debt collection. The company has delivered payment solutions for Norwegian small and medium sized businesses since 1988. According to management and Ikas, the company is one of the most respected debt collectors in Norway with one of the best platforms available in the country. While we find this hard to verify without relying on hearsay, the company is definitely growing at an impressive rate while appearing to be able to maintain their margins. The ten largest customers of Ikas account for roughly 14% of its revenues.

Revenue and EBIT (NOKm)

52

63

73

81

91

16 1821

24 25

31 % 29 % 29 % 30 % 28 %

-5 %

5 %

15 %

25 %

35 %

45 %

55 %

65 %

75 %

85 %

0

10

20

30

40

50

60

70

80

90

100

2011 2012 2013 2014 2015

Revenue EBIT EBIT margin

Key information

Established in 1988

10th largest debt collector in Norway

FTE ~70 (2015)

5 offices throughout Norway

Revenue EBIT CAGR 15% (2011-2015)

Source: Axactor, Fondsfinans Research Source: Axactor, Fondsfinans Research

Office locations Norway

Strategic rational

Growth market for 3PC

Potential large future NPL flow in Norway

Increase cash flow from day one

Growth potential on standalone basis

Synergies through operational optimization

Diversify operations geographically

Nordic presence increases ability to secure

attractive financing with Nordic banks

Sources: Axactor, Fondsfinans Research

Positioning in a potential growth market

We find management’s rational for entering Norway reasonable. Norway (and the Nordics in general) has not seen much deal flow in the NPL portfolio transaction market in the last years – as bank system NPL ratio (NPL as % of gross loans) has been at low levels (more on this in our country and industry analysis). However, this might change in the next couple of years as the collapse in oil prices is putting pressure on Norwegian credit quality. Management has indicated that they are looking for portfolios in Norway, but that they are in no rush to buy. The consideration shares issued for the acquisition of Ikas are subject to a 24 month lock-up period.



Experienced management team assembled

Many have crossed paths before

Lindorff 2.0?

(we note that Lindorff changed owner in 2014 and that Mr. Rangnes quit shortly after)

Management, Board of Directors & Corporate Governance

In an industry were; (i) companies frequently must perform large capital investments; (ii) network is paramount; (iii) and attaining the right people can make or break you – top management is of the outmost importance. While billion dollar tech companies can be started in a garage, building a credit management services firm requires you to have a certain experience and gravitas. Your name should attract both large amounts of funding and talent. We believe Axactor has assembled a team that can take the company to the next level. For example, the operational team in Spain is the same that built Lindorff’s Spanish operations from c40 to c1000 employees, and top management has extensive experience from the industry and working together. Management team

CEO – Endre Rangnes (appointed November 2015)

- CEO of Lindorff, one of Europe’s larger CMS companies, 2010 to 2014

- CEO of EDB Business Partner, now EVRY, 2003 to 2010

- Prior work experience also includes various positions within the IBM Group, including being Country Manager Norway and serving as a member of IBM Nordic’s executive and top management teams

CFO – Geir Johansen (joined 2016)

- Founder and Chairman Kybalion Group, 2015 to present

- CFO Fred. Olsen Ocean, 2015

- Prior work experience includes CFO at GSP Offshore, S.D. Standard Drilling, DOF Subsea Asia Pacific, DOF Subsea, and CC Technologies

EVP Strategy & Projects – Johnny Tsolis (joined in 2015)

- Eight years of experience from working at Lindorff, with emphasis on post-merger integration / cost improvement

- Partner DHT Corporate Services, 2013 to 2015

- Prior work experience includes partner at Cardo Partners, partner at DHT Corporate Services, Handelsbanken Capital Markets and Arkwright

COO – Oddgeir Hansen (joined in 2015)

- COO Lindorff, 2010 to 2014

- COO EDB Business partner, 2003 to 2010

- Prior work experience includes various positions within IBM Norway, including Departmental Director with responsibility for monitoring and coordinating IBM Norway’s overall activities

EVP HR – Siv Farstad (joined in 2015)

- HR executive KBN Kommunalbanken, 2015

- Senior VP HR Lindorff, 2011 to 2015

- Prior work experience includes Senior HR Manager for Microsoft Norway, HR Director for the Norwegian Broadcasting Corporation (NRK)

Skin in the game

In our opinion, management is well incentivized and has plenty of skin in the game. Mr. Rangnes owns 12.55m shares in the company (14.04.2016), plus 16.5m share options. Mr. Tsolis owns 9.5m shares (4Q15 report), plus 10.5m options.

Management share option plan

# of options (m) Strike price (NOK)

Vesting after 12 months 15.0 1.00




SUM 55.5

Cash flow to Axactor (m) 64.7

Dilution if exercised 7.9 %

The rest of the option plan is/ shall be allocated to other key personnel. We note that one option gives the right to one share, and that all outstanding options are currently in-the-money. The option plan was approved at the EGM 17

th of

November 2015.




Experienced BoD Two lawyers and a businessman

The current Board of Directors was elected the 23rd

of December 2015 at the EGM.

Board of Directors

Chairman – Einar J. Greve - Works as a strategic advisor for Cipriano, which he also owns - He is on the board of several companies, including chairman for Cipriano and Weifa - Prior positions includes; partner at Wikborg Rein & Co, head of legal at Oslo Bourse,

partner at Artic Securities, and chairman of Tandberg Data

Board member – Gunnar Hvammen - Founder and co-founder of several companies - Board member of NorSun, plus some of the companies he has founded - Has been on the board (among others) of Spectrum, Prospector, Standard Drilling, and,

North Energy

Board member – Per Dalemo - Partner and board member of Wistrand law firm - He is on the board of several smaller companies - Prior work experiences includes MAQS law firm, Lawrence Graham, and New Wave

Group

No audit committee

Lack of independence

We expect corporate governance policy to evolve with the company

To our knowledge, the company currently does not have remuneration and audit committees. Thus, all board tasks (including nominations) are currently performed by board of directors. The nomination committee currently, according to the company, consists of the three members of the board of directors. The company does not currently have an audit committee. According to the company, the Board of Directors will have a meeting with the responsible auditor during the last meeting of the Board before the AGM every year. During this meeting the Board along with the responsible Auditor will review the accountings and the work of the management regarding the financial reporting for the relevant accounting year. The Board also receives updates on an interim basis regarding the financials of the Group, budgets and accountings in order to have a continuous and sufficient perception of how the Group is run from an accounting perspective. The company does not currently have a remuneration committee. According to the company, this committee has not been needed as the number of employees in the Group has been limited. Remuneration of management is dealt with by the entire Board. The degree of independence: Only one of the board members can be considered independent in the strictest sense. Cipriano (controlled by the Chairman) was engaged early autumn 2015 for ascertaining a positive outcome of the ADL-discussions. Cipriano was as a result paid a success fee of NOK 3m for its services. Wistrand Law firm (Mr. Dalemo’s employer) has been one of Axactor’s legal advisors in regard of to the acquisition of ALD Abogados and the various share issues including the prospectus filling. Wistrand has invoiced Axactor SEK 2m by 4Q15. In our opinion, major weaknesses in current corporate governance include the lack of a majority independent board and an audit committee. Several important metrics reported for NPL portfolio purchasing companies are subjective to a certain extent – such as the collection curve, expected IRR, and interest income recognized on the portfolios. Thus, the shareholders would benefit from having a member with industry experience in the audit committee. The lack of independence in the board could result in conflict of interests. On the other hand, we expect the current board structure and corporate governance policies to evolve with the company as it matures. Axactor has indicated they are working on its policies and board structure. As the company is in the start-up phase we view the current structure as value neutral.



Industry dynamics

Deleverage, de-risk, and improve profitability

The secondary debt market

Overdue and defaulted loans are part of any credit market. In efficient financial systems, primary lenders typically outsource the collection or divest large quantities of both performing and non-performing loans to debt collectors and other interested entities. As Axactor targets unsecured retail portfolios from financial institutions we will focus on this segment in our market analysis. We note, however, that Axactor will have an opportunistic approach to portfolio purchases and might purchase portfolios of e.g. outstanding receivables from the Telecom sector or secured retail.

One of the barriers to entry for the debt collection business is related to financial institutions’ reputational risk considerations; when divesting or outsourcing the collection of overdue loans. Unethical (or even illegal) collection practices by a third-party will reflect poorly on the originator whether or not it holds the loans on its own book or not. Thus, institutions prefer to work with reputable third-parties. Furthermore, some portfolios are sold by means of private placements. Therefore, it is an advantage to have a history of ethical behavior to show and a well-connected management in the business.

Rationale for divesting non-performing loans

There are two main stakeholders that insert significant influence on banks’ willingness to sell NPLs; regulators and investors. Investors can assert direct pressure, while regulators assert indirect pressure through regulation. Banks can adapt to investor or regulation pressure by performing balance sheet management – which could entail the sale of NPLs to achieve certain goals (see below):

Why financial institutions divest NPLs

Society (represented by regulators) Investors

- Reduce risk

- Release liquidity

- Focus on core business

- Improved return on equity

- Improved capital and debt market perception of the seller (or sector)

- Clean-up enables increased capacity to lend

- Allocation of funds to more efficient entities

It takes time, resources and specific expertise to collect overdue debt. By selling overdue debt, banks avoid the costs

and challenges associated with maintaining a large in-house debt collection organization

Impact

Major stakeholders

Financial institutions' main tool:

Balance sheet management

Varying degree of pressure

Sales of NPLs decrease the sellers' risk exposure, release provisions, and strengthen capital ratios by reducing risk-

weighted assets

Sales of NPLs entails an up-front cash payment

Sources: Hoist, PWC, Fondsfinans Research

Credit cycle is an important determinant for supply

Considering the rationales for banks to sell NPL portfolios, it is clear that the supply of portfolios will depend on the need for banks to de-risk, deleverage and improve profitability. Thus, the supply of NPL portfolios into the market will depend on where we are in the credit cycle and market maturity. Pricing of NPL portfolios will depend on how pressured banks are to sell and competition among debt-purchasers in the respective markets.



The credit cycle

For CMS firms, we believe its most beneficial for long term value to enter at either the downturn or repair stage of the credit cycle, as access to portfolios will usually be plentiful and pricing will be depressed - then later benefit from increased recovery. For example, Encore has stated that they regret using their debt purchase capacity right before the 2008/2009 meltdown in the U.S. The European Union (Axactor’s target market) is now somewhere in between the repair and recovery stage. Unemployment and GDP are improving, yet NPL ratios are still high and credit growth is weak. There are regional differences, which we identify at a later stage (from page 26).

European Union currently between the repair and recovery stage

Large regional differences

Credit cycle & characteristics of the NPL market

Source: IMF, World Bank, Hoist, PWC, Fondsfinans Research

EU Bank sector (NPL % of gross loans)

4.6%

3.3%2.9%

2.6%2.3%

2.0%1.8%

2.2%

2.8%

4.7%

5.4%5.8%

6.7%6.4%

5.6%

6.2%

EU GDP growth (base 2000)

100

102

104

106

108

111

115

119119

114

117

119 118 119

120

123

EU unemployment (%)

8.8%8.6%

8.9%9.1% 9.2%

9.0%

8.2%

7.2%7.0%

9.0%

9.6% 9.6%

10.4%

10.8%

10.2%

9.4%

EU private credit growth (base 2000)

100

108112

119

127

139

155

176

189 191 193 194190

185 183 185

Sources: EUROSTAT, World Bank, Fondsfinans Research



Major caveats to increasing NPL portfolio supply into the market at the repair and recovery stages are; market maturity and to the extent banks have made provisions for their NPLs. These two points are intertwined, as an effective regulator would ensure that banks take appropriate provisions and facilitate a healthy secondary debt market. The reason coverage ratios are important is that there might be material differences between potential transaction prices and net book value (difference is a loss to the seller). This, in turn, makes bank reluctant to divest NPL portfolios – which keeps level of impaired loans high... We note that Spain and Italy are exciting markets in this regard, as they have high NPL ratios and improving coverage ratios.

Virtuous circle of NPL & coverage ratios

NPL & coverage ratios per country

Source: EBA, Fondsfinans Research. *2Q15 numbers

Market maturity

Modern European debt collection originated out of Scandinavia, as a response to the banking crisis the countries (Denmark to a lesser extent) experienced in the early 90ties. This is the reason why many of the largest European CMS companies are Norwegian or Swedish: i.e. Lindorff (NO), Aktiv Kapital (NO, sold to the American PRA group), Intrum Justitia (SE), Hoist (SE), B2 Holding (NO). The U.K. NPL market developed around the same time too.

European market maturity

Source: Axactor, Hoist, Fondsfinans Research

Mature markets are both a blessing and curse for CMS companies. The supply of portfolios is relatively large, but sellers are often highly sophisticated – which can put pressure on returns.



Regulatory pressure

In our opinion, nearly all European debt transaction markets are becoming more sophisticated (moving towards maturity at different speeds). The reason for this is the financial crisis of 2008/2009, which hit Europe particularly hard, because of its reliance on bank funding versus market funding like the U.S.

In response to the crisis, bank regulators made major overhauls to the regulations governing financial institutions. The European Union, for which the European central Bank (ECB) is the main regulator, implemented the CRD IV directive (Basel III) and regularly performs stress tests accompanied by asset quality reviews (AQRs). The International Accounting Standards Board (IASB) was tasked with improving the loss provisioning methodology (IFRS 9), as a lesson from the crisis was that banks did not recognize losses early enough. The regulatory burden on banks have vastly increased post-crisis and necessitate a much more disciplined balance sheet management than ever before.

Banking purgatory – post crisis punishment

Salvation – Angles of debt

Sources: Fondsfinans Research

In general, basically all quasi-government and government organizations can be considered supportive of the European Union having a vibrant secondary debt transaction market. It is considered vital as a factor that can contribute towards deleveraging Europe’s banks and help speed up the recovery.

Regulation:

If it’s a burden for banks – it’s probably beneficial for debt purchasers

Supportive regulations for the debt transaction market*

Asset Quality Reviews (AQR)

- Standard (90 days overdue) definition of NPLs - Uncover shortcomings in banks’ loss provisioning - ECB’s 2014 stress test/ AQR uncovered EUR 879bn of new bad loans

Basel III (CRD IV directive)

- Tougher overall capital demands, plus new buffers - Tougher liquidity requirements (LCR, NSFR) - Banks all across Europe are still building capital to comply

IFRS 9

- New accounting standard to be implemented from 1st January 2018

- Forward looking approach vs. current IAS 39 ‘objective evidence’ model - Will, most likely, result in banks having to increase their loss provisioning

Sources: IASB, European Commission, ECB, Fondsfinans Research. *If it’s bad for banks it’s usually good for debt purchasers



Riding the megatrend

Megatrend of increased supply of debt portfolios

The large NPL balances on banks’ balance sheet and regulatory pressure have resulted in a European-wide boom in debt transactions. The supply has been largest in mature transaction markets, such as the U.K. Yet, Axactor’s target countries; Spain, Germany, and Italy, have seen substantial and increasing volumes since 2010.


FV transactions by loan type (EURbn)

11

36

46

64

91

141

2010 2011 2012 2013 2014 2015

Specialised

SME/Corporate

CRE

Secured Retail

Unsecured retail

Sources: PWC, Fondsfinans Research

EUR 1tr NPL FI market in Europe

10 %

35 %

25 %

30 %

Unsecured retail

Secured retail

SME

Corporate

FV transactions unsecured retail (EURbn)

46 6

8

4

2 3

6

11

1

5

2

7

2010 2011 2012 2013 2014 2015

Other

Germany

Italy

Spain

Sources: Axactor, ECB,PWC, Fondsfinans Research

We expect supply to be strong the next years, as European banks will continue to deleverage and focus on their core-operations (of which debt collection is not one).

Deloitte believes Europe will see transactions north of EUR 130bn in 2016, while PWC believe we will see roughly the same amount of transactions in 2016 as 2015 (EUR 140bn). Additionally, we understand from market participants that the supply of portfolios is expected to remain strong as well.

There’s more uncertainty regarding the prices. The more economic activity accelerates the higher prices banks will try to get for their portfolios, as recovery rates improve. Banks are under pressure to sell non-core portfolios – yet they are by no means desperate. The number one reasons for why deals fail are bid-ask spreads.

Before we look at pricing and yield developments we take a detour to look at the industry yield dynamics vs. Axactor’s yield profile.



Determinants of profitability

When industry participants talk about expected profitability its typically in the terms of targeted Money Multiple (MM), Estimated Remaining Collections (ERC), gross Internal Rate of Return (Gross IRR), or net IRR.

Gross IRR is the rate that discounts expected collections to the book value of the portfolio purchase price. (It’s exactly like the amortization of a bond premium, just that you amortize the portfolio completely of your balance sheet). For example, Hoist’s gross IRR in the example below is 19%.

Net IRR is gross IRR less collection costs charged to the expected collections.

Portfolio purchases - unleveraged

1 2 3

Face value

Purchase price

Purchase price

Estimatedremainingcollections

Estimated collections

Purchase price

Money multiple

Management estimate

Illustrative profit waterfall

1 2 3 4 5

Purchase price

Debt

Equity Equity

Profit

Debt

Collectioncosts

ERC

CashEBIT

Debt

ERC = Estimated Remaning Collections

Management estimate


Collection curve (% of ERC & investment)*

19 %17 %

14 %11 %

9 %8 % 7 % 6 % 5 % 3 %

36 %

31 %

26 %

21 %

17 %14 %

12 %11 % 9 %

6 %

1 2 3 4 5 6 7 8 9 10Year

Percentage of purchase price

Percentage of ERC

Distribution ERC through time

1 2 3 4 5 6 7 8 9 10Year

= Estimated collections

Sources: Fondsfinans Research *Collection curve in illustrative example is Hoist’s 120 month curve

Pricing process is complex and experience is of outmost importance

What determines the profitability of your NPL purchases is the money multiple (high is better), the slope of the collection curve (steep is better), and your collection costs. These three factors are usually a function of each other. In addition, it’s a function of how leveraged you/ your competitors are and, thereby, the interest rate level available for funding. The perhaps primary determinant of profitability is the “freshness” of the claims you buy. Old claims are usually of lower quality and will take longer to collect (flat collection curve). Fresh claims will not have been worked on as much as older claims, and light amicable procedures are usually enough to collect. However, with fresh claims you probably cannot achieve the same money multiple (e.g. you pay a higher percentage of face value). Collection cost’s major determinant is usually determined by how creditor friendly and efficient the judicial system in the country you operate in is.



Targets unsecured retail portfolios Financial claims have a very different profile from e.g. receivable claims

Axactor’s yield profile - Laser sharp focus

Axactor will target unsecured retail portfolios originally underwritten by financial institutions. These portfolios commonly consist of consumer loans, car loans, residual mortgages (leftovers if collateral was not sufficient) etc. For the debtor these claims are quite large in relation to disposable income. Thus a payment plan is usually the most efficient way to collect for the holder of the claims – which is one of the reasons the specialized financial claims collection curve is flatter compared to other curves. The second major reason is that these portfolios, especially in more mature markets, usually are not as fresh as other types of debt. For example, Axactor has bought portfolios that were held by entities that originally bought the portfolios from banks.

Nevertheless, it’s all more or less the same market and Axactor will likely be compensated in the form of a higher money multiple.

ERC collection curves (%) 2015

0 %

5 %

10 %

15 %

20 %

25 %

30 %

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Axactor (financial claims) Intrum Justitia

B2 Holding Hoist

Money multiples 2015

2.0

2.5

3.0

2.1 2.01.8

0

0.5

1

1.5

2

2.5

3

3.5

0

0.5

1

1.5

2

2.5

3

3.5

Intrum B2 Hoist Axactor

Target range Axactor MM

Sources: respective companies, Fondsfinans Research. *The blue stippled circles show where we have adjusted for curves that does not include the entire ERC

Gross IRR implied

29.2 %

24.6 %

18.6 %

33.3 %

25.3 %

17.3 %

B2 Intrum Hoist 3.0 2.5 2.0

Axactor at different MMs

Gross IRR (ERC 120 months*)

29.0 %

23.7 %

18.6 %

32.7 %

24.5 %

15.9 %

B2 Intrum Hoist 3.0 2.5 2.0

Axactor at different MMs

Leverage** 2015

2.8x

3.8x

7.6x

B2

Intrum

Hoist

Sources: respective companies, Fondsfinans Research *or without the uptick in year 10 for Intrum **Assets divided by equity

Mid-point MM gives yield in-line with peers

Given Axactor’s collection curve we observe that expected gross yield is roughly in-line with major competitors – if we adjust for leverage. Hoist is an outlier, as they operate under a bank license. They are funded by cheap deposits and leveraged to the moon. Operating this way is obviously beneficial, as you can underbid your competitors and purchase portfolios that would be unprofitable to others. The downside is that you are running a substantial regulatory risk, since deposits covered by defaulted loans is not a regulator’s dream scenario. We were are a bit cautious about including the extra length of Axactor’s collection curve, since it is standard to report around ten years and most other companies make it clear they expect to collect further after the ten year period. However, the difference to gross IRR is marginal, so we don’t consider it a major issue.



Collection costs & net unlevered IRR

We believe management (and the industry in general) can with relative certainty project collection costs in Spain, Germany, and Scandinavia. The part of the cost function related to macroeconomic developments is difficult to assert, but is part of the systemic risk you take investing in the sector (reflected in the industry average unlevered beta). Italy, on the other hand, is relatively more uncharted territory – known for its judicial and other practical collection difficulties. We note that Axactor will take a cautious approach to initial portfolio purchases in Italy. If we take the collection curve as given, know that Axactor targets a MM of between 2x-3x, and that they are restricted by loan covenants to pursue net unlevered IRR’s of under 10% - we can make some inference about their capacity to take on collection costs:

If they achieve a MM of close to 1.5x they will need negative collection costs

The relationship between collection costs and net IRR is non-linear

The collection cost buffer delta increases greatly between 1.50x and 2.25x

Net IRR will be severally pressured and sensitive on an MM under 2.25x

Covenant in DNB’s loan facility limits net IRR to min. 10%

Collection costs (%) that will result in a net unlevered IRR of 10%*

107 %

39 %

23 %

15 %11 %

9 %6 %

11 %

22 %

31 %

38 %

43 %

48 %

52 %

55 %

0

0.1

0.2

0.3

0.4

0.5

0.6

0

0.2

0.4

0.6

0.8

1

1.2

1.50 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50

D collection costs for net IRR of 10%

Money Multiple

Collection cost (%)

Source: Fondsfinans Research. *Given Axactor’s aforementioned collection curve

Estimated collection costs is part of the pricing process

Axactor’s targeted collection cost (as %age of collection) is difficult to estimate both for us and the company itself. This is primarily a consequence of the estimated cost of collection being part of the total yield considerations you have to make when you are purchasing portfolios. For example, if you and the seller expect collection costs to be relatively low you will have to pay a higher price (and vice versa). Management has indicated that Axactor’s collection costs can vary between 17% and 35%. Additionally, we know that B2 Holding’s estimated collection costs are roughly 28%. B2 Holding operates primarily in countries were collections costs are considered higher than in Western Europe, thus we consider 28% to be an (on average) maximum collection cost percentage for Axactor. On the other hand, Arrow operates in more developed markets (but some difficult ones like Portugal and France) and reported a collection cost ratio of 24% in 2015. On the following page we take a different approach to analyze Axactor’s costs of collections and net IRR.



Below, we have plotted the relationship between gross yield (by varying the MM), cost of collections, and net IRR for Axactor. The takeaway is similar to the one on the last page, with the strain on net IRR becoming visible at a money multiple under 2.25. Furthermore, we observe below that collection costs above 30% will put pressure on the net IRR.

MM target of Axactor is 2.0 to 3.0 Average cost of collection should stay below 30%

Net IRR vs. cost of collections and MM Net Internal rate of return

Cost of Money multiple

collections 1.50 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50

10.0 % 6 % 10 % 14 % 18 % 21 % 25 % 29 % 32 % 36 %

15.0 % 5 % 9 % 12 % 16 % 19 % 23 % 26 % 30 % 33 %

20.0 % 4 % 7 % 11 % 14 % 17 % 20 % 24 % 27 % 30 %

25.0 % 2 % 6 % 9 % 12 % 15 % 18 % 21 % 24 % 27 %

30.0 % 1 % 4 % 7 % 10 % 13 % 16 % 19 % 22 % 25 %

35.0 % 0 % 3 % 6 % 8 % 11 % 14 % 16 % 19 % 22 %

40.0 % -2 % 1 % 4 % 6 % 9 % 12 % 14 % 16 % 19 %

45.0 % -3 % 0 % 2 % 4 % 7 % 9 % 12 % 14 % 16 %

50.0 % -5 % -2 % 0 % 2 % 5 % 7 % 9 % 11 % 13 %

1.752.00

2.252.50

2.753.00

3.253.50-5 %

5 %

15 %

25 %

35 %

10 %15 %

20 %25 %

30 %35 %

40 %45 %

50 %

35 %-40 %

25 %-35 %

15 %-25 %

5 %-15 %

-5 %-5 %

2.003.50

1.2530%

50%

20%40%

Money multipleCost of collections

Net IRR

Source: Fondsfinans Research. *Given collection curve

Gross yield need to stay close to 20%, with collection costs below 30% Axactor aims at having the most efficient collection procedures in the industry

Based on the aforementioned yield and collection profile of Axactor, it appears the MM should stay above 2.25 (or alternatively the ERC curve needs to be steeper), which implies a gross yield of roughly 20%. Based on this gross yield and collection costs below 30%, the net IRR should be solid and not too sensitive to potential volatility in the collection costs.

The part of the net IRR equation Axactor can assert the greatest influence over, is the collection cost part. This is also the part Axactor will be trying to obtain a competitive advantage in (as discussed previously).

CMS firms are secretive about their collection costs. They generally do not want the portfolio sellers to know too much about their cost advantages, as this will put them in a weaker position during price negotiations.



Pricing in the NPL market – A look back at history

The Portfolio Recovery Associates (PRA) group reports detailed yearly purchases and the collection development for each year’s purchases (this is why the collection curves look concave, as they collect a part of the portfolio in the year of purchase). The graphs show some interesting things. Firstly, it shows clearly how the slope of the collection curve turns steeper during/after the crisis (banks are more desperate to sell and PRA got access to fresher loans). Secondly, it shows how the curve flattens as the U.S. recovers (showed here by the decreasing percentage of NPL on bank balances).

Additionally, it shows some of the collection dynamics through the RoE – during the expansion stage of the credit cycle (pre-2008) it is easy to collect and this makes up for the relatively flat curves. Then the crisis hit and they do some bargain deals and reap the fruits the next years. Lastly, as the U.S. is well into its recovery stage, it becomes more difficult. Portfolios are not cheap anymore, yet collections are not as profitable as in the expansion stage.

Aggregated collection profile

0

100

200

300

400

500

600

700

800

900

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US

Dm

Individual collection profiles

0

50

100

150

200

250

300

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US

Dm

Debt purchases

0

50

100

150

200

250

300

350

400

450

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US

Dm

Collections as % of purchase price

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Return on Equity

20 %

17 %

14 %

18 % 19 %19 %

22 %

20 % 19 %

2007 2008 2009 2010 2011 2012 2013 2014 2015

NPL (% of gross loans) USA vs. EU

0%

1%

2%

3%

4%

5%

6%

7%

8%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: PRA Group, World Bank, Fondsfinans Research. * PRA groups core American Portfolios



Pricing pressure, while collection outlook is improving

Where we are at in Europe

We believe there’s a pressure on gross yields in most European debt transactions markets. Since the supply of portfolios is at a record level, it appears the yield pressure is a result of increased competition. This is, additionally, consistent with the impression we get from market participants and deal consultants. Many portfolio purchasers have increased their leverage dramatically in the recent years, and we suspect this is part of the reason gross yields have fallen.

However, we note that expected IRRs and EBIT margins appear to be relatively stable the last two years. Thus, it seems: (i) collections forecasts are becoming more aggressive; (ii) collections have become less expensive – both are connected to improving macroeconomic conditions.

Intrum J. collection curve development*

1 %

6 %

11 %

16 %

21 %

26 %

1 2 3 4 5 6 7 8 9

2012 2013 2014 2015 1Q16

Gross IRR 27.3% 25.1% 25.0% 23.7% 21.0%

MM 2.1 2.1 2.1 2.1 2.0

Unsecured retail NPL IRR vs. purchase price*

30

31

32

33

34

35

36

37

38

39

5%

10%

15%

20%

25%

30%

35%

40%

2008 2009 2010 2011 2012 2013 2014 2015

Discount to FV

Expected IRR

EU GDP rhs

Last years: purchase price as %age of FV up, while IRR stable, which could imply more aggressive returns assumption / lower collection costs in Europe as a whole.

*FV and IRR not representative of Axactor’s target market

Source: Intrum Justitia, Fondsfinans Research.*ERC collection curves Source: PWC,EUROSTAT, Fondsfinans Research

Intrum Justitia, with its high quality reporting and long history, is an excellent gauge of industry dynamics/ trends. While Intrum’s EBIT margin has been relatively stable the last couple of years its expected gross IRR have fallen quite dramatically. This is a clear sign of improving collections and tougher competition. Furthermore, we note that Intrum’s primary RoE driver lately has been increased leverage. Intrum has never purchased as much debt as it has last three years (20013/14/15 SEKbn 2.0/2.5/2.0).

Leveraging up, EBIT margin stable

Intrum Justitia’s percentage change in RoE determinants

0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

40 %

45 %

50 %

-40 %

-30 %

-20 %

-10 %

0 %

10 %

20 %

30 %

40 %

Leverage

EBIT margin

Pre-tax margin

Revenue / Assets

Pre-tax RoE (rhs)

Source: Intrum Justitia, Fondsfinans Research



Continued strong supply, upward pressure on prices, and improved recovery conditions

Spanish market – still plenty of opportunities

Spain is the third most active market in Europe. After the crisis Spanish banks focused on managing their secured NPL retail portfolios in-house, while outsourcing their unsecured retail portfolios. The ongoing positive investor sentiment have resulted in an increased flow of CRE and secured retail portfolios into the market. Nevertheless, the level of NPLs on banks’ balance sheet is still at a high level, which continuous to be a major drag on bank profitability. It’s expected that market and regulatory pressure will ensure a healthy supply of portfolios into the market onwards. We expect improving macroeconomic conditions and investor sentiment will continue to pressure prices – but also improve recovery conditions.


5

10 10

21

17

2010 2011 2012 2013 2014 2015

Specialised

SME/Corporate

CRE

Secured Retail

Unsecured retail

<EUR 1bn

FV unsecured retail transactions (EURbn)

4

6 6

8

4

2010 2011 2012 2013 2014 2015

<EUR 1bn

Source: PWC, Fondsfinans Research Source: PWC, Fondsfinans Research

Bank sector (NPL % of gross loans)

1.2% 1.2% 1.1% 1.0% 0.8% 0.8% 0.7% 0.9%

2.8%

4.1%

4.7%

6.0%

7.5%

9.4%

8.5%

7.0%

GDP growth and unemployment

-10 %

-5 %

0 %

5 %

10 %

15 %

20 %

25 %

30 %

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

GDP growth(%) Unemployment (%)

Source: World Bank, Fondsfinans Research Source: IMF, Fondsfinans Research

Collection complexity

Recovery conditions

2015 2013

2009

2011

2007

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

70 72 74 76 78

Recovery rates (cents on the dollar)

Time to resolve insolvency (in years)

Source: Euler Hermes, Fondsfinans Research Source: World Bank, Fondsfinans Research



Exciting market outlook, yet considerable operational risk

Italian market – from fight for survival to deleveraging

After years of limited activity, the Italian loan sale market is growing fast. It is widely believed that Italy will be one of the most exciting NPL transaction markets in Europe in the years to come. Several new reforms have recently been implemented to help facilitate the sale of NPL portfolios to private investors – including steps to reduce collateral recovery times and loan loss provisioning tax incentives. Collection procedures have historically been tied to significant risk, as e.g. legal enforcement procedures could take up to seven years (political goal to cut this down to 18 months). We expect gross yield and supply conditions in Italy to develop favorably over the next years, yet there’s considerably operational risk factors at play (particularly regarding collections).


45

8

19

2010 2011 2012 2013 2014 2015

Specialised

SME/Corporate

CRE

Secured Retail

Unsecured retail

<EUR 1bn


23

6

11

2010 2011 2012 2013 2014 2015

<EUR 1bn



7.8%

6.7% 6.5% 6.7% 6.6% 7.0% 6.6%5.8%

6.3%

9.4%10.0%

11.7%

13.7%

16.5%17.3%


-10%

-5%

0%

5%

10%

15%

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20




Recovery conditions

2007

20092011

2013

2015

1.75

1.78

1.81

1.84

56 58 60 62 64






Weak supply, yet regulatory pressure and the allure of efficiency gains could change this

German market – keeping it in-house

Transaction volumes have been low in Germany the last years, especially compared to market potential. In-house servicing is the dominant strategy for German banks, while outsourcing has remained limited. When institutions have sold portfolios, it has usually been overseas portfolios. It is expected that volumes could increase, driven by regulatory pressure and an increasing focus on achieving cost efficiencies. However, it is our understanding that there’s substantial bid-ask spreads in the market currently. Several large transactions have been cancelled in the advanced stages of bidding processes lately.


10

1

6

11

2010 2011 2012 2013 2014 2015

Specialised

SME/Corporate

CRE

Secured Retail

Unsecured retail

<EUR 1bn


0.2

0.5

2010 2011 2012 2013 2014 2015

<EUR 1bn <EUR 1bn



4.7% 4.6%

5.0%5.2%

4.9%

4.1%

3.4%

2.7%2.9%

3.3% 3.2%3.0% 2.9%

2.7%

2.3%


-10%

-5%

0%

5%

10%

15%

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20




Recovery conditions

20072009

2011

2013

2015

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0 20 40 60 80 100






Not much volume for now Potential growth markets

Scandinavian market – different fundamentals

Supply coming out of Scandinavia has been limited over the past few years. Compared to European banks, Scandinavian banks escaped the financial crisis relatively unscathed. NPL levels have been at low levels, and banks have had little incentives to bring portfolios into the market. We expect Danish supply to be weak in the short to medium term, as the banks are nearing their targeted deleveraging post-crisis.

Credit growth in Norway and Sweden has been high in the recent years. We expect NPL ratios to increase in both markets, and this could translate into a more activity. Additionally, financial institutions in these countries have extensive traditions for debt collection outsourcing, which should bring volumes into the market relatively quickly if credit quality deteriorates. However, we note that sellers in Scandinavia are considered sophisticated, thus there will be no free lunch regarding pricing.

Recent transactions

Type FV EURm Country

Jan. 2016 Consumer 78 SE

Dec. 2015 Consumer 263 NO

Dec. 2015 CRE/corporate 225 DK

June 2015 CRE 50

May 2015 CRE 442 DK

Dec. 2014 CRE 1,000 DK

Transactions in the Scandinavian market have primarily been in the consumer space, with the portfolios coming from Denmark’s bad bank (Finansiel Stabilitet) as the major exception.

Sources: Deloitte, KPMG, Fondsfinans Research

NPL % of gross loans GDP growth and unemployment

NPL set for an increase in Norway

Norway

1.2% 1.3%

2.0%1.6%

1.0%0.7% 0.6% 0.5%

0.7%

1.3%1.5%

1.7%1.5%

1.3%1.1%

1.3%

Norway

-2%

-1%

0%

1%

2%

3%

4%

5%


High credit growth in Sweden could result in increasing NPL volumes

Sweden

1.6% 1.5% 1.4%

1.9%

1.1%0.8%

0.1% 0.1%0.5%

0.8% 0.8% 0.7% 0.7% 0.6%

1.2% 1.1%

Sweden

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%


Denmark considered low growth market

Denmark

0.5%0.7%

1.7%

0.8% 0.7%

0.2% 0.3%0.6%

1.2%

3.3%

4.1%3.7%

6.0%

4.6%4.4% 4.4%

Denmark

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%


Sources: IMF, World Bank, Fondsfinans Research



Valuation

Usually we prefer to value CMS companies using the EV/EBIT multiple

Pricing relative to peers – accounting for growth

Our preferred valuation metric for the CMS sector is EV / EBIT, as this multiple is post maintenance CAPEX spending on portfolios. Thus, it reflects the net yield of the company (‘s) in question. A company with a poor yield will have a relatively large part of its portfolios amortized of the balance sheet, which results in a lower EBIT (although not necessarily a lower EBITDA, which depend more on the timing of the purchases). Nevertheless, consensus estimates for EV/EBIT can only be obtained for 2018 the latest. Therefore, the multiples are relatively useless to value a growth company like Axactor.

It is our opinion, that given no growth, Axactor should trade at an EV/EBIT discount to Intrum, Kruk and B2 Holding. This is because these companies have exposures and first-mover advantages in Europe’s most exciting growth markets (Eastern Europe). Axactor, on the other hand, is a challenger in relatively mature markets in Europe.

EV/EBIT is inappropriate to value a growth company like Axactor

EV / EBIT 2017 and 2018

13.0x

10.1x

14.9x13.6x

11.0x

7.3x 7.4x

6.0x5.2x

23.9x

17.6x16.5x

14.4x

12.3x

8.6x 8.5x 8.1x

5.8x

Axactor @target

Axactor Hoist Intrum J. Kruk PRA Encore B2 Holding Arrow

2017 2018

Falling too quickly for EV/EBIT to be usefull

Sources: Bloomberg, FactSet, Fondsfinans Research

Growth multiples provide more insight

From a peer pricing perspective we prefer to check our DCF valuation against multiples that adjust for growth. Looking at PEG ratios and simply P/E versus growth, the valuation of Axactor looks reasonable. Only relying on these ratios has a tendency to cause overvaluation of growth stocks, but in this case we find it more reasonable than to look at 2018 non-growth multiples. Axactor will not have reached its steady state in 2018.

PEG* 2018 (growth 2017-18)

9.7x 16.2x 21.7x 30.1x42.2x

55.0x 58.7x

247.4x

398.3x

Axactor Axactor@

target

B2Holding

Encore Arrow Hoist PRA IntrumJ.

Kruk

P/E 2018 vs. EPS growth 2017-18**

Axactor

Axactor @ target

Intrum J.

Kruk

PRA

Arrow

Hoist

B2 Holding

Encore

R² = 0.0711

2

4

6

8

10

12

14

16

0 % 20 % 40 % 60 % 80 % 100 %Growth

P/E

Sources: Bloomberg, FactSet, Fondsfinans Research. *P/E divided by EPS growth.**Theoretical P/E versus growth relationship is exponential, growth is 2018-19 for Axactor



Another way we looked at it is to compare Axactor’s running EV to ERC versus current EV / ERC multiples of peers. Our target price for Axactor looks reasonable when compared to peer EV / ERC multiples, assuming the current multiples will remain relatively stationary.

EV / ERC (current EV, ERC end 2015)

1.86x

1.55x

1.11x

0.89x 0.67x 0.63x0.55x

Intrum J. Kruk B2 Holding Hoist Encore PRA Arrow

Average 1.04x

Median 0.89x

EV / ERC Axactor

2.08x

1.02x

0.77x 0.74x

1.36x

0.75x0.60x 0.59x

2016 2017 2018 2019


Average 1.04x

Median 0.89x

Source: Fondsfinans Research, company data, Bloomberg, FactSet

A popular valuation tool for the sector is to look at P/B versus RoE. However, this approach has the same fallacy when valuing growth companies as EV/EBIT. Below we report the consecutive P/B versus RoE graphs from 2016 to 2018.

P/B vs. RoE 2016

Axactor @ target

Axactor

Intrum J.

PRA

Encore

Arrow

Kruk

Hoist

B2 Holding

R² = 0.7944

0

1

2

3

4

5

6

7

0 % 10 % 20 % 30 % 40 %

P/B

RoE

P/B vs. RoE 2017

Axactor @ target

Axactor

Intrum J.

PRA

Encore

Arrow

Kruk

Hoist

B2 Holding

R² = 0.4509

0

1

2

3

4

5

6

7

0 % 10 % 20 % 30 % 40 %

P/B

RoE

P/B vs. RoE 2018

Axactor @ target

Axactor

Intrum J.

PRA Encore

Arrow

Kruk

Hoist B2 Holding

R² = 0.3096

0

1

2

3

4

5

6

7

0 % 10 % 20 % 30 % 40 %

P/B

RoE

Source: Fondsfinans Research, company data, Bloomberg, FactSet

Below we show our estimated development in the EV/EBIT multiple based on the current share price and our target price.

EV / EBIT given our base case

Projected EV / EBIT Axactor*

0

5

10

15

20

25

30

35

40

45

50

55

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035


Source: Fondsfinans Research. *Based on a share price NOK 1.8 and target NOK 3.0



DCF models – blended average of models equals NOK 2.87

While a FCFF model is most appropriate when valuing a firm that will see massive changes in their capital structure, we are reluctant to rely only on this model as the terminal value make up 212% of the total net present value (NPV). The corresponding percentages for the EVA, DDM and Residual income models are 8%, 34%, and 34%. We feel our base case and valuation is relatively conservative. Primarily as we keep the gearing on a relatively low level compared to peers and we do not assume they will increase their equity base (although they almost certainly will).

Free cash flow to firm (FCFF)

FCFF valuation

Terminal growth

WACC 0.0 % 0.2 % 0.4 % 0.6 % 0.8 % 1.0 % 1.2 %

5.8 % 5.5 5.6 5.8 5.9 6.1 6.3 6.5

6.3 % 4.6 4.8 4.9 5.0 5.1 5.3 5.4

6.8 % 4.0 4.0 4.1 4.2 4.3 4.4 4.6

7.3 % 3.4 3.4 3.5 3.6 3.7 3.8 3.9

7.8 % 2.9 2.9 3.0 3.0 3.1 3.2 3.2

8.3 % 2.4 2.5 2.5 2.6 2.6 2.7 2.7

8.8 % 2.1 2.1 2.1 2.2 2.2 2.3 2.3

Dividend discount model (DDM)

DDM valuation

Terminal growth

Cost of equity 1.9 % 2.1 % 2.3 % 2.5 % 2.7 % 2.9 % 3.1 %

10.7 % 3.0 3.1 3.1 3.1 3.1 3.2 3.2

11.2 % 2.8 2.8 2.9 2.9 2.9 2.9 2.9

11.7 % 2.6 2.6 2.6 2.7 2.7 2.7 2.7

12.2 % 2.4 2.4 2.5 2.5 2.5 2.5 2.5

12.7 % 2.3 2.3 2.3 2.3 2.3 2.3 2.3

13.2 % 2.1 2.1 2.1 2.2 2.2 2.2 2.2

13.7 % 2.0 2.0 2.0 2.0 2.0 2.0 2.1

Economic value added (EVA) EVA valuation

Terminal RoIC 11.0 % 11.5 % 12.0 % 12.5 % 13.0 % 13.5 % 14.0 %

Terminal growth 2.38 % 2.49 % 2.60 % 2.71 % 2.81 % 2.92 % 3.03 %

WACC

5.8 % 4.2 4.3 4.3 4.3 4.4 4.4 4.4

6.3 % 3.8 3.8 3.8 3.8 3.9 3.9 3.9

6.8 % 3.3 3.4 3.4 3.4 3.4 3.4 3.5

7.3 % 2.9 3.0 3.0 3.0 3.0 3.0 3.0

7.8 % 2.6 2.6 2.6 2.6 2.6 2.7 2.7

8.3 % 2.3 2.3 2.3 2.3 2.3 2.3 2.3

8.8 % 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Residual income model Residual income valuation

Terminal RoE 25.7 % 26.2 % 26.7 % 27.2 % 27.7 % 28.2 % 28.7 %

Terminal growth 2.66 % 2.71 % 2.76 % 2.81 % 2.87 % 2.92 % 2.97 %

Cost of equity

10.7 % 3.0 3.0 3.0 3.1 3.1 3.1 3.1

11.2 % 2.8 2.8 2.8 2.8 2.8 2.9 2.9

11.7 % 2.6 2.6 2.6 2.6 2.6 2.7 2.7

12.2 % 2.4 2.4 2.4 2.4 2.4 2.5 2.5

12.7 % 2.2 2.2 2.2 2.3 2.3 2.3 2.3

13.2 % 2.1 2.1 2.1 2.1 2.1 2.1 2.1

13.7 % 1.9 1.9 2.0 2.0 2.0 2.0 2.0

Below are our terminal value assumptions. If a variable is not explained it means it follows from other variables.

Terminal value inputs are based on model output or interfered from it

Terminal assumptions and peer comparison Key figures Describtion

Share price 1.8

Target price 3.00

# of shares outstanding (m) 705 << Shares outstanding after the transfer of the share consideration to Ikas is completed

diluted (m) 761 << Shares outstanding if management's options are exercised (currently in-the-money)

Risk-free rate 2 %

Equity risk premium 6 %

Asset beta 0.35 << Top range of peers asset (or unlevered) betas. Industry is low beta as it thrives on volatility

Target capital structure

Debt / Equity 1.9x << Gearing at the end of our forecast horizon

Debt / Total capital 65 %

Tax rate 22 % << Average 2015 effective tax rate of peers

Equity beta 0.87

Extra premium 5.0 % << Unproven business model and small-cap premium

Cost of equity 12.2 %

Cost of debt 6.0 % << Close to average between current NIBOR + 400bps and B2 Holdings IBOR + 750bps bonds

WACC 7.3 %

NIBD* -148 << Our adjusted 2015 NIBD (adjusted for the Ikas purchase, the EUR 25m DNB loan, and the private placement

NIBD** 80 << Our best estimate of current NIBD (used in valuation)

Terminal RoE 27 % << RoE at the end of our forecasting period (year 2035)

Payout ratio 90 % << Payout ratio at the end of our forecasting period (percentage of net income)

Terminal RoIC 12 % << Return on invested capital at the end of our forecasting period

Reinvestment rate 22 % << Reinvestment rate at the end of our forecasting period

Growth

FCFF 0.6 % << Growth in FCFF at the end of our forecasting period

DDM 2.5 % << Growth in DPS at the end of our forecasting period

Company D/E Effective tax Equity Beta Asset beta

Intrum J. 1.9x 20 % 0.81 0.32

Hoist 6.0x 23 % 0.96 0.17

B2 Holding 1.5x 19 % 0.39 0.17

PRA Group 2.1x 27 % 0.92 0.36

Encore 5.3x 22 % 1.66 0.32

Arrow 3.6x 19 % 0.80 0.20

Median 2.9x 21 % 0.87 0.26

Average 3.4x 22 % 0.92 0.26

Equity beta based on 2 years of data

Asset beta is equity beta transformed based on 2015 reported metrics

Debt/Equity and effective tax are 2015 numbers



High risk, high reward

Scenario analysis – a night at the Monte Carlo opera

To determine the sensitivity of our base case we created distributions for all the profit and cost determinants in our model, and smashed them randomly together a 1001 times. Then we valued the outcomes using DDM and FCFF valuations. The result can be seen below. We found that the best distribution to describe the result is a t-distribution with one degree of freedom (fat tails).

In our best judgment, we believe there’s roughly a 20% chance that an investment in Axactor at the current price will not be profitable. Or slightly below 25% if we consider a 10% upside to NOK 1.8 as inadequate. 20% or 25% implies a relatively high risk, as is to be expected with start-ups. However, we believe the potential upside more than make up for the risks.

Downside risk of roughly 20%, potential for 400% upside to current pricing

1001 different outcomes – blended FCFF & DDM

0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%100%

0

10

20

30

40

50

60

70

-0.1

-0.3

0.4

-0.5

0.7

-0.8

0.9

-1

1.1

-1.2

1.3

-1.4

1.5

-1.6

1.7

-1.8

1.9

-2

2.1

-2.2

2.3

-2.4

2.5

-2.6

2.7

-2.8

2.9

-3

3.1

-3.2

3.3

-3.4

3.5

-3.6

3.7

-3.8

3.9

-4

4.1

-4.2

4.3

-4.4

4.5

-4.6

4.7

-4.8

4.9

-5

5.1

-5.2

5.3

-5.4

5.5

-5.6

5.7

-5.8

6-6

.1

6.3

-6.4

Value per share (frequency) 0.5

Target price Current share price

Fitted distribution Fitted cumulative distribution

Frequency Probability

We want to emphasise that our Monte Carlo style risk assessment is highly sensitive to the distributions we subjectively apply to the parameters. Furthermore, our distribution is roughly normally distributed by construction. The actual (unknown) distribution might be asymmetrical. We do take some precautions regarding the skew of our distribution. Major examples of this would include a base case MM of 2.4, instead of the 2.5 mid-point of managements target (to reflect the potential yield pressure in the market), and a conservative 25% cost of collections.

Following is a detailed run-through of our parameter distributions and individual valuation model distributions (DDM & FCFF).



Below we have separated the aggregated valuation distribution into the original FCFF and DDM models. For the risk-of-no-upside probabilities we have simply fitted normal distributions. Under these assumptions the downside risk is roughly 10% per model.

FCFF valuation – value per share

0

10

20

30

40

50

60

70

Frequency

DDM valuation – value per share

0

10

20

30

40

50

60

70

80

90

100

Frequency

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Current share price Target price Implied by method Cumulative density

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Current share price Implied by method Target price Cumulative density

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Implied cumulative distribution Probability distribution

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Implied cumulative distribution Probability distribution

The starting point of our modeling is an adjusted version of the 4Q15 balance sheet of Axactor.

Balance sheet at 4Q15 with following adjustments

1. 1x loan at EUR 25m

2. Adjusted for Ikas acquisition

3. Adjusted for private placement

Assets

Fixed assets

Abogados 170

Ikas 291

Net working capital 61

Cash 387

Total assets 910

Equity 670

Long term liabilities 239

Total equity and lia. 910



Underlying assumptions

Following is a list and short descriptions of our underlying assumptions.

Investments in portfolios

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

SEKm

MAX Base MIN

Portfolio investments are normally distributed around the base case with a 20% standard deviation

The investment level at the base case is SEK 550m in 2016, SEK 1000m in 2017, SEK 1100m in 2018, then down to SEK 600m and grows 3% per year thereafter

Collection curve (% of ERC)

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

16 %

18 %

1 2 3 4 5 6 7 8 9 10 11 12 13 14

The collection curve is obtained from the company and is a typical financial claims curve.

We do not simulate different curves, but vary the gross yield through different MMs instead

Effective collection curve (% of ERC)

0%

2%

4%

6%

8%

10%

12%

14%

16%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Cash collections Amortization

Due to investments being made throughout the year, the effective collection curve looks like a right skewed distribution

Money multiple (MM) distribution

0

50

100

150

200

250

300

350

400

450

500

MMs are normally distributed around our base case MM of 2.4 with a standard deviation of 0.2



Collection cost (% of cash collections)

0

50

100

150

200

250

300

350

400

18%-20% 20%-22% 22%-24% 24%-26% 26%-28% 28%-30% 30%-32%

Collection costs in percentage of cash collections are normally distributed around the base case (25%) with a standard deviation of 2%

ALD Abogados EBIT

0

50

100

150

200

250

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

SEKm

MAX Base MIN

EBIT contributions from ALD Abogados are normally distributed around the base case with a 15% standard deviation

Ikas EBIT

0

20

40

60

80

100

120

140

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

SEKm

MAX Base MIN

EBIT contributions from Ikas are normally distributed around the base case with a 10% standard deviation (the difference in SD from Abogados is due to Ikas’ longer operating history)

Other OPEX

0

20

40

60

80

100

120

140

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

SEKm

MAX Base MIN

Other OPEX are normally distributed around the base case with a 10% standard deviation

We are a bit uncertain about the generally OPEX level so in our base case we add SEK 10m to what will likely be the purely administrative costs in 2016 (roughly SEK 30m)



Interest costs (%age rate)

0

50

100

150

200

250

300

350

400

2%-3% 3%-4% 4%-5% 5%-6% 6%-7% 7%-8% 8%-9% 9%-10%

Interest rate costs are distributed around the 6% base case rate with a standard deviation of 1%

Net working capital

0

50

100

150

200

250

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

SEKm

MAX Base case MIN

Working capital is normally distributed around the base case with a 5% standard deviation

Base case P&L (SEKm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E 2035E

Cash collections 53 290 729 945 1,041 1,133 1,226 1,312 1,401 1,484 1,562 1,636 1,708 1,778 1,846 1,899 1,937 1,977 2,033 2,105

Amortization 20 110 275 355 391 427 463 498 535 570 605 640 676 714 754 785 800 810 830 862

Interest income 33 180 454 590 650 706 762 814 866 913 956 996 1,032 1,064 1,092 1,114 1,137 1,167 1,203 1,243

Collection costs 13 72 182 236 260 283 306 328 350 371 390 409 427 444 461 475 484 494 508 526

NPL portfolio income 19 107 271 354 390 423 456 486 516 542 566 587 605 619 631 640 653 673 695 717

Profits from 3rd party collection:

ALD Abogados 42 48 56 64 70 77 81 85 89 94 99 104 109 114 120 126 131 136 142 147

Ikas 30 35 40 46 52 58 61 64 67 69 72 75 77 80 82 84 85 87 89 91

Other OPEX 40 46 53 58 61 63 65 67 69 71 73 75 77 80 82 85 87 90 92 95

EBITDA 72 254 589 760 842 922 996 1,066 1,138 1,205 1,269 1,331 1,390 1,447 1,504 1,549 1,582 1,617 1,663 1,721

EBIT 51 144 314 405 451 495 533 568 603 635 664 690 713 734 751 765 782 806 833 860

Interest expenses 28 52 96 122 133 142 150 157 164 169 174 179 183 186 189 192 195 200 205 211

Pre-tax profits 23 92 218 283 319 353 383 411 440 466 490 512 531 547 561 573 586 607 628 649

Tax 5 20 48 62 70 78 84 90 97 102 108 113 117 120 123 126 129 133 138 143

Net income 18 71 170 221 249 275 298 320 343 363 382 399 414 427 438 447 457 473 490 506

2015 Balance sheet (SEKm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E 2035E

Assets

387 Cash 115 117 119 114 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

170 ALD Abogados 170 170 170 170 170 170 170 170 170 170 170 170 170 170 170 170 170 170 170 170

291 Ikas 291 291 291 291 291 291 291 291 291 291 291 291 291 291 291 291 291 291 291 291

61 Net working capital 66 73 80 88 97 101 107 112 117 123 129 136 143 147 151 154 158 161 164 167

NPL portfolios 530 1,420 2,245 2,489 2,717 2,926 3,119 3,296 3,456 3,602 3,735 3,854 3,961 4,053 4,130 4,209 4,307 4,432 4,573 4,722

909 Total assets 1,172 2,071 2,904 3,152 3,374 3,589 3,786 3,968 4,134 4,286 4,425 4,551 4,664 4,761 4,842 4,925 5,026 5,153 5,298 5,450

239 Total debt 468 1,278 1,923 2,130 2,296 2,441 2,566 2,677 2,774 2,862 2,942 3,013 3,078 3,131 3,175 3,223 3,289 3,374 3,470 3,568

670 Total Equity 703 792 980 1,021 1,077 1,147 1,219 1,291 1,359 1,423 1,483 1,537 1,586 1,629 1,667 1,701 1,736 1,779 1,827 1,881

909 Debt & equity 1,171 2,070 2,903 3,151 3,373 3,588 3,785 3,967 4,133 4,285 4,424 4,550 4,663 4,760 4,841 4,924 5,025 5,152 5,297 5,449

Cash flow (SEKm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E 2035E

Net income 18 71 170 221 249 275 298 320 343 363 382 399 414 427 438 447 457 473 490 506

+ Amortization 20 110 275 355 391 427 463 498 535 570 605 640 676 714 754 785 800 810 830 862

+ Interest (1-tax) 22 41 75 95 104 111 117 123 128 132 136 139 143 145 148 150 152 156 160 165

- Investments -550 -1,000 -1,100 -600 -618 -637 -656 -675 -696 -716 -738 -760 -783 -806 -831 -864 -898 -934 -972 -1,010

D WC -4 -7 -7 -8 -9 -5 -5 -5 -6 -6 -6 -6 -7 -4 -4 -3 -3 -3 -3 -3

D Debt 229 810 645 207 166 145 125 111 98 88 79 72 64 53 44 48 66 85 96 99

Option plan 15 17 19 14

FCFE -272 2 1 189 179 205 226 249 274 299 323 345 365 383 400 413 422 431 441 452

FCFF -479 -767 -569 77 116 171 218 261 304 343 379 412 443 475 504 514 508 502 505 519

FCF -272 2 2 -5 -14 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Key figures 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E 2033E 2034E 2035E

ERC (SEKm) 1,267 3,378 5,289 5,784 6,226 6,621 6,969 7,278 7,546 7,782 7,991 8,179 8,350 8,508 8,655 8,829 9,048 9,313 9,612 9,932

Balance sheet MM 2.4 2.4 2.4 2.3 2.3 2.3 2.2 2.2 2.2 2.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1

Dividends (SEKm) 0 0 0 194 192 205 226 249 274 299 323 345 365 383 400 413 422 431 441 453

BPS diluted (SEK) 0.92 1.04 1.29 1.34 1.42 1.51 1.60 1.70 1.79 1.87 1.95 2.02 2.08 2.14 2.19 2.24 2.28 2.34 2.40 2.47

EPS diluted (SEK) 0.02 0.09 0.22 0.29 0.33 0.36 0.39 0.42 0.45 0.48 0.50 0.52 0.54 0.56 0.58 0.59 0.60 0.62 0.64 0.67

DPS diluted (SEK) 0.25 0.25 0.27 0.30 0.33 0.36 0.39 0.42 0.45 0.48 0.50 0.53 0.54 0.55 0.57 0.58 0.59

Profitability

RoA 1.8 % 4.4 % 6.8 % 7.3 % 7.6 % 7.9 % 8.1 % 8.3 % 8.5 % 8.6 % 8.8 % 8.9 % 9.0 % 9.1 % 9.1 % 9.1 % 9.2 % 9.3 % 9.4 % 9.4 %

RoE 2.7 % 9.6 % 19.2 % 22.1 % 23.7 % 24.7 % 25.2 % 25.5 % 25.9 % 26.1 % 26.3 % 26.4 % 26.5 % 26.6 % 26.6 % 26.5 % 26.6 % 26.9 % 27.2 % 27.3 %

RoIC 3.9 % 6.9 % 9.8 % 10.4 % 10.8 % 11.1 % 11.3 % 11.4 % 11.6 % 11.8 % 11.9 % 12.0 % 12.1 % 12.1 % 12.2 % 12.2 % 12.3 % 12.4 % 12.4 % 12.5 %

RoCE 5.2 % 9.6 % 13.2 % 13.9 % 14.3 % 14.6 % 14.9 % 15.0 % 15.3 % 15.5 % 15.6 % 15.7 % 15.8 % 15.9 % 16.0 % 16.0 % 16.0 % 16.2 % 16.3 % 16.3 %

Solvency

Equity ratio 60 % 38 % 34 % 32 % 32 % 32 % 32 % 33 % 33 % 33 % 34 % 34 % 34 % 34 % 34 % 35 % 35 % 35 % 34 % 35 %

Equity to debt 150 % 62 % 51 % 48 % 47 % 47 % 48 % 48 % 49 % 50 % 50 % 51 % 52 % 52 % 53 % 53 % 53 % 53 % 53 % 53 %

EBIT / Interest expense 1.8x 2.7x 3.3x 3.3x 3.4x 3.5x 3.5x 3.6x 3.7x 3.8x 3.8x 3.9x 3.9x 3.9x 4.0x 4.0x 4.0x 4.0x 4.1x 4.1x

EBITDA / Interest expense 2.6x 4.9x 6.1x 6.3x 6.3x 6.5x 6.6x 6.8x 7.0x 7.1x 7.3x 7.4x 7.6x 7.8x 8.0x 8.1x 8.1x 8.1x 8.1x 8.2x

NIBD (SEKm) 353 1,160 1,804 2,016 2,196 2,341 2,466 2,577 2,674 2,762 2,842 2,913 2,978 3,031 3,075 3,123 3,189 3,274 3,370 3,469

NIBD / EBITDA 4.9x 4.6x 3.1x 2.7x 2.6x 2.5x 2.5x 2.4x 2.3x 2.3x 2.2x 2.2x 2.1x 2.1x 2.0x 2.0x 2.0x 2.0x 2.0x 2.0x

Debt / Equity 0.7x 1.6x 2.0x 2.1x 2.1x 2.1x 2.1x 2.1x 2.0x 2.0x 2.0x 2.0x 1.9x 1.9x 1.9x 1.9x 1.9x 1.9x 1.9x 1.9x



Appendix

(i) Abbreviations

3PC - Third party collection

AQR - Asset quality review

Asset beta - Unlevered beta

CAPEX - Capital expenditures

CMS - Credit Management Services

Coverage ratio - Loss provisions divided by NPLs

CRE - Commercial real-estate

DDM - Dividend discount model

EBIT - Earnings befor interest and taxes

EBITDA - Earnings before interest, tax, depreciation and amortization

ECB - European Central Bank

Equity beta - Levered beta (debt over equity)

Equity ratio - Equity divided by total assets

ERC - Estimated remaining collections

EU - European union

EVA - Economic value added

FCF - Free cash flow (D cash)

FCFE - Free cash flow to equity holders

FCFF - Free cash flow to capital holders

FTE - Full time equivalents

FV - Face value

GDP - Gross domestic product

Gross IRR - IRR pre- collection costs

IASB - International Accounting Standards Board

IRR - Internal rate of return

Leverage - Total assets divided by equity

MM - Money multiple

Net IRR - IRR net of collection costs

NIBD - Net interest bearing debt

NPL - Non-performing loans

OPEX - Operating expenses

Reinvestment rate - Net CAPEX pluss change in NW divided by after-tax EBIT

RoA - Return on assets

RoCE - EBIT divided by total capital minus cash

RoE - Return on equity

RoIC - After-tax EBIT divided by total capital

SME - Small / medium sized enterprises

WACC - Weighted average cost of capital

WC - Working capital



(ii) Competitors

Top 5 debt collectors in Spain by revenue

Revenue in Spain

Rank Company Home country Describtion 2013 EURm

1 Lindorff Norway

International debt collection company that

focuses on both debt collection services and

purchase of debt portfolios

35.7

2 Geslico SpainLocal debt collection company that focuses on

offering integrated debt collection services29.0

3 EOS Germany

International debt collection company with

presence in 26 countries that focuses on both

debt collection services and purchase of debt

portfolios

16.3

4 Transcom Sweden

Offers customer care, sales, technical support

and credit managment services with

operations in 23 countries

15.9

5 Intrum Justitia Sweden


presence in 20 European countries that

focuses on both debt collection services and

purchase of debt portfolios

11.4

Sources: primary; Axactor, secondary; company websites, DKB

Top 10 debt collectors in Norway by revenue

Revenue in Norway

Rank Company Home country Describtion 2014 EURm

1 Lindorff Norway See above. 912.8

2 PRA Group USA


presence in 14 countries in Europe. Focuses

on both debt collection services and purchase

of debt portfolios

578.8

3 Kredinor Norway

Debt collection company that focuses on both


potfolios.

491.3

4 Intrum Justitia Sweden See above. 204.2

5 Visma Collectors NorwayDebt collection company offering invoicing

services and debt collection176.0

6 Connecto Norway

Debt collection company focusing both on debt

collection services and purchase of debt

portfolios

172.0

7 Gothia GermanyDebt collection company that focuses on debt

collection services133.5

8 Sergel Norge Sweden




portfolios

117.2

9 Svea Finans Sweden




portfolios

108.5

10 IKAS Gruppen NorwaySupplier of invoice administration and debt

collection80.8

Sources: Primary; Axactor, secondary; company websites, Proff Forvalt, PwC



(iii) Top most active buyers and sellers Spain 2015 (2015 FV debt portfolios)

Top 5 most active buyers (EURbn)

1.8

1.0

0.8 0.8 0.8

Oaktree Blackstone Aiqon Capital GoldmanSachs

DE Shaw

Top 5 most active sellers (EURbn)

2.8

2.4

1.7

0.6

0.3

Bankia CaixaBank Sabadell FMS BMN

Sources: Deloitte, Fondsfinans Research

Italy (2015 FV debt portfolios)


2.7

2.4

2.0 1.91.7

Banca Ifis Fortress DE Shaw Hoist DeutscheBank


4.6

2.01.7

1.4 1.3

Unicredit GoldmanSachs

MPS DE Shaw Monte Paschidi Siena


Germany (2015 FV debt portfolios)


1.2 1.2

0.80.7 0.7

JP Morgan Lone Star Oaktree KildarePartners

EOS


4.6

2.01.7

1.4 1.3

Commerzbank GE capital GoldmanSachs

Helaba Citigroup




(iv) Percentage change in RoE determinants (listed peers with 5+ year operating history)

Intrum Justitia

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Leverage

EBIT margin

Pre-tax margin

Revenue / Assets

Pre-tax RoE (rhs)

Sources: company, Fondsfinans Research

Portfolio Recovery Associates Group

0%

5%

10%

15%

20%

25%

30%

35%

40%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Leverage

EBIT margin

Pre-tax margin

Revenue / Assets

Pre-tax RoE (rhs)


Encore Capital Group

0%

10%

20%

30%

40%

50%

60%

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Leverage

EBIT margin

Pre-tax margin

Revenue / Assets

Pre-tax RoE (rhs)




(v)

Political view on non-performing loan resolution Following is a summary of the views of the Economic Governance Support Unit (EGOV) and the Directorate-General for Internal Policies (IPOL) and the IMF. Latest presented in a briefing to the European Parliament 18

th of March 2016:

The impact of NPL on growth The presence of non-performing debt on banks' balance sheets weighs on their ability to lend to the real economy through essentially three channels:

Lower profitability: NPLs imply higher provisioning needs, which in turn lower banks net operating income. Profits are further reduced by the increased amount of human resources needed to monitor and manage high NPL stock;

Higher capital requirements: NPLs are risky assets which attract higher risk weights than performing loans; High NPLs tie up banks' resources and crowd out new credit; IMF calculations suggest that given the current level of impaired assets a timely resolution could release as much as € 42 billion (or 0.5 % of selected countries 2014 GDP) of additional capital, which could unlock new lending of more than 5 percent of GDP.

Higher funding costs: Investors and other banks are less willing to lend to banks with high NPLs levels, leading to higher funding costs for these banks and a negative impact on their capacity to generate profits.

Addressing the NPL issue in Europe

Transfer of assets to individual bad banks

System-wide bad banks

State guarantees on asset portfolios

Facilitating the sale of NPL on the secondary market

According to the IMF, at the end of 2013 the volumes of transactions on distressed debt was only EUR 64 billion in Europe while it amounted to USD 469 billion in the United States, where the stock of distressed debt is much smaller. While the volumes are increasing, as observed for example in Italy (from EUR 5 billion in 2013 to EUR 20 billion expected in 2016), the sale of NPL on the secondary market remains underdeveloped compared to the US market. Important reform measures to address the debt overhang includes:

Reform insolvency laws (more efficient insolvency proceedings)

Supervisory work on loss recognition and troubled asset management

Amending tax rules (especially to struggle for full loss deductibility) In our opinion (Fondsfinans), having the amount of supervisory support enjoyed by the CMS business is highly beneficial. Banks are under from all sides and CMS is seen as part of the solution. Comparing Europe versus the United States, it appears the potential market for debt purchases in Europe is essentially limitless compared to today’s level. We have already observed a massive increase in portfolios brought to the market and we do not see any reason why the supply should subside in the medium to long term. This is based on the observation that countries actually are reforming, and improving conditions for debt sales. The prime example would be Italy, where transaction levels have exploded in recent years on the back of government reforms and investor pressure. While the net yield bonanza (post-crisis) is over in the sector, the amount of supply brought into the market should ensure profitable opportunities to efficient / well-run debt purchasers. It is also likely that the industry will be further consolidated, as the market matures.



Axactor2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

P&L (SEKm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Cash collections 53 290 729 945 1,041 1,133 1,226 1,312 1,401 1,484 1,562 1,636 1,708 1,778 1,846

Amortization 20 110 275 355 391 427 463 498 535 570 605 640 676 714 754

Interest income 33 180 454 590 650 706 762 814 866 913 956 996 1,032 1,064 1,092

Collection costs 13 72 182 236 260 283 306 328 350 371 390 409 427 444 461

NPL portfolio income 19 107 271 354 390 423 456 486 516 542 566 587 605 619 631

Profits from 3rd party collection:

ALD Abogados 42 48 56 64 70 77 81 85 89 94 99 104 109 114 120

Ikas 30 35 40 46 52 58 61 64 67 69 72 75 77 80 82

Other OPEX 40 46 53 58 61 63 65 67 69 71 73 75 77 80 82

EBITDA 72 254 589 760 842 922 996 1,066 1,138 1,205 1,269 1,331 1,390 1,447 1,504

EBIT 51 144 314 405 451 495 533 568 603 635 664 690 713 734 751

Interest expenses 28 52 96 122 133 142 150 157 164 169 174 179 183 186 189

Pre-tax profits 23 92 218 283 319 353 383 411 440 466 490 512 531 547 561

Tax 5 20 48 62 70 78 84 90 97 102 108 113 117 120 123

Net income 18 71 170 221 249 275 298 320 343 363 382 399 414 427 438

Balance sheet (SEKm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Assets

Cash 115 117 119 114 100 100 100 100 100 100 100 100 100 100 100

ALD Abogados 170 170 170 170 170 170 170 170 170 170 170 170 170 170 170

Ikas 291 291 291 291 291 291 291 291 291 291 291 291 291 291 291

Net working capital 66 73 80 88 97 101 107 112 117 123 129 136 143 147 151

NPL portfolios 530 1,420 2,245 2,489 2,717 2,926 3,119 3,296 3,456 3,602 3,735 3,854 3,961 4,053 4,130

Total assets 1,172 2,071 2,904 3,152 3,374 3,589 3,786 3,968 4,134 4,286 4,425 4,551 4,664 4,761 4,842

Total debt 468 1,278 1,923 2,130 2,296 2,441 2,566 2,677 2,774 2,862 2,942 3,013 3,078 3,131 3,175

Total Equity 703 792 980 1,021 1,077 1,147 1,219 1,291 1,359 1,423 1,483 1,537 1,586 1,629 1,667

Debt & equity 1,171 2,070 2,903 3,151 3,373 3,588 3,785 3,967 4,133 4,285 4,424 4,550 4,663 4,760 4,841

Cash flow (SEKm) 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Net income 18 71 170 221 249 275 298 320 343 363 382 399 414 427 438

+ Amortization 20 110 275 355 391 427 463 498 535 570 605 640 676 714 754

+ Interest (1-tax) 22 41 75 95 104 111 117 123 128 132 136 139 143 145 148

- Investments -550 -1,000 -1,100 -600 -618 -637 -656 -675 -696 -716 -738 -760 -783 -806 -831

D WC -4 -7 -7 -8 -9 -5 -5 -5 -6 -6 -6 -6 -7 -4 -4

D Debt 229 810 645 207 166 145 125 111 98 88 79 72 64 53 44

Option plan 15 17 19 14

FCFE -272 2 1 189 179 205 226 249 274 299 323 345 365 383 400

FCFF -479 -767 -569 77 116 171 218 261 304 343 379 412 443 475 504

FCF -272 2 2 -5 -14 0 0 0 0 0 0 0 0 0 0

Key figures 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

ERC (SEKm) 1,267 3,378 5,289 5,784 6,226 6,621 6,969 7,278 7,546 7,782 7,991 8,179 8,350 8,508 8,655

Balance sheet MM 2.4 2.4 2.4 2.3 2.3 2.3 2.2 2.2 2.2 2.2 2.1 2.1 2.1 2.1 2.1

Dividends (SEKm) 0 0 0 194 192 205 226 249 274 299 323 345 365 383 400

BPS diluted (SEK) 0.92 1.04 1.29 1.34 1.42 1.51 1.60 1.70 1.79 1.87 1.95 2.02 2.08 2.14 2.19

EPS diluted (SEK) 0.02 0.09 0.22 0.29 0.33 0.36 0.39 0.42 0.45 0.48 0.50 0.52 0.54 0.56 0.58

DPS diluted (SEK) 0.25 0.25 0.27 0.30 0.33 0.36 0.39 0.42 0.45 0.48 0.50 0.53

Profitability

RoA 1.8 % 4.4 % 6.8 % 7.3 % 7.6 % 7.9 % 8.1 % 8.3 % 8.5 % 8.6 % 8.8 % 8.9 % 9.0 % 9.1 % 9.1 %

RoE 2.7 % 9.6 % 19.2 % 22.1 % 23.7 % 24.7 % 25.2 % 25.5 % 25.9 % 26.1 % 26.3 % 26.4 % 26.5 % 26.6 % 26.6 %

RoIC 3.9 % 6.9 % 9.8 % 10.4 % 10.8 % 11.1 % 11.3 % 11.4 % 11.6 % 11.8 % 11.9 % 12.0 % 12.1 % 12.1 % 12.2 %

RoCE 5.2 % 9.6 % 13.2 % 13.9 % 14.3 % 14.6 % 14.9 % 15.0 % 15.3 % 15.5 % 15.6 % 15.7 % 15.8 % 15.9 % 16.0 %

Solvency

Equity ratio 60 % 38 % 34 % 32 % 32 % 32 % 32 % 33 % 33 % 33 % 34 % 34 % 34 % 34 % 34 %

Equity to debt 150 % 62 % 51 % 48 % 47 % 47 % 48 % 48 % 49 % 50 % 50 % 51 % 52 % 52 % 53 %

EBIT / Interest expense 1.8x 2.7x 3.3x 3.3x 3.4x 3.5x 3.5x 3.6x 3.7x 3.8x 3.8x 3.9x 3.9x 3.9x 4.0x

EBITDA / Interest expense 2.6x 4.9x 6.1x 6.3x 6.3x 6.5x 6.6x 6.8x 7.0x 7.1x 7.3x 7.4x 7.6x 7.8x 8.0x

NIBD (SEKm) 353 1,160 1,804 2,016 2,196 2,341 2,466 2,577 2,674 2,762 2,842 2,913 2,978 3,031 3,075

NIBD / EBITDA 4.9x 4.6x 3.1x 2.7x 2.6x 2.5x 2.5x 2.4x 2.3x 2.3x 2.2x 2.2x 2.1x 2.1x 2.0x

Debt / Equity 0.7x 1.6x 2.0x 2.1x 2.1x 2.1x 2.1x 2.1x 2.0x 2.0x 2.0x 2.0x 1.9x 1.9x 1.9x

Valuation

EV diluted: 1,722 2,530 3,173 3,385 3,565 3,710 3,835 3,946 4,044 4,131 4,211 4,283 4,347 4,400 4,444

EV / EBIT 33.5x 17.6x 10.1x 8.4x 7.9x 7.5x 7.2x 6.9x 6.7x 6.5x 6.3x 6.2x 6.1x 6.0x 5.9x

EV / EBITDA 24.0x 10.0x 5.4x 4.5x 4.2x 4.0x 3.8x 3.7x 3.6x 3.4x 3.3x 3.2x 3.1x 3.0x 3.0x

EV / FCFF n.a. n.a. n.a. 44.2x 30.7x 21.7x 17.6x 15.1x 13.3x 12.0x 11.1x 10.4x 9.8x 9.3x 8.8x

P/B diluted 1.9x 1.7x 1.4x 1.3x 1.3x 1.2x 1.1x 1.1x 1.0x 1.0x 0.9x 0.9x 0.9x 0.8x 0.8x

P/E diluted 75.2x 19.2x 8.1x 6.2x 5.5x 5.0x 4.6x 4.3x 4.0x 3.8x 3.6x 3.4x 3.3x 3.2x 3.1x

P/FCFF diluted n.a. n.a. n.a. 17.9x 11.8x 8.0x 6.3x 5.3x 4.5x 4.0x 3.6x 3.3x 3.1x 2.9x 2.7x

Dividend yield n.a. n.a. n.a. 14.2 % 14.0 % 15.0 % 16.5 % 18.2 % 20.0 % 21.8 % 23.6 % 25.2 % 26.7 % 28.0 % 29.2 %

Valuation @ target

EV diluted: 2,635 3,443 4,086 4,298 4,478 4,623 4,748 4,859 4,957 5,044 5,124 5,196 5,260 5,313 5,357

EV / EBIT 51.3x 23.9x 13.0x 10.6x 9.9x 9.3x 8.9x 8.6x 8.2x 7.9x 7.7x 7.5x 7.4x 7.2x 7.1x

EV / EBITDA 36.8x 13.6x 6.9x 5.7x 5.3x 5.0x 4.8x 4.6x 4.4x 4.2x 4.0x 3.9x 3.8x 3.7x 3.6x

EV / FCFF n.a. n.a. n.a. 56.1x 38.6x 27.0x 21.7x 18.6x 16.3x 14.7x 13.5x 12.6x 11.9x 11.2x 10.6x

P/B diluted 3.2x 2.9x 2.3x 2.2x 2.1x 2.0x 1.9x 1.8x 1.7x 1.6x 1.5x 1.5x 1.4x 1.4x 1.4x

P/E diluted 125.3x 32.0x 13.4x 10.3x 9.2x 8.3x 7.6x 7.1x 6.7x 6.3x 6.0x 5.7x 5.5x 5.3x 5.2x

P/FCFF diluted n.a. n.a. n.a. 29.8x 19.7x 13.3x 10.5x 8.8x 7.5x 6.6x 6.0x 5.5x 5.2x 4.8x 4.5x

Dividend yield n.a. n.a. n.a. 8.5 % 8.4 % 9.0 % 9.9 % 10.9 % 12.0 % 13.1 % 14.1 % 15.1 % 16.0 % 16.8 % 17.5 %

Growth rates

Dividends -1 % 7 % 10 % 10 % 10 % 9 % 8 % 7 % 6 % 5 % 4 %

FCFF 52 % 48 % 27 % 19 % 17 % 13 % 10 % 9 % 7 % 7 % 6 %

Net income 292 % 138 % 30 % 12 % 11 % 8 % 7 % 7 % 6 % 5 % 4 % 4 % 3 % 3 %

EBIT growth 180 % 118 % 29 % 11 % 10 % 8 % 7 % 6 % 5 % 5 % 4 % 3 % 3 % 2 %

Other

Payout ratio 88 % 77 % 75 % 76 % 78 % 80 % 82 % 84 % 86 % 88 % 90 % 91 %

Reinvestment rate 1311 % 787 % 334 % 75 % 62 % 53 % 45 % 39 % 33 % 28 % 24 % 21 % 18 % 15 % 12 %



Definitions of ratings

Buy > 10%

Hold From -10% to 10%

Sell < -10%

Target: Our valuation as of today.

Time frame of target: Target is what we value the share as of today.

Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with “The Norwegian Securities Dealers Associations” standards.

This report has not been sent to the companies for correction of any factual errors.

Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information.

The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities.

Fondsfinans is under supervision of The Financial Supervisory Authority of Norway.

This is an initiation of coverage with a BUY recommendation.

Ownership per 04.05.16 in Axactor IoC: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 0, corresponding to 0% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 0, corresponding to 0% of the company share capital. Fondsfinans may hold shares in Axactor IoC as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. Fondsfinans does not act as market maker in Axactor IoC. Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months. This report was issued and distributed 09.05.16.

DISCLAIMER This report is provided for information purposes only. It should not be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Any opinions expressed are subject to change without prior notice. This report is based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensure that the information herein is not misleading, Fondsfinans AS makes no representation or warranty expressed or implied as to its accuracy or completeness. Neither Fondsfinans AS, its partners and employees, nor any other person connected with it, accepts any liability whatsoever for any direct or consequential loss of any kind arising out of the use or reliance on the information in this report. This report is prepared for general circulation and general information. It does not take into account the specific investment objectives and financial situation of any recipient. Investors seeking to buy or sell any securities discussed or recommended in this report, should seek independent financial advice relating thereto. This report may not be distributed, quoted from or reproduced for any purpose without written approval by Fondsfinans AS. DISCLOSURE OF INTERESTS

Fondsfinans AS is constantly seeking investment-banking mandates, and may at any time perform investment banking or other services or solicit investment banking or other mandates from the company or companies covered in this report. Fondsfinans AS may from time to time as part of its investment services hold positions in securities covered in this report. Under our internal regulations, our analysts are not permitted to purchase new securities in the companies they cover. Holdings are specified as part of shareholder information in each report. DISTRIBUTION IN THE US

Research reports are prepared by Fondsfinans AS for information purposes only. Fondsfinans AS and its employees are not subject to the Rules of the Financial Industry Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to “major U.S. institutional investors” as defined in Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended and may not be furnished to any other person in the United States. Each major U.S. institutional investor that receives a copy of a Fondsfinans AS research report by its acceptance thereof represents and agrees that it shall not distribute or provide copies to any other person. Reports are prepared by Fondsfinans AS and distributed to major U.S. institutional investors under Rule 15a-6(a)(2). These research reports are prepared by Fondsfinans ASA and distributed in the United States by Fondsfinans Inc. under Rule 15a-6(a)(2). Any U.S. Person receiving these reports that desires to effect transactions in any securities discussed within the report should call or write Fondsfinans Inc., a member of FINRA.

Recommendation distribution as of 04.05.16:

Recommendation Percent Recommendation Percent

Buy 65 % Buy 9 %

Hold 35 % Hold 0 %

Sell 0 % Sell 0 %

Total 100 % Total

Companies in each recommendation category that have been

investment banking clients over the past 12 months:

axactor - fondsfinans kapitalforvaltningpublish.fondsfinans.no/axaioc090516.pdf · bloomberg ticker...

Documents