Borgosesia S p A : Value Track - Equity Research 25.01.21

ValueTrack | Update report | 25 January 2021

Borgosesia SpA

Sector: Diversified Financials

Flexible enough to navigate covid worries

Borgosesia is an Italian investor focused on "special situations" i.e. basically non-performing credits that adopts a "single-name" approach and aims to evolve from direct and "sole" investor to a fully integrated asset management group.

2020: A stress test successfully faced so far

2020 has represented an important stress test for Borgosesia's business model and, overall, we believe the company has positively faced the difficulties related to covid-19 outbreak so far. Indeed:

1. Business model proved to be flexible while maintaining its profitability;
2. Reference market kept generating more and more deals opportunities;
3. New deals' funding didn't suffer any halt;
4. Higher diversification and better corporate structure further improved the risk profile.

2021-22: Cash Flow to be "tactically" fine tuned

Borgosesia is an investment vehicle so its mission is not to deleverage, rather to foster Net Asset Value growth by continuously reinvesting generated cash flows. However, maintaining a well-balanced cash in / cash out profile is mandatory in order not to undergo unwanted business and financial constraints. We believe that Borgosesia, in case of struggles in disposing assets or in obtaining additional funding, has many weapons to tactically adapt its 2021E-22E operating / financial strategy.

Financials 2021E-22E

Given what we said before, in our 2021E-22E Base Case we now forecast:

• Ca. €20mn cumulative new "single name" investments, with more Collection and Brownfield investments and less Greenfield ones, and ca. €33mn proceeds from disposal of assets already under possession
• Average "fair value" appraisal effect in the range of 1.6x - 1.8x (vs. 2.0x historical level), as an effect of different investment mix, leading to IRR gross of tax substantially stable in the 30% region;
• New funding activity in ca. €23-€26mn region.

Valuation

We assess the value of Borgosesia Spa (BGS) by applying two different valuation methodologies: Residual Income Model and Peers Analysis. Averaging the two methods we get to a €43.7mn fair value for the 100% equity i.e. €0.93 per share (vs. our previous €0.88 fair value).

VALUETRACK

Analysts Marco Greco [phone] [e-mail] Pietro Nargi [e-mail]

	Fair Value (€)(*)		0.93
	Market Price (€)(*)		0.62
	Market Cap. (€m)(*)	29.3
	KEY FINANCIALS (€m)	2019A	2020E	2021E
	REVENUES	20.7	25.5	22.6
	EBITDA	4.1	6.5	7.0
	EBIT	3.9	6.4	6.9
	NET PROFIT	2.7	3.9	4.3
	EQUITY	27.3	31.2	35.5
	NET FIN. POS.	-3.9	-19.5	-23
	EPS (€)	0.06	0.08	0.09
	DPS (€)	0.00	0.00	0.00
	Source: Borgosesia (historical figures),
	Value Track (2020E-21E estimates)
	RATIOS & MULTIPLES	2019A	2020E	2021E
	EBITDA MARGIN (%)(**)	19.9	25.6	31.1
	EBIT MARGIN (%)(**)	19	24.9	30.3
	NET DEBT / CAP. EMP. (x)	0.1	0.4	0.1
	NET DEBT / EQUITY (x)	0.1	0.6	0.6
	ROE (%)	9.7	12%	12%
	P/E ADJ. (x)	7.9	7.2	6.6
	P/BV ADJ. (x)	0.8	0.9	0.8
	DIV YIELD (%)	0.0	0.0	0.0

Source: Borgosesia (historical figures), Value Track (2020E-21E estimates) (**) as % of Net Operating Revenues

	STOCK DATA (*)
	FAIR VALUE (€)	0.93
	MARKET PRICE (€) (*)	0.62
	SHS. OUT. (m)	45.1
	MARKET CAP. (€m)	29.3
	FREE FLOAT (%)	50.7
	AVG. -20D VOL. (# shs.)	92,911
	RIC / BBG	BRGI.MI / BO IM
	52 WK RANGE	0.37-0.69

Source: Stock Market Data (*) Ordinary shares only, NOT assuming treasury shares cancellation. Stock price as of 15/01/2021 mkt close

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Borgosesia SpA | Update Report | 25 January 2021

Business Description

Borgosesia is an Italian focused investor in "special situations" i.e. basically non-performing credits where the underlying asset is either real estate assets under interrupted construction or troubled assets such as tax credits and receivables borne by companies that are either active or have already shut. Borgosesia investments are characterized by the "single-name" approach, (i.e. it doesn't buy generic NPL portfolios) and aims to evolve from direct and solo investor in special situations to a fully integrated illiquid asset management group structuring products in which to co-invest with other investors.

Key Financials

€ mn	2019A	2020E	2021E
Total Revenues	20.7	25.5	22.6
Chg. % YoY	-9.9%	23.2%	-11.4%
EBITDA	4.1	6.5	7.0
EBITDA Margin (% of Net Revenues)	19.9%	25.6%	31.1%
EBIT	3.9	6.4	6.9
EBIT Margin (% of Net Revenues)	19.0%	24.9%	30.3%
Net Profit	2.7	3.9	4.3
Chg. % YoY	80.0%	44.3%	10.0%
Adjusted Net Profit	2.7	3.9	4.3
Chg. % YoY	80.0%	44.3%	10.0%
Net Fin. Position	-3.9	-19.5	-23
Net Equity	27.3	31.2	35.5
Net Fin Position / Equity (x)	n.m.	0.6	0.6
ROE (%)	9.70%	12.5%	12.1%
ROCE b.t. (%)	12.60%	12.5%	11.7%

Source: Company SpA (historical figures), Value Track (estimates)

Investment case

Strengths / Opportunities

• Top management extensive experience in insolvency proceedings
• Wide network of contacts generating "leads"
• Light fixed costs structure

Weaknesses / Risks

• Dependence on Italy's bankruptcy legislation
• Lag from revenues recognition to cash in dates
• Funding capability still limited

VALUETRACK

Shareholders (% of share capital)

Treasury

shares

Market16.3% 50.7%

Saving shares…

Dama 20.4%

AZ Partecipaioni

10.7%

Source: Company SpA

Shareholders (% of vot. rights)

Market 61.9%

Dama

25.0%

AZ Partecipaioni

13.1%

Source: Company SpA

2019 Sales by business line

Advisory and

Fiduciary

4.4%

Others

3.7%

Real estate

91.9%

Source: Company SpA

Stock multiples @ €0.93 Fair Value

	2020E	2021E
EV / EBITDA (x)	12.0	10.6
EV / EBIT (x)	12.3	10.9
P / E (x)	10.8	8.7
P / BV (x)	1.4	1.2
Div. Yield. (%)	0.0	0.0
Source: Value Track

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Executive summary

2020: A stress test successfully faced so far

2020 has represented an important stress test for Borgosesia's business model and, overall, we believe the company has positively faced the difficulties related to covid-19 outbreak so far. Indeed:

1. The business model has proved to be flexible while maintaining profitability;
2. The reference market is generating more and more opportunities to choose among;
3. New deals' funding didn't suffer any halt;
4. Higher diversification and better corporate structure are further improving the risk profile.

As far as the first point is concerned, we underline that the goal of the company, since its new inception and up to covid-19 outbreak, has been to generate a ca. 25%-35% IRR thanks to a very simple investment rule of thumb, "invest one and get two in three years". This rule has allowed the company to generate a cash exit multiplier in the 2.2x region for those deals entirely finalized, (i.e. acquired, restructured / finalized and eventually disposed) by the end of 2020.

In reaction to the adverse and unexpected scenario linked to pandemic, BGS decided to tactically change its rule of thumb and to adopt a more conservative approach by changing the mix of new investment, i.e. less greenfield and more brownfield and "trading" claims, and by increasing the total amount of investments compared to initial plans.

The result of such a change in investment policy has been twofold, at Cash Flow and at P&L levels:

• Cash Flow level. Decrease in time to exit and expected cash on cash multiple on the various deals, while substantially maintaining stable the expected IRR. Indeed, we see that a combination of a money multiplier at ca. 1.5x, along with shorter time to exit an investment (ca. two years), leads to a gross of tax IRR in excess of 20%.
• P&L level. Substantially maintaining stable the expected Group EBITDA but with a higher number of deals and a lower unitary EBITDA contribution (both in absolute value and as percentage of sales). Indeed, in 2020 BGS announced investments for a total €10.9mn compared to €7.3mn initial target.

As far as the other points are concerned, we note that:

• The reference market is generating more and more opportunities to choose among. Indeed, € 16bn worth NPL transactions have been closed in the first nine months of 2020, and industry experts forecast that Covid-19outbreak and the subsequent crisis that has severely hit Italy will increase the number of new opportunities to scout around;
• New deals' funding didn't suffer any halt, also thanks to a well-structured leverage situation. Indeed, Gross Financial Position on Net Equity stood at ca. at 1.2x and Total Asset coverage ratio (Net Equity/Total Asset) at ca. 40% as of June'20, and current outstanding debt obligations are evenly distributed by type (traditional bank loans, convertible and traditional bonds) and by dates of the expiry;
• With the aim to further improve its risk profile, in 2020-21 Borgosesia is: 1) adding new business lines (investment in troubled SMEs and Renewable Energy assets), new refinancing / fund raising tools (SPAC, Crowdfunding, possible JVs in Alternative Asset Management); 2) strengthening the management structure while maintaining skin in the game, as the current Chairman and CEO is indirectly the single largest shareholder with 25% voting rights.

2021-22: Cash Flow to be "tactically" fine tuned

Borgosesia is an investment vehicle so its mission is not to deleverage, rather to foster Net Asset Value growth by continuously reinvesting generated cash flows.

However, we note that funding new deals at convenient rates is as important as investing profitably, so maintaining a well-balanced cash in / cash out profile is mandatory.

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

From this point of view, we believe that Borgosesia, in case of struggles in disposing assets or in raising new credit lines, has weapons to successfully and tactically adapt its 2021E-22E operating / financial strategy now calling for ca. €20mn cumulative new investments and ca. €30mn-€35mn cumulative proceeds from disposals. Indeed, in a worst-case scenario the company might rely on:

• High quality of assets potentially disposable. BGS owns many real estate properties located in prestigious and dynamics geographic areas, featured by vigorous market liquidity, at a time in history characterized by zero-lowinterest rates;
• Investment mix that can be further fine-tuned. Longer than expected covid-19 scenario might be faced by further skewing deals mix towards those with shorter time to exit;
• Investment process that can be stopped. Assuming a 3-years plan to invest €10mn per annum in greenfield assets followed by a stop to further investments, we calculate that debt issued to finance the investment would be totally reimbursed by the end of the fourth year (FY4), proving BGS business viability and its ability to pay off debtholders
• "Tactical" boost on operating and financial proceeds. Additional financial sources might arise from: 1) the placement on the market of ca. €5mn Treasury shares, 2) the disposal of other lower quality real estate assets already in the books, worth up ca. €70mn, at bargain price if needed, 3) the disposal of part of the €20mn new assets to be acquired in 2021-22,particularly those acquired for trading purposes, which by default requires faster time to exit.

Financials 2021E-22E

Given what we said before, in our base case we now forecast:

• Ca. €20mn cumulative new "single name" investments in 2021-22E, equally split between the next two years, favoring Collection investments until better economic times return, at the expense of Greenfield and Brownfield ones;
• Average "fair value" appraisal effect in the range of 1.6x - 1.8x (vs. 2.0x historical level) as an effect of different investment mix;
• IRR gross of tax substantially stable in the 30% region;
• Ca. €33mn proceeds from disposal of assets already under possession;
• New funding activity in the ca. €23-€26mn region.

Valuation

We assess the value of Borgosesia Spa (BGS) by applying two different valuation methodologies:

• Residual Income Model (R.I.M.), i.e. adding to Net Asset Value the present value of future profits exceeding the estimated charge/cost of equity capital;
• Peers Analysis, i.e. comparing Borgosesia to similar listed companies.

Averaging the two above mentioned methods we get to a €43.7mn fair value for the 100% equity of Borgosesia SpA, i.e. €0.93 per share (vs. our previous €0.88 fair value).

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Profitably investing in good and bad times

One year ago, i.e. back as of January 21st 2020, we published our Initiation of Coverage report on Borgosesia, by thoroughly describing the company's business model and features (please see https://value-track.com/wp-content/uploads/2020/01/Borgosesia-Initial-coverage-2020.01.21.pdf).

It's now time to touch base and see how things have evolved in the latest twelve months.

A recap on Borgosesia's mission

For those not familiar with Borgosesia, we remind the following:

• Borgosesia is a leading Italian investor in "special situations" i.e. basically non-performing credits where the underlying asset is either real estate assets under interrupted construction or troubled assets such as tax credits and receivables borne by companies that are either active or have already shut;
• While most of market players are substantially non-performing assets traders, i.e. they just buy and sell portfolio of troubled values / goods / properties / investments / receivables and assets, the peculiarity of Borgosesia business model is the single-name attitude, i.e. it doesn't buy whole NPL portfolios, but rather it cherry picks only those assets eligible for a profitable investment after having valued them thorough six-stepsdue diligence process;
• Differently from its competitors, Borgosesia has an "hands-on" approach, i.e. it invests in illiquid and problematic situations trying to fully exploit the hidden value and realize it "in full", even if in a bit longer time. To do so, it works on both asset and liability sides in order to exploit the asset value (i.e. by completing the real estate construction) while reducing the nominal value of liabilities with agreements with previous creditors or with the Court.

Real numbers (good), not words

Borgosesia's success has to be measured based on the return of its investments, and we note that also in 2020 the deals entirely finalized, (i.e. acquired, restructured / finalized and eventually disposed) have obtained positive outcomes, with cash exit multiplier in the 2.2x region.

Borgosesia: Deals finalized in recent years (*)

Operation	Primary Investment	Cash-in	Multiplier (x)
Crediti Cherasco	0.09	0.16	1.8x
Management 3	0.42	0.68	1.6x
Fine Arts	5.07	11.59	2.3x
Cosmo Seri	0.55	0.67	1.2x
Fallimento 02 Sud Est	1.20	2.51	2.1x
Credito Cosmo Seri	0.13	0.16	1.2x
Green Opificio	5.08	11.59	2.3x
Residenze Smart	0.42	2.75	6.5x
Certosa Urban Flat	2.30	4.13	1.8x
Elle Building	2.77	5.82	2.1x
Total	18.03	40.06	2.2x

Source: Borgosesia SpA also under the guise of the ex CdR

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

2020: A stress test successfully faced so far

2020 has represented an important stress test for Borgosesia's business model and, overall, we believe the company has positively faced the difficulties related to covid-19 outbreak so far. Indeed:

1. The business model has proved to be flexible while maintaining profitability;
2. The reference market has more and more opportunities to choose among;
3. New deals' funding didn't suffer any halt;
4. Higher diversification and better corporate structure are further improving the risk profile.

1. Flexibility and profitability of the business model

The goal of the company, since its new inception and up to covid-19 outbreak, has been to generate a ca. 25%-35% IRR thanks to a very simple investment rule, "invest one and get two in three years". This rule was successfully adapted to the scenario driven by covid-19 outbreak. More in details:

IRR generation in the pre-covid environment

Short and medium-term economic results are dependent not only on Internal Return Rate (IRR) on each deal closed, but also on the number of deals finalized and on so-called "abort costs", those scouting costs incurred in connection with the activities of evaluation and negotiation of any investment opportunity that do not lead to a deal.

As far as the Internal Return Rate (IRR) on each deal closed, this is a direct function of:

• Cash Multiple - the multiple of cash invested by the group relative to both the proceeds derived during the investment period and at exit;
• Time needed to exit each deal.

With these drivers in mind, we were used to assume the following:

1. an investment finalized at year "zero";
2. abort costs equal 3% of the invested amount per deal and zero funding cost;
3. a cash multiplier of 2.0x and;
4. a time to exit of three years,

Returning a 26% gross of tax expected IRR.

IRR generation during covid-19 outbreak

The adverse and unexpected scenario linked to pandemic has driven slowdown in operating activities, in particular:

• Building activities and real estate assets disposal process was suspended at least for two months in the 1H due to the well-know"lockdown", while over the rest of the year scouting process to identify potential investment opportunities continued on a "smart working" approach;
• In-courtinsolvency procedures related to the acquisition of non-performing assets suffered a severe slowdown. According to industry sources, this stop caused a delay of around 123k bankruptcy auctions in Italy, ending the 2020 with 116.6k total auctions vs 240k in 2019. Furthermore, Lombardy and Lazio, two main reference markets for Borgosesia, were the regions suffered the most from this situation.

In reaction to the lower visibility generated by the above-mentioned phenomena, BGS decided to adopt a more conservative approach by:

• Accelerating as much as possible the repossession of troubled claims with underlying real estate assets;
• Changing the mix of new investment, i.e. less greenfield and more brownfield and "trading" claims.

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Borgosesia SpA | Update Report | 25 January 2021

Borgosesia: Features of the different assets to invest on

Type of asset	Features

VALUETRACK

Basically, a bare ground with no existing construction, which translates in low

Greenfield assetprimary investment (roughly 20% of expected revenues), high direct costs, long timeto exit (3yy) and high cash-on-cashmultiple (2x)

Already started construction which need to be valorized trough additional works.

Brownfield asset It requires high primary investment, low direct costs, lower delivery times to exit (1-2yy) and lower cash-on-cashmultiple (1.5x-1.8x)

NPE (claims, loans and other procedures) acquired for trading purposes.

CollectionPrimary investments at ca. 60%-70% of expected revenues, very few direct costs,short time to exit (0.5-1.5yy)and low cash-on-cashmultiple (1.2x-1.5x)

Source: Borgosesia SpA

The result of such a change in investment policy has been to shorten the expected time to exit and accept a lower cash on cash multiple, while substantially maintaining the expected IRR. Indeed, we see that a combination of a money multiplier at 1.5x, along with shorter time to exit an investment (ca. two years), leads to a gross of tax IRR in excess of 20%.

IRR (gross of tax, %) - Sensitivity to Time to exit and to Money multiplier

IRR (gross of tax, %)			Time to exit (years)
	2 yy	3 yy	4 yy
Money		1.5. x	22%	14%	11%
Multiplier		2.0 x	41%	26%	19%
(x)		2.5 x	58%	36%	32%

Source: Value Track Analysis

Worthy to note, if we compare the impact of greenfield and brownfield investments on P&L we note that the latter have a lower EBITDA in absolute value and as percentage of sales. This meant for BGS that in order not to miss the EBITDA targeted in its business plan it was necessary to increase the total amount of investments compared to initial plans.

Indeed, while in 1H20 BGS finalized deals worth €8.5mn by investing a total €4.65mn, in 2H20 BGS invested a total €6.2mn for a total annual €10.9mn. In details:

1H20: €4.65mn investments, broken down as follows:

• 20/01 - BGS has reached an agreement on a €6.1mn litigation, based on the purchase of some related securities with a nominal value of €5.5mn, and for a total cash consideration of €3.8mn. Such portfolio also includes €1.1mn BGS convertible bonds, that will be contextually cancelled;
• 05/03 - BGS finalized the acquisition of a residential property located in the center of Milan, for a total consideration of €1.7mn, paid as for €1.5mn through the compensation of a single name loan previously acquired and guaranteed by mortgage on the property itself;

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

• 06/03 - BGS completed the purchase of a residential property in Rome, to be used for a subsequent residential enhancement and for a total consideration of €4.0mn, to be paid for €3.5mn by offsetting already acquired credits guaranteed by mortgage on the same property;
• 22/04 - BGS agreed to acquire the 100% of share capital in Lake Holding Srl, an investment vehicle which holds a real estate portfolio, in which the Group already held a 5% stake, as well as some pre-emptive rights, i.e. participation of 51% to company Net Profit, and 51% Net Equity coming from the liquidation procedure.
  Based on a valuation of €15mn for the real estate portfolio and taking into account the incumbent liabilities on the Lake Holding Group, the transaction will entail a total investment for Borgosesia equal to €1.6mn, partially paid through an equity swap with Borgosesia shares.
• 30/06 - BGS agreed to acquire non-performing loans worth a nominal €6mn by paying some €3.15mn. The underlying assets are finished real estate assets in Lombardy and in Rome, available to be disposed of once repossessed.

2H20: €6.2mn investments, broken down as follows:

• 07/08 - BGS finalized the purchase of residential property located in Cernobbio, near Lake Como, to be used for a subsequent residential enhancement and for a total consideration of €1mn.
• 30/10 - BGS completed the purchase of a residential property in Gardone Riviera, among the most prominent tourist attractions in Italy, for a total consideration of €7mn, to be paid for €3.95mn, and of which €3.3mn offset by a mortgage credit previously acquired;
• 25/11 - BGS acquired 15 loft and 75 garages in Milano Bovisa. The acquisition is a result of insolvency procedure and it is expected to require €3.3mn investment, of which €1.7mn offset by mortgage credits previously acquired;
• 18/12 - BGS acquired a residential property located in Milan, still under construction and made of 54 residential units. The acquisition was for a total consideration of 8, to be paid for €4.1mn;
• 22/12 - BGS finalized the acquisition of 65% of an investment vehicle, acquiring the ownership of the underlying real estate property. The transaction required €1.5mn investments

2. Broader reference market where to cherry- pick

Huge reference market, with new opportunities likely to arise in the post-Covid

With €16bn worth NPL deals closed in the first nine months of 2020, the market remains quite vivacious despite the adverse conditions, while the leveraging strategies announced by banks are expected supporting 2021E activities.

NPL transactions in 2015-21E (€bn)

Source: Banca IFIS, Banca d'Italia, ABI Monthly Outlook, PwC, Value Track Analysis

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

More important, the Covid-19 outbreak and the subsequent crisis that has severely hit Italy it is also expected to increase the number of new opportunities to scout around.

Indeed, according to the latest "Market Wach - NPL" published by Banca IFIS in September 2020, as a consequence of pandemic, it is reasonable to see a strong increase in NPE stock in 2021E getting back up at 2019 levels, with the incidence of non-performing on total loans expected to increase for all customers segments, even though at higher level for the corporate segment.

Italian NPE market evolution 2010-1Q20

Source: Banca IFIS, Banca d'Italia, ABI Monthly Outlook, PwC, Value Track Analysis

Italian NPE market evolution 2010-1Q20

Source: Banca IFIS, Banca d'Italia, ABI Monthly Outlook, PwC, Value Track Analysis

3. New deals' funding didn't suffer any halt

Funding new projects at convenient rates is part of Borgosesia business model, and a direct driver for profitability, so maintaining a solid debt position is mandatory. From this point of view, we believe that current outstanding debt obligations are well-distributed by type (traditional bank loans, convertible and traditional bonds) and by dates of the expiry.

Gross Financial Debt, net of cash on hands (cash and cash equivalent plus held for sales securities, prudentially not including financial credits - a portion of which secured by mortgage), stood at ca. €34mn as of end of September '20, higher than the €25.5mn figure as of 2019 year-end due to an intense investment activity.

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

More, if we look at the capital structure of Borgosesia at the end of Jun '20, it appears almost well balanced, with Gross Financial Position on Net Equity at 1.2x, definitely lower than the 1.5x of similar companies. Based on our estimates, the ratio should be almost unchanged (1.2x) at the end of Dec'20.

Last but not least, we view as under control also the total asset coverage ratio (Net Equity/Total Asset) that we calculate at ca. 40% as of June'20, or even higher if we reduce Total Asset by the amount of already commercialized real estate assets, for which BGS is waiting for the final payment. And we underline that assets are almost entirely tangible ones.

Borgosesia: Net and Gross Financial Position over the last year

(€mn)	Dec'19	Mar '20	Jun'20	Sep'20	Dec'20E - VT
Cash & Cash equivalents (+)	5.3	4.8	2.8	9.7
Short-term Financial credits (+)	16.8	11.3	15.8	15.5
HFS Securities (+)	0.7	0.7	0.7	0.7
Current Financial Assets	22.8	16.9	19.3	26.0	18.3
Bonds within 12m (-)	0.0	0.0	0.0	0.0
Debt to Banks within 12 months (-)	-0.8	-1.8	-4.8	-5.2
Other current financial debt (-)	-5.4	-5.1	-6.4	-11.2
Current Financial Debt	-6.2	-6.9	-11.2	-16.4	-13.6
Long term financial credits (+)	4.8	4.9	7.2	7.3
Non-Current Financial Asset	4.8	4.9	7.2	7.3	7.3
Bonds (-)	-23.3	-23.8	-24.7	-24.8
Debt to Banks over 12 months (-)	0.0	0.0	0.0	-3.0
Other non-current financial debt (-)	-2.1	-2.0	-0.4	-0.4
Non-Current Financial Debt	-25.4	-25.8	-25.1	-28.1	-31.5
Net Financial Position - NFP	-3.9	-10.9	-9.8	-11.2	-19.5
Gross Financial Position - GFP (*)	-25.5	-27.1	-32.8	-34.0	-36.7
Book Value of Equity	27.3		28.1		31.2
Total Asset	65.9		72.7		78.4
GFP/ Book Value of Equity	0.9x		1.2x		1.2x
Book Value of Equity/ Total Asset	41%		39%		40%

Source: Borgosesia SpA (*) Total Net Debt less Cash & Cash equivalent and held for sales securities

Borgosesia - Outstanding Public Debt Instruments

Name	Maturity	Listing market	N. Value(€)	Interest rate (%)	Amount issued (€mn)
CdR 2015/21 Conv.	26/10/2021	AIM Italia	100.00	6.00%	4.95
CdR 2016/22 Conv.	21/12/2022	AIM Italia	100.00	5.00%	4.95
NPL IT Opp. 2016/21 TV	21/12/2021	Third Market	100.00	4.00%	1.45
NPL Global 2017/22	07/08/2022	Third Market	100.00	5.00%	7.00
PO Jumbo 2018/24	08/06/2024	Third Market	100.00	6.25%	8.06
Total	--	--	--	--	26.4

Source: Company Data, Value-Track Analysis

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10

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

4. Higher diversification and better corporate structure are further improving the risk profile

With the aim to further improve its risk profile, in 2020-21 Borgosesia is working in order to:

• Add new business lines, new refinancing / fund raising tools;
• Strengthen the management structure while maintaining skin in the game.

New business lines / fund raising tools

Borgosesia short-term business strategy aims to focus not only on the continuous development of NPA business activity as a sole investor but also to look for additional high-rewarding growth opportunities such as the promotion / structuring of financial products focused on illiquid assets, in which to co- invest with other investors, or simply act as an exclusively Management and Advisor Company for third party investors.

Borgosesia would thus scout the investment opportunities, find the proper way to transform the assets from non-performing to performing and organize the funding of the deal where third parties (institutional investors, family offices and so on) should put most of the money needed while BGS would earn a service fee which would multiply its return on investments.

As of today, some initiatives have been already taken (or still in a negotiation phase), among which we highlight:

• BGS Club Spac - i.e., business opportunities in which small group of investors acquire minority stakes of a newco dedicated to carry out a single NPA deal (so-calleddirect equity approach). Two first operations have been recently signed, for a total €4.3mn raised capital, aimed at the valorization of two real-estate projects, in Gardone Riviera (Lake Garda) and in Rome;
• Concrete Investing - an innovative startup involved in the real estate equity crowdfunding through which BGS promoted the first campaign in 2019, concluded with the achievement of €1.5mn target in just two weeks;
• On-goingdiscussions with Consultinvest - the Group started some "preliminary talks" with Consultinvest aimed at verifying the possibility of a collaboration in the field of alternative funds focused on the real economy.

Last but not least, we reckon that future plans might call also for investment in SMEs or in Renewable Energy assets if affected by financial distressed problems that BGS might positively address.

Strengthening the management structure while maintaining skin in the game

As a matter of fact, the current Chairman and CEO, Mr Mauro Girardi, is the main driver of both strategic, directional and operational actions put in place by Borgosesia.

However, in the latest couple of years the company has further strengthened its management and governance structure with the appointment of three new Board member, i.e. Davide Schiffer (also appointed as CEO), Nicla Picchi and Bartolomeo Rampinelli Rota, whose professional experience gained over the years in the field of compliance activities, bankruptcy proceedings and real estate business is helpful to the Group's development investment process in non-performing asset.

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11

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Borgosesia: Board of Directors

Davide Schiffer	Mauro Girardi	Bartolomeo
Rampinelli Rota
CEO	CEO and Chairman
Board Member
Nicla Picchi		Emanuela Baj
Independent Director
	Independent Director

Andrea Zanelli	Gabriella Tua	Matteo Genoni
Board Member
Board Member	Board Member

Source: Borgosesia, Value Track Analysis

More important, in our view, is the fact that Board and Management interests are aligned to stakeholders' ones, as Dama S.r.l. (owned by Mr Girardi) remained the single largest shareholder with 25% voting rights also after the deal that led to the conversion of Kronos shares into Borgosesia ordinary ones (#2 BGS each #3 Kronos share) back in 2020.

Borgosesia: Shareholders' structure post-Integration process

Shareholder	Nosh	% share capital	% of voting capital	% of voting rights
Dama	9,393,199	20.4%	20.8%	25.0%
AZ Partecipazioni	4,921,202	10.7%	10.9%	13.1%
Market	23,297,576	50.7%	51.6%	61.9%
Treasury shares	7,517,644	16.3%	16.7%	--
Savings shares	862,691	1.9%	--	--
Total Shares	45,992,312	100.0%	100.0%	100.0%

Source: Borgosesia SpA

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12

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

2021-22: Cash Flow to be "tactically" fine tuned

Borgosesia is an investment vehicle so its mission is not to deleverage, rather to foster Net Asset Value growth by continuously reinvesting generated cash flows.

However, we repeat that funding new projects at convenient rates is as important as investing, so maintaining a well-balanced cash in / cash out profile is mandatory.

From this point of view, we believe that Borgosesia has weapons to successfully and tactically adapt its strategy, so we take two possible scenarios under consideration:

• Base case, with ca. €20mn cumulative new "single name" investments in 2021-22E and ca. €30mn-€35mn cumulative proceeds from disposals;
• Worst case, with possible difficulties in disposing assets or in raising new credit lines.

Base case: €20mn new investments, €30-35mn disposals

Unfortunately, it is likely that covid-19 outbreak keeps spreading its negative effects for a big part of 2021, so we expect BGS to keep adopting the same investment strategy pursued in 2H20 i.e. an accelerated investment effort with a mix skewed towards assets with a shorter time to exit. This should lead also to a higher amount of proceeds from disposals compared to the Business Plan unveiled one year ago. Overall, we believe fair to assume:

• Ca. €20mn cumulative new "single name" investments in 2021-22E,equally split between the next two years, favoring Collection investments and Brownfield ones, at the expense of Greenfield;
• Ca. €30mn-€35mn cumulative proceeds from disposal of those assets already under possession and that represent only the high-endassets in portfolio.

To the above mentioned amounts we have to add structural costs, financial expenses and expiring debt, so we calculate that BGS should call for roughly €23mn of new financing sources, or €14 mn excluding the current amount of cash in hands.

Borgosesia: Expected cash in and cash out in 2021-22

(€mn)	2021E	2022E	Cumulated
Operations - (Primary + Secondary Investments)	-10.0	-10.0	-20.0
Structural costs + Net Financial Charges	-5.0	-5.0	-10.0
Cash-out from operating activities (a)	-15.0	-15.0	-30.0
Maturing Debt	-13.6	-12.0	-25.6
Cash-out from financing activities (b)	-13.6	-12.0	-25.6
Total Cash-out (c) = (a+b)	-28.6	-27.0	-55.6
RE asset disposal (conservative assumption)	8.0	25.0	33.0
Total Cash-in (d)	8.0	25.0	33.0
Funding needs excl. cash in hands (f) = (c+d)	-20.6	-2.0	-22.6
Total Cash & Cash Equivalent (e)	8.4		8.4
Funding needs (g) = (c+d+e)	-12.2	-2.0	-14.2

Source: Value Track Analysis

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13

Borgosesia SpA | Update Report | 25 January 2021

Facing a possible worst case

VALUETRACK

Given the not so short times necessary to finalize the typical NPA investment-disposal process, Covid- 19 related difficulties in disposing assets or in raising the funds necessary to start new projects might hamper Borgosesia. However, we find many mitigants to these possible concerns, ranging from halting new investments / changing the mix towards those with a shorter time to exit to boosting disposals of already owned operating / financial assets.

Time to Cash Flow usually not so short

An investment in "non-performing" assets requires many steps before a net cash in is gained:

1. Scouting - In this phase the Group i) identifies the "target asset" related to the potential investment, ii) collects info about the "non-performing" status and iii) organizes the operational structure;
2. Loan Acquisition - In this phase the Group acquires the credit secured by the "target asset", which are normally NPL or UTP, that is paying a certain percentage (usually at huge discount) of nominal credit to creditors;
3. Securitization - Possibly, the NPL is added into a diversified security issued on the market (Securitization) and look at the possible placement of related notes to qualified investors;
4. Acquisition (repossession) of the Target Asset - In this phase, the Group pays down creditors and acquires the property of the target asset.
   This process seems quite standards, but it may differ according the nature of the loan. Generally, the Group submits an offer agreement to creditors in exchange for receiving debtor 'assets;
5. Real Estate Upgrade - Borgosesia coordinates all operations with the goal of ultimate the construction of the unfinished real estate asset, assigning to third parties the execution.
6. Sale of Asset - Borgosesia launches a promotional campaign aimed at stipulating preliminary contracts, under which the buyer commits himself on the payment of the real estate unit according to some specific procedures.

Borgosesia: Investment in a "non-movable asset" step by step

	1.SCOUTING		2. LOAN ACQUISITION
bonds and notes
repayment			3. SECURITIZATION

	6. SALE OF THE		5. REAL ESTATE UPGRADE	4. ACQUISITION
	ASSET		OF TARGET ASSET
Source: Value Track Analysis

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

As an effect, and as already seen in the previous sections, in the greenfield case it may take up to 3yy- 4yy time from initial cash out to get the final payment (cash-in) of the real asset disposal.

Distresses greenfield investment: Deal timeline from a Cash Flow perspective

Return

Short-term returns

Medium-term returns

Real

Estate

cash-in

Dividends,

(+)

Commercial

Fiscal

liquidity,

Execution

Execution

participations

costs

Financial

credits

credits

Financing

(+)

(-)

costs

credits

cash-in

(+)

(-)

Asset

cash-in

(+)

(-)

acquisition

(-)

(+)

Time

FY 0		FY 1		FY 2		FY 3		FY 4

Source: Value Track Analysis

Simulating a worst case on assets disposal and on funding sides

A worst-case scenario might arise from two different angles:

1. Difficulties to dispose assets - given the gloomy economy scenario, connected to Covid-19 pandemic, we do not rule out the possibility that BGS might face a lower-than-expected market demand or some slowdown in the valorization phase which inevitably imply some delay in the final payments and cash-in.
   Hence, negative market stances linked to GDP lower expected growth, higher interest rates, or a systemic credit crunch would likely impact BGS operations, and in particular the time to dispose assets.
   Although our estimates and model do not factor such a worst case, we are aware - given the amount of financial debt to be repaid - that the Group should intensify debt financing operations and/or reduce the annual total amount of operating investments;
2. Difficulties to funding- the Group might experience some obstacles to issue new credit lines at convenient rates, that means it has to press-ahead with the disposal of asset (we also recall that at the end of this 2 years investment cycle, BGS should rely on a €100mn potential proceeds from asset). Alternatively, the Group might reduce the annual total amount of operating investments, or definitely focus on "collections", which embed a lower time to exit if compared to greenfield and brownfield assets.

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15

Borgosesia SpA | Update Report | 25 January 2021

Borgosesia: Base vs Worst Case Scenario

VALUETRACK

Base Case	€30mn		€25mn	€33mn
	Operating		Maturing Debt	Asset Disposal
	Investments
1. Worst Case						or
Difficulties to dispose	€23mn		€25mn	€32mn
assets
	Asset Disposal		Maturing Debt	New Funding
2. Worst Case						or
Difficulties to fund	€12mn		€25mn	€43mn
raising
	New Funding		Maturing Debt	Asset Disposal
Source: Value Track Analysis			Cash out		Cash in

€22mn

New Funding

€20mn

Operating

Investments

€20mn

Operating

Investments

Risk mitigant # 1: High quality of assets potentially disposable

BGS owns many real estate properties located in prestigious and dynamics geographic areas, featured by vigorous market liquidity, at a time in history characterized by zero-low interest rates.

As a matter of facts, based on the latest available picture as of Jun'20, almost all current real estate assets on company's book relate to residential development projects (expected to be finalized in the short term) situated in the metropolitan area of Milan, but also in strategic cities like Rome, Bergamo, Brescia and in typically tourist locations such as Lake Como, Lake Garda and Lake Maggiore.

Borgosesia: Current RE assets on balance sheet

(€mn)	Dec'19	Jun'20
Milano - Cosenz	0.7	0.7
Milano - Ravizza	1.8	1.8
Como	0.3	0.3
Milano - Certosa	2.2	1.7
Milano - Lattanzio	5.7	7.0
Milano - Rossini	--	2.1
Lainate / Arese (MI)	4.2	4.1
Saronno (VA)	1.7	1.7
Albino (BG)	2.6	2.5
Roma - EUR	--	4.6
Verrone (BI)	0.9	0.8
Others	1.9	1.9
Total	22.1	29.5

Source: Borgosesia SpA

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16

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Risk mitigant # 2: Investment mix can be further fine tuned

As we previously hinted, greenfield, brownfield and collection assets have different cash flow generation dynamics / time to exit. A longer than expected covid-19 scenario might be faced by further skewing the investment mix towards shorter time to exit ones.

Cash-in & cash-out for different typology of underlying asset

Cash out

Cash in

Primary Investment

Direct Cost

Residential Mortgage

Preliminary Payments

Final Payment

Greenfield

20% of Revenues

50% of Revenues

40% of Revenues

18.8% of Revenues

41.2% of Revenues

(length - 3years)

Brownfield

35% of Revenues

35% of Revenues

35% of Revenues

15% of Revenues

50% of Revenues

(length - 2years)

Collection

60% of Revenues

5% of Revenues

nm

nm

nm

(length - 1years)

Source: Value Track Analysis

It follows a brief analysis of annual cash-flows according to three different nature of underlying asset. For the sake of simplicity, we assume expected revenues to be €10mn.

Annual & cumulated CFs from a 3yr "greenfield" real-estate development

(€'000)	FY0	FY1	FY2	FY3	FY4	Total
Primary Investments	2,000	--	--	--	--	2,000
Secondary Investments	--	625	2,500	1,875	--	5,000
Total Cash-out	2,000	625	2,500	1,875	--	7,000
Residential Mortgage	--	500	2,000	1,500	--	4,000
Pre and Final Payment	--	--	493	3,007	2,500	6,000
Total Cash-in	--	500	2,493	4,507	2,500	10,000
Cumulated Cash Flow	-2,000	-125	-7	2,632	2,500	3,000

Source: Value Track Analysis

Annual & cumulated CFs from a 2yr "brownfield" real-estate development

(€'000)	FY0	FY1	FY2	FY3	Total
Primary Investments	3,500	--	--	--	3,500
Secondary Investments	--	875	2,625	--	3,500
Total Cash-out	3,500	875	2,625	--	7,000
Residential Mortgage Loan	--	875	2,625	--	3,500
Pre and Final Payment	--	--	2,500	4,000	6,500
Total Cash-in	--	875	5,125	4,000	10,000
Cumulated Cash Flow	-3,500	0	2,500	4,000	3,000

Source: Value Track Analysis

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17

Borgosesia SpA | Update Report | 25 January 2021

Annual & cumulated CFs from a 1yr "collection"

VALUETRACK

(€'000)	FY0	FY1	FY2	Total
Primary Investments	6,000	--	--	6,000
Secondary Investments	0	500	--	500
Total Cash-out	6,000	500	--	6,500
Final-Payment	--	--	10,000	10,000
Total Cash-in	--	--	10,000	10,000
Cumulated Cash Flow	-6,000	-500	10,000	3,500

Source: Value Track Analysis

Risk mitigant # 3: New investments can be stopped

So far, we have assumed BGS to keep investing. Should things get worse and worse, we wouldn't rule out BGS to temporarily stop investing in order to abate cash out.

Indeed, assuming a 3-years plan to invest €10mn per annum in greenfield assets followed by a stop to further investments, we calculate that debt issued to finance the project would be totally reimbursed by the end of the fourth year (FY4).

In conclusion, halting new investments / totally avoiding greenfield assets would lead to a strong cash generation.

Borgosesia: 5-years Operating Cash Flow generation following 3-years investment of €10mn (QoQ)

15,000
5,000
-5,000	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24	25	26

-15,000

-25,000

-35,000

Primary Investment		Secondary Investment		Loan Mortgage		Preliminary Payment from Clients
Final Payment from Clients		Mortgage Repayment		Operating Cash Flow		Cumulated Op. Cash Flow

Source: Value Track Analysis

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18

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Risk mitigant # 4: Boosting operating and financial proceeds

Additional funding might arise from:

• The placement on the market of Treasury shares, equivalent to ca. €5mn cash in based on the current market price of BGS shares;
• The disposal of other lower quality real estate assets already in the books, worth up ca. €70mn, at bargain price if needed;
• The disposal of part of the €20mn new assets to be acquired in 2021-22, particularly those acquired for trading purposes, which by default requires faster time to exit.

Here we provide a sensitivity of funding needs for both annual investment and the amount of RE asset to be disposed over the next two years.

Borgosesia: Funding needs (€mn) - Sensitivity Analysis

-22.4				Disposal of already finalized RE assets (€mn)
					23.0	28.0	33.0		38.0		43.0
			-6.0		-24.6	-19.6	-14.6	-9.6		-4.6
Annual			-8.0		-28.6	-23.6	-18.6	-13.6		-8.6
investment			-10.0		-32.6	-27.6	-22.6		-17.6		-12.6
(€mn)			-12.0		-36.6	-31.6	-26.6		-21.6		-16.6
			-14.0		-40.6	-35.6	-30.6	-25.6		-20.6

Source: Value Track Analysis

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19

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Financials 2020E-22E

1H 2020 the latest complete set of actual results

All in all, Borgosesia reported first half results almost in line with 1H19, in details:

• Value of production stood almost flat at €10.1mn, despite government restriction slowed down Group business activities;
• EBITDA and EBIT were down -5.5% and -5.8% respectively, due to higher operating expenses partially offset by saving on labour cost;
• Group Net Profit increased to €815k (+6.5% YoY), benefitting from €174k financial income and lower tax rate;
• Reported Net Financial Debt as of the end June 2020 stood at €9.8mn, higher than the €3.9mn as of 2019 year-end, embedding the finalization €4.2mn investments and the conversion of short- term financial credits into assets.

Borgosesia: P&L (1H19, 1H20)

(€ 000)	1H19PF	1H20A	Change YoY
Net Operating Revenues	5,963	822	-86.2%
Fair Value Adj.	4,022	2,690
Other Revenues	10	0
Change in inventories	73	6,577
Value of Production	10,068	10,089	0.2%
Opex	-7,156	-7,410
Labour cost	-258	-170
EBITDA	2,654	2,509	-5.5%
D&A	-70	-76
Reported EBIT	2,584	2,434	-5.8%
Net financial income/expenditure	-1,126	-989
Pre-Tax Profit	1,458	1,445	-0.9%
Income Taxes	-693	-630
Group Net Profit	765	815	+6.5%
Source: Borgosesia SpA, Value Track Analysis

Borgosesia: Balance Sheet (FY19, 1H20)

(€ 000)	2019A	1Q20	1H20
Net Fixed assets	10,850	--	11,465
Net Working Capital	22,264	--	28,814
Severance pay and funds	1,877	--	2,354
Total Capital Employed	31,237	--	37,925
Group Net Equity	27,336	--	28,137
Net Fin. Position [Net debt (-) / Cash (+)]	-3,901	-10,926	-9,788

Source: Borgosesia SpA, Value Track Analysis

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20

Borgosesia SpA | Update Report | 25 January 2021

Change in our 2020FY estimates

VALUETRACK

We already hinted at how Borgosesia has boosted the amount invested up to €10.9mn (VT estimate at ca. €7.3mn) and changed the investment mix in 2020 as follows:

• Less Greenfield investments i.e. those usually featuring a higher average return, but also more time and greater efforts to be gained;
• More Brownfield and Collection investments i.e. those usually featuring a lower average return, but also lower time and efforts to be gained.

As a consequence, we are modifying our 2020E forecasts as follows:

• Revising upwards the top line, due to the usual fair value adjustment mechanism (see Appendix);
• Lowering the EBITDA contribution of each deal agreed thus leading to total EBITDA almost in line with previous VT estimates;
• Lowering the Net Profit estimate due to higher fund-raising costs and higher tax charges;
• Lowering the Net Financial Debt figure (but not the Gross Debt one) as we estimate a higher total amount of financial credits not turned into assets yet due to the slowdown of in-court insolvency procedures.

Here follows our updated 2020E estimates.

Borgosesia: New vs. Old 2020E estimates

	(€ '000)				2020E
		Old Estimates		New Estimates			(%)
Value of Production	20,853		25,515			22.4%
EBITDA	6,427		6,539			1.7%
EBIT	6,387		6,358			-0.5%
Group Net Profit	4,299		3,897			-9.4%
Group Net Equity	32,359		31,233			-3.5%
Net Financial Position	-25,423		-19,500			-23.3%
Source: Borgosesia SpA, Value Track Analysis

Borgosesia: 2019A-'20E Profit & Loss

(€mn)	2019A	2020E	Change YoY
Total Operating Revenues	20,764	25,515	22.9%
Operating expenses	-16,635	-18,976
EBITDA	4,129	6,539	58.4%
EBITDA Margin (%)	19.90%	25.63%
D&A and provisions	-181	-181
EBIT	3,948	6,358	61.0%
Net Fin. Charges	-1,142	-2,100
Pre-Tax Profit	2,806	4,258
Taxes	-135	-361
Reported Net Profit	2,670	3,897	46.0%

Source: Value Track Analysis

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21

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

New 2021E-22E estimates

Given what we said before, we now forecast:

• €20mn cumulative new "single name" investments in 2021-22E, equally split between the next two years, favoring Collection investments until better economic times return, at the expense of Greenfield and Brownfield ones;
• €10mn operating expenses between 2021-22E, i.e. €5mn per year, out of which €2.4mn due to structural costs and €2.1 due to interests on debt;
• Average "fair value" appraisal effect in the range of 1.6x - 1.8x (vs. 2.0x historical level) as an effect of different investment mix;
• Albeit time to exit is now expected to be shortened since the deal origination, IRR gross of tax is expected to remain in the 30% region;
• Ca. €33mn proceeds from disposal of assets already under possession;
• New funding activity at ca. €26mn.

Here follow the changes of our 2021E-22E estimates.

Borgosesia: New vs. Old 2021E-22E forecasts

		2021E		2022E

€mn	Old	New	Change	Old	New	Change
New Primary Investments	8	10	25.0%	8.8	10.0	13.6%

	Total Operating Revenues	22.5		22.6	0.6%		21.5	22.9	6.7%
	EBITDA		7.4		7.0		-4.8%		7.8		7.5		-3.3%
	EBIT	7.3		6.9	-6.0%		7.8	7.4	-5.7%
	Net Profit		5.1		4.3		-16.0%		6.4		4.7		-26.0%
	Net Financial Position		-23		-23				-5.3		-5.3
Source: Value Track analysis

Please find in the next page all Value Track estimates for P&L, Balance Sheet and Cash Flow Statement.

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22

Borgosesia SpA | Update Report | 25 January 2021

Borgosesia: 2020E-'22E Profit & Loss

VALUETRACK

(€mn)	2020E	2021E	2022E
Total Operating Revenues	25.5	22.6	22.9
Direct costs	-15.6	-12.7	-12.5
Structural costs	-2.9	-2.9	-2.9
Wright-downs	-0.5	0.0	0.0
EBITDA	6.5	7.0	7.5
D&A and provisions	-0.2	-0.2	-0.2
EBIT	6.4	6.9	7.4
Net Fin. Charges	-2.1	-2.1	-2.1
Pre-Tax Profit	4.3	4.8	5.3
Taxes	-0.4	-0.5	-0.5
Reported Net Profit	3.9	4.3	4.7

Source: Value Track Analysis

Borgosesia: 2020E-'22E Cash Flow Statement (accounting view)

(€mn)	2020E	2021E	2022E
EBITDA	6.5	7.0	7.5
WC + NFA net change	-19.7	-5.7	14.6
Cash Taxes	-0.4	-0.5	-0.5
Other	0.1	-2.2	-1.7
CF available to debt / equity investors	-13.5	4.1	19.0
Net Financial Charges	-2.1	-2.1	-2.1
Dividend paid	0.0	0.0	0.0
Change in Net Fin Position	-15.6	-3.5	17.7

Source: Value Track Analysis

Borgosesia: Cash Flow from operating / investment activity

(€mn)	2020E	2021E	2022E
Primary Investments	-10.9	-10.0	-10.0
Direct + SG&A costs	-2.9	-2.9	-2.9
Net Financial Charges	-2.1	-2.1	-2.1
Cash Taxes	-0.4	-0.5	-0.5
RE asset disposal	0.0	8.4	25.0
Other (Incl. Secondary Investments)	-5.9	-3.5	0.7
Cash-flow from operating / investment activity	-22.1	-10.5	10.2

Source: Value Track Analysis

Borgosesia: 2020E-'22E Balance Sheet (accounting view)

(€mn)	2020E	2021E	2022E
Total Capital Employed	50.7	58.5	45.6
Group Net Equity	31.2	35.5	40.3
NFP [i.e. Net Debt (-) Cash (+)]	-19.5	-23.0	-5.3

Source: Value Track Analysis

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Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Valuation

We assess the value of Borgosesia Spa (BGS) by applying two different valuation methodologies:

• Residual Income Model (R.I.M.), i.e. adding to Net Asset Value the present value of future profits exceeding the estimated charge/cost of equity capital;
• Peers Analysis, i.e. comparing Borgosesia to similar listed companies.

Averaging the two above mentioned methods we get to a €43.7mn fair value for the 100% equity of Borgosesia SpA, i.e. €0.93 per share (vs. our previous €0.88 fair value).

As far as BGS fair value per share is concerned, we need to make some assumptions on savings shares and treasury (ordinary) shares.

Savings shares

We remind that:

• Borgosesia Group share capital is made of two share classes, ordinary (45.1mn shares) and savings (0.86mn shares) with different dividend and patrimonial rights;
• Savings shares are consistently trading at a premium vs. ordinary ones. In the latest thirty months this premium stood at an average 144% thus implying a theoretical 2.44 swap ratio (2.44 Ord : 1.0 Svg) if they had to be converted.

In our base case scenario, we are thus assuming a conversion of 0.86mn savings shares into 2.10mn new ordinary shares (=0.86*2.44).

Treasury (Ordinary) shares

We note that some 7.5mn ordinary shares are currently held as treasury shares and could theoretically be placed on the stock market with an Accelerated Book Building (ABB) or, either, they could be cancelled with the approval of an Extraordinary Shareholders' meeting. So, we can draw two different scenarios:

1. ABB. The proceeds from the placement have to be treated as excess cash to be distributed to shareholders. If so, this "extra" value has to be added to the previously calculated fair equity value and the new total fair equity value has to be divided by 47.2mn ordinary "equivalent" shares (=45.13mn ord. shares + 2.1mn new ord. shares deriving from savings conversion, as previously calculated);
2. Cancellation. Treasury shares are cancelled, so no excess cash arises and the previously calculated fair equity value has to be divided by 39.7mn ordinary "equivalent" shares (=45.1mn ord. shares -7.5mn treasury shares+ 2.1mn new ord. shares deriving from savings conversion);

Valuation summary

We are assuming as base case the conversion of savings shares into new ordinary ones at a 2.44 swap ratio and the placement on the stock market (ABB) of the 7.5mn ordinary shares currently held as treasury ones.

Depending if we assume as carrying value, we calculate

ABB price the current €0.63 stock market price or the €0.74 historical €0.92 or €0.93 fair equity value per share that compares with

the current €0.63 market price.

Last but not least, we underline that the cancellation of treasury shares would have a counterdilutive effect thus leading to €0.99 fair equity value per share.

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24

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Residual Income Model (R.I.M.) methodology

Residual Income Model calculates the income generated by a firm after accounting for the true cost of its capital i.e. considering its cost of equity on top of cost of debt already included in the P&L. Indeed, cost of equity can be viewed as the shareholders' opportunity cost, or the required rate of return.

As far as the adoption of R.I.M. to Borgosesia valuation is concerned, we need to follow some steps:

1st - Calculation of the equity charge that can be determined as total equity capital multiplied by the required rate of return of that equity Ke that we are assuming at 12% in our base case;

2nd - We subtract the calculated equity charge from the attributable net income to come up with the residual income;

3rd - We discount back as of today (by applying the same 12% Ke) future residual income flows similarly to a Dividend Discount Model;

4th - The Present Value (PV) of future residual income flows (including a terminal value that we base on a 2.0% perpetuity growth rate "g") is added to current group book value;

5th - Adding excess cash related to the possible disposal of treasury shares.

As a result of the above-mentioned steps, we get to a €45.1mn fair equity value for the 100% of Borgosesia SpA (€39.6mn RIM + excess cash from Treasury shares). Obviously, such fair value is function of Ke and perpetuity growth rate "g", so a sensitivity analysis is deserved, hinting at a €35.1mn-€44.5mn fair equity value range.

Borgosesia Group: 2021E-23E Residual Income calculation

(€mn)	2021E	2022E	2023E
Book Value	35.5	40.3	45.9
Net Profit	4.3	4.7	5.7
Equity Charge @ 12%	-3.7	-4.3	-4.8
Residual Income flows (RI)	0.5	0.5	0.8
RI flows @ Present Value (€mn)	0.5	0.4	0.7

Source: Value Track Analysis

Borgosesia Group: Summary of Residual Income Model Fair Values breakdown

	Book Value	PV RI flows	PV RI	Total
	2020E	2021E-23E	Terminal Value	RIM
€mn	31.2	1.6	8.4	39.6
As % of total	79%	4%	21%	100%

Source: Value Track Analysis (*) €45.1mn taking into account excess cash from Treasury shares disposal

Borgosesia Group: Residual Income Model fair values sensitivity table

(€ per A share)					Cost of Equity
			10%		11%		12%	13%	14%
Perpetuity		1.0%	50.0		43.9		38.9	34.7	31.1
	1.5%
	50.9		44.5		39.2	34.8	31.1
Growth
	2.0%	52.0		45.1		39.6	35.0	31.1
Rate
	2.5%	53.3		45.9		40.0	35.1	31.1
		3.0%	54.7		46.7		40.4	35.3	31.1

Source: Value Track Analysis

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25

Borgosesia SpA | Update Report | 25 January 2021

Peers Analysis

VALUETRACK

As already seen on our previous reports, it not easy to find comparables perfectly aligned to Borgosesia business model currently listed on the domestic and international markets. Those companies with the exposure to illiquid assets investment (be it on their own or managing third parties' assets) and somehow similar to Borgosesia, in our view are: Arrow Global, DeA Capital SpA, DDM Holding, doValue, Intrum, Tamburi Investment Partners, Tikehau Capital.

Borgosesia Group comparables

Company

Arrow Global

DeA Capital SpA

DDM Holding

doValue

Intrum

Description

UK based company engaged in purchase, collection, servicing, management of non- performing loans

Italy based asset management company operating through two business areas: Private Equity Investment and Alternative Asset Management

Switzerland-based company engaged in the acquisition and management of distressed assets, in consultancy services and in debtor treatment.

is the main player in the Italian third party servicing market, managing a Gross Book Value of ca. 90bn

Based in Sweden. Its business model is split in two main operating divisions: (i) CreditManagement Services (CMS) unit, and (ii) Purchased Debt unit, being Intrum one of the largest buyers of non-performing loan portfolios in Europe, with a carrying value inexcess of €2.0bn

Tamburi InvestmentPartners

Tikehau Capital

Italy based investment-merchant bank focused on medium-sized Italian companies. The Company is active in the investment activity, including acquisition of minority equity interests in listed and unlisted companies

French based asset management and investment group investing in various asset classes, ranging from private debt to real estate, from private equity to liquid strategies.

Source: Value Track Analysis

As you see from the chart below, all shares' prices started rising up from the bottom in March 2020 (due to Covid-19 outbreak in Europe). Moreover, we note only Borgosesia and Tikehau Capital reported a one-year positive performance (ca. +25% and 7% return respectively), followed by Tamburi that just return to initial price level. Albeit other returns remain negative, a positive trend shows up.

Borgosesia vs peers: Share price evolution Jan 15, 2020 - Jan 14, 2021

Source: Borgosesia, Value Track Analysis

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26

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

In the light of the above considerations on macroeconomic framework and shares recent moves, we reiterate our view that Price to Book as the most appropriate multiple, also due to the differences in accounting methodologies applied by the various companies.

Current sector median P/BV stands at 1.2x and this leads to €43.0mn Peers' based fair equity value for the 100% of Borgosesia SpA.

Borgosesia Group comparables: 2021E stock trading multiples

Company	P / BV
DeA Capital	0.8
Tamburi investment	1.3
Arrow Global	2.5
DDM Holding	0.9
Tikehau Capital	1.1
doValue	2.7
Intrum	1.2
Median	1.2
BGS @ 0.63 mkt price	0.8
Fair Borgosesia Multiple	1.2
BGS Fair Equity Value (€mn)	43.0

Source: Value Track Analysis

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27

Borgosesia SpA | Update Report | 25 January 2021

VALUETRACK

Appendix: P&L vs. Cash Flow accounting

In order to highlight the P&L and Cash Flow accounting of an investment in non-performing asset, we assume as an example a €2mn "single name" primary investment with an underlying real estate asset under construction capable of generating €7mn revenue stream once it is properly finalized (considering some €3mn direct cost needed in FY1) and commercialized.

As far as the P&L of this investment is concerned, the accounting principle IAS40 - which deals with troubled" Tax Credits / Real Estate assets under construction deriving from a NPE - requires the immediate booking (in FY0) of the revenue stream as well as of the operating margin estimated to be gained from the investment, even if it has to be cashed in only in future periods.

More in details, according to Fair Value treatment based on IAS40 principle:

• The asset value must be written up to € 4mn (i.e. €7mn forecasted cumulated Revenues net of €3mn estimated opex) as it has to be modified the accounting perspective, from a "liquidation" one to an "on-going concern" one;
• After subtracting the €2mn NPL acquis ition price, the company can immediately post about €2.0mn "non-cash" EBITDA;
• In FY1 and FY2, i.e. as long as the real estate asset finalization goes on, the Value of Production generated is offset by direct cost, so no additional impact on EBITDA arises.
• Once booked taxes (e.g. 30% tax rate) we can calculate a €1.4mn positive Net Profit from the deal.

P&L treatment of a "single name" investment subject to IFRS-IAS40 principle

(€ mn)	FY0	FY1	FY2	Total
Value of Production	4.0	3.0	0.0	7.0
Opex	-2.0	-3.0	0.0	-5.0
EBITDA	2.0	0.0	0.0	2.0
Net Profit	1.4	0.0	0.0	1.4

Source: Value Track Analysis

Looking at the same deal from a Cash Flow Statement point of view returns a different picture. Indeed, what is recorded is the cash out for the non-performing asset acquisition at time zero to be followed later by some further cash out for the above-mentioned operating expenses and by the cash in when the underlying assets are disposed.

Cash Flow treatment of a "single name" investment subject to IFRS-IAS40 principle

(€ mn)	FY0	FY1	FY2	Total
Earnings bef. Minorities and D&A	1.4	0.0	0.0	1.4
Working Capital Needs	-1.4	0.8	0.6	0.0
Capex (-)	-2.0	0.0	2.0	0.0
Net Cash generated	-2.0	0.8	2.6	1.4
Net Financial Position	-2.0	-1.2	1.4	1.4

Source: Value Track Analysis

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28

VALUETRACK

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