DeA Capital — Update 22 November 2015

DeA Capital (MI: DEA)

Last close As at 27/03/2024

1.32

0.01 (0.61%)

Market capitalisation

352m

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Research: Financials

DeA Capital — Update 22 November 2015

DeA Capital

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Financials

DeA Capital

Transformation progress

Q315 results

Investment companies

23 November 2015

Price

€1.47

Market cap

€451m

Net cash (€m) at 30 Sept 2015

123.2

Shares in issue

266.2m*

*Excluding treasury shares

Free float

25.9%

Code

DEA

Primary exchange

BIT

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.4

7.5

(7.4)

Rel (local)

1.4

8.3

(21.2)

52-week high/low

€1.94

€1.25

Business description

DeA Capital, a De Agostini group company, is one of Italy’s leading players in alternative investments. It is active in private equity investments and asset management. As of 30 September 2015, it had an investment portfolio of €491m and €10.3bn of assets under management.

Next event

FY15 results

March 2016

Analyst

Peter Thorne

+44 (0)20 3077 5765

DeA Capital is a research client of Edison Investment Research Limited

DeA Capital’s NAV per share at 30 September 2015 was €2.17, little changed from €2.18 at 30 June 2015. The company has made progress on its path to reposition itself as an alternative asset manager rather than a private equity investor in Q315. It received the cash from the part-disposal of its stake in Migros and made an application to Borsa Italiana to list a REIT. DeA Capital is cash-positive, yields just below 7% according to our dividend estimate and is trading at a discount of around 30% to our estimate of its sum-of-the-parts of €2.10 per share.

Year end

AUM
(€bn)

Fees from AAM

(€m)

NAV/share
(€)

DPS
(€)

P/NAV
(x)

Yield
(%)

12/13

10.51

76.4

2.30

0.00

0.65

N/A

12/14

10.46

66.0

2.41

0.30

0.62

20.4

12/15e

10.80

65.2

2.21

0.10

0.66

6.8

12/16e

11.31

64.5

2.17

0.10

0.68

6.8

Note: NAV is stated NAV, including goodwill.

Migros part-disposal completed

In July 2015, DeA Capital received €107.7m from the disposal of half of its holding in Migros, which also gave it a capital gain of €46.3m. The transaction was included in DeA Capital’s Q2 results but the cash was not received until Q3. The cash was used to pay down debt. As a result of the transaction, private equity investments accounted for 59% of its investment portfolio at end September 2015, down from 69% at end December 2014. Its Migros stake now accounts for 15% of its investment portfolio compared with 33% at the end of December 2014. DeA Capital intends to reduce the proportion of its investment portfolio invested in private equity further in future years by disposal, but in the meantime will focus on increasing the value of its remaining private equity investments.

Application for REIT listing made

DeA Capital is seeking to reposition itself as an alternative asset manager of real estate and private equity assets. A big step to further the development of its real estate business was the September application to Borsa Italiana to list a REIT of up to €500m. The REIT is expected to list between the end of 2015 and the beginning of 2016 and is targeted towards an international investor base. DeA Capital believes there is a large potential international market for high-yielding Italian real estate funds.

Valuation: Good yield and discount to SOTP

We estimate that DeA Capital is currently yielding just below 7% and is trading at a discount of c 30% to our estimate of its SOTP valuation. In our valuation, we have included the asset management activities at our estimate of their fair value using peer comparison rather than the equity value used in the company accounts. We anticipate that further progress in lowering the size of its private equity portfolio will reduce the discount to our SOTP calculation.

Q315 NAV

DeA Capital’s NAV per share at end September 2015 was €2.17, little changed from the end of June 2015 figure of €2.18. The following exhibit shows its components and the change since the end of June. The main change in the NAV calculation is that the €107.7m sale proceeds from the part disposal of the holding in Migros were used in the quarter to pay down debt ,so the group now reports a net cash position (holding company) of €83.9m compared with debts of €37.1m at the end of the previous quarter. DeA Capital is seeking to reduce its holdings in private equity investments as market opportunities allow and return the proceeds to shareholders or alternatively invest them in expanding its alternative asset management activities.

Exhibit 1: Evolution of reported NAV in Q315

NAV

30 June 2015

30 September 2015

Stake

Value (€m)

Stake

Value (€m)

Sale proceeds* from Migros part disposal

107.7

Migros investment

6.8%

89.2

6.8%

72.6

Migros

196.9

72.6

Other PE direct investments

N/M

11.6

N/M

11.7

PE funds

N/M

219.6

N/M

204.4

Private Equity

428.1

288.7

IDeA Capital Funds SGR

100%

47.5

100%

49.3

IDeA Fimit SGR

64.3%

142.2

64.3%

144.2

Innovation RE

97.0%

7.8

97.0%

9.2

Alternative Asset Management

197.5

202.7

Total investment portfolio

625.6

491.4

Other net assets/liabilities

(8.0)

(0.6)

Net financial (debt)/cash

(37.1)

83.9^

NAV

580.5

575.9

Shares outstanding (excluding treasury stock)

 

266.2

 

264.9

NAV per share

 

2.18

 

2.17

Source: DeA Capital, Edison Investment Research. Note: *Received in Q315.^Net cash in holding company of €83.9 with an additional €32.3m held in the alternative asset management companies and €7m by the private equity investment companies make up the consolidated group net financial position of €123.2m.

Alternative asset management

DeA Capital’s alternative asset management activities encompass real estate funds (managed by IDeA FIMIT, AuM €8.6bn at end Q315), private equity funds and fund of funds (managed by IDeA Capital Funds, AuM €1.7bn at end Q315) and project and property management services (IRE/IRE advisory services). DeA Capital seeks to expand its alternative asset management activities by repositioning its private equity funds along thematic lines as it believes that these will have more appeal outside Italy. It will replace its liquidating real estate funds, whose mandates require them to be liquidated after a pre-determined period, by new funds in a REIT and in the reserved funds segments, which do not have fixed lives. Key figures for Q315 are given in the following exhibit.

IDeA Capital Funds increased AuM in Q315 to €1.7bn, from €1.6bn at end H115, as a result of the second closing of its Taste of Italy fund (AuM €140m at end Q315 from €86m at end H115). Fees earned from the sale of this fund resulted in a rise in fees for this unit to 128bp in the quarter, from 98bp in H1, and an uptick in profitability in Q3. We anticipate the fee level to return to around 100bp in Q415 and in 2016.

IDeA Fimit saw its AuMs fall to €8.6bn at the end of Q3 from €9.0bn at the end of H115. As expected, there was some liquidation of its funds in line with their limited life mandates. Fee levels in the quarter at 56bp were broadly in line with H115. Net profits in Q3 were boosted by investment gains and the non-recurrence of exceptional service costs in Q215.On 22 September, IDeA Real Estate, a REIT, submitted a listing application to Borsa Italiana. It is anticipated that the listing will take place between the end of 2015 and the beginning of 2016 and will raise up to €500m of equity with borrowing potentially increasing the assets managed to €1bn in the REIT.

IRE/IRE advisory net profits in Q315 were boosted by lower service and personnel costs that were exceptionally high in H115.

We have fine-tuned our 2015 forecasts for the alternative asset management segment in the light of the Q3 results and now expect adjusted net profits of €14.7m, from €13.3m previously.

Exhibit 2: Alternative asset management – key figures

H114

H214

H115

Q315

H215e

2014

2015e

2016e

AuMs (€bn) – end period

IDeA Capital Funds

1.4

1.5

1.6

1.7

1.7

1.5

1.7

1.80

IDeA FIMIT

9.0

9.0

9.0

8.6

8.5

9.0

8.5

9.40

10.4

10.5

10.6

10.3

10.2

10.5

10.2

11.20

AuMs (€bn) – average

IDeA Capital Funds

1.4

1.4

1.5

1.6

1.7

1.4

1.6

1.8

IDeA FIMIT

9.1

9.0

9.0

8.8

8.7

9.1

8.8

9.0

10.5

10.4

10.5

10.4

10.3

10.5

10.4

10.7

Management fees/AuM bp

IDeA Capital Funds

96

108

98

128

115

102

106

100

IDeA FIMIT

62

58

55

56

55

60

56

55

Management and service fees (€m)

IDeA Capital Funds

6.7

7.8

7.6

5.2

9.5

14.5

17.1

17.5

IDeA FIMIT

28.1

26.0

24.8

12.4

23.9

54.1

48.7

49.2

IRE/ IRE advisory

10.1

10.6

9.5

4.9

9.5

20.7

19.0

16.5

44.9

44.3

41.9

22.5

42.9

89.3

84.8

83.2

Adjusted* net profits (€m)

IDeA Capital Funds

1.9

1.7

2.0

2.1

3.1

3.6

5.1

4.6

IDeA FIMIT

8.9

7.9

5.6

3.1

5.7

16.8

11.4

10.8

IRE/IRE advisory

1.7

1.7

0.9

1.3

1.4

3.4

2.3

1.2

12.5

11.4

8.5

6.5

10.3

23.9

18.8

16.6

Minorities

(3.2)

(2.9)

(2.0)

(1.1)

(2.1)

(6.1)

(4.1)

(3.9)

Adjusted net profit (€m)

9.3

8.5

6.5

5.4

8.2

17.8

14.7

12.7

Net profit/management and service fees bp

IDeA Capital Funds

28%

22%

26%

40%

33%

25%

30%

26%

IDeA FIMIT

32%

31%

23%

25%

24%

31%

23%

22%

IRE/IRE advisory

17%

16%

9%

27%

15%

17%

12%

15%

Source: Compiled by Edison Investment Research from DeA Capital segmental analysis. Note: *Adjusted for intangible amortisation, impairments and provisions.

Forecast revisions

We have revised our 2015 forecasts, as shown in the following exhibit. We have increased our net profit expectation for FY15 mainly because of lower tax charges – the Migros gain did not incur a tax charge and DeA Capital has utilised tax losses in the quarter. Our 2016 profit forecasts are unchanged.

We anticipate that DeA Capital will pay a dividend of €0.1 per share for 2015, payable in 2016. For 2014 it paid a special large dividend of €0.3 per share as the company had surplus capital and it wished to reward shareholders. A €0.1 per share dividend will amount to around €27m per year, which is likely to be more than the asset management businesses will earn in the next few years. However, private equity gains/revaluations could be used and the company has the option to pay the dividend from reserves, which amounted to €181m at end September 2015.

Exhibit 3: Changes to estimates

Net profit (€000s)*

NAV (€)

Dividend (€)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

2015e

63,472

75,489

19

2.21

2.21

0

0.1

0.1

0

2016e

12,663

12,663

0

2.18

2.17

0

0.1

0.1

0

Source: Edison Investment Research. Note: *Excluding minority interests.

Valuation

Our preferred valuation measure for DeA Capital is a sum-of-the-parts (SOTP), which we show in the exhibit below. Most of DeA Capital private equity investments are valued at fair value in its accounts. DeA Capital values its alternative asset management subsidiaries at their equity value. We have replaced the equity value of these companies with our estimate of their fair value, which we have calculated as our estimate of their 2015 earnings multiplied by a P/E ratio of 12.4x, the latter being an average multiple of US, UK and Italian asset managers less 12% to account for the early stage of development of the DeA Capital asset management activities. With a forecast of adjusted profits of €14.7m in 2015 for DeA Capital’s asset management businesses, we now value them at €182.2m. This is higher than our previous valuation of €159.6m on 24 September 2015 due to a rise in earnings expectations for DeA Capital’s asset management activities and a slightly higher P/E multiple of 12.4 vs 12.1 previously. The net result is a SOTP of €2.10 per share, from €2.02 previously.

Exhibit 4: Sum-of-the-parts

30 September 2015

Value (€m)

Valuation method

Migros

72.6

Market prices

Other PE direct investments

11.7

Net equity

PE Funds

204.4

Fair value

Private Equity

288.7

Alternative Asset Management

182.3

Edison valuation of asset management at 12.4x 2015e earnings

471.0

Other net assets/liabilities

0.6

Net financial (debt)/cash

83.9

Sum-of-the-parts

555.5 

Shares outstanding end Q315

264.9

 

SOTP per share (€)

2.10

Source: DeA Capital, Edison Investment Research

Exhibit 5: Financial summary

€000s

2012

2013

2014

2015e

2016e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Alternative Asset Management fees

82,004

76,356

66,045

65,231

64,525

Income (loss) from equity investments

(18,442)

6,586

(1,673)

59

100

Other investment income/expense

(7,884)

(24,617)

(56,149)

73,588

3,500

Income from services

10,863

16,329

18,667

18,237

16,500

Other income

1,658

4,032

509

3,162

0

Revenue

 

 

68,199

78,686

27,399

160,277

84,625

Cost of Sales

(64,623)

(56,212)

(71,857)

(63,139)

(61,669)

Gross Profit

3,576

22,474

(44,458)

97,138

22,956

EBITDA

 

 

3,576

22,474

(44,458)

97,138

22,956

Operating Profit (before amort. and except.)

3,035

21,574

(45,240)

96,479

22,297

Intangible Amortisation

(16,106)

(72,384)

(15,318)

(5,441)

(5,341)

Exceptionals

0

0

0

0

0

Other

0

0

0

0

0

Operating Profit

(13,071)

(50,810)

(60,558)

91,038

16,956

Net Interest

(6,759)

(438)

2,905

4,223

500

Profit Before Tax (norm)

 

 

(3,724)

21,136

(42,335)

100,702

22,797

Profit Before Tax (FRS 3)

 

 

(19,830)

(51,248)

(57,653)

95,261

17,456

Tax

1,621

(4,381)

1,720

(1,986)

(2,793)

Profit After Tax (norm)

(2,103)

16,755

(40,615)

98,715

20,004

Profit After Tax (FRS 3)

(18,209)

(55,629)

(55,933)

93,275

14,663

Minoriy interests

(8,068)

24,499

(1,668)

(17,786)

(2,000)

Net income (FRS 3)

(26,277)

(31,130)

(57,601)

75,489

12,663

Average Number of Shares Outstanding (m)

277.5

274.0

274.7

268.3

264.9

EPS - normalised

 

 

(3.7)

15.1

(15.4)

30.2

6.8

EPS - normalised and fully diluted

 

 

(3.7)

15.1

(15.4)

30.2

6.8

EPS - (IFRS)

 

 

(9.5)

(11.4)

(21.0)

28.1

4.8

Dividend per share ()

0.0

0.0

0.3

0.1

0.1

Gross Margin (%)

5.2

28.6

-162.3

60.6

27.1

EBITDA Margin (%)

5.2

28.6

-162.3

60.6

27.1

Operating Margin (before GW and except.) (%)

4.5

27.4

-165.1

60.2

26.3

BALANCE SHEET

Fixed Assets

 

 

1,060,645

971,549

786,141

637,108

621,108

Intangible Assets

314,883

244,778

229,711

224,538

218,538

Tangible Assets

58,669

73,336

39,988

41,834

41,834

Investments

687,093

653,435

516,442

370,736

360,736

Current Assets

 

 

66,884

81,018

117,585

158,723

162,396

Stocks

0

0

0

0

0

Debtors

27,537

44,406

53,389

40,161

40,161

Cash

29,156

26,396

55,583

114,235

117,908

Other

10,191

10,216

8,613

4,327

4,327

Current Liabilities

 

 

(94,621)

(72,338)

(36,193)

(32,368)

(32,368)

Creditors

(49,532)

(32,920)

(35,833)

(32,008)

(32,008)

Short term borrowings

(45,089)

(39,418)

(360)

(360)

(360)

Long Term Liabilities

 

 

(173,461)

(173,670)

(40,911)

(24,633)

(24,633)

Long term borrowings

(142,802)

(150,198)

(5,201)

(1,201)

(1,201)

Other long term liabilities

(30,659)

(23,472)

(35,710)

(23,432)

(23,432)

Net Assets

 

 

859,447

806,559

826,622

738,830

726,503

Minorities

(136,309)

(177,070)

(173,109)

(154,686)

(151,186)

Shareholders' equity

 

 

723,138

629,489

653,513

584,144

575,317

Year-end number of shares m

274.6

274.0

271.6

264.9

264.9

NAV per share

2.63

2.30

2.41

2.21

2.17

CASH FLOW

Operating Cash Flow

 

 

(23,752)

(49,664)

188,419

179,836

35,663

Acquisitions/disposals

(1,049)

(4,519)

(1,476)

159

0

Financing

14,657

55,917

(151,805)

(16,094)

0

Dividends

(6,290)

(5,643)

(5,951)

(105,152)

(31,990)

Cash flow

(16,434)

(3,909)

29,187

58,749

3,673

Other items

(1,174)

1,149

0

(97)

0

Opening net debt/(cash)

 

 

117,167

158,735

163,220

(50,022)

(112,674)

Movement in debt

23,960

1,725

(184,055)

(4,000)

0

Closing net debt/(cash)

 

 

158,735

163,220

(50,022)

(112,674)

(116,347)

Source: DeA Capital, Edison Investment Research

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