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Gavin Wood
17 April 2018 · 3 min read

Deutsche Beteiligungs – reduced earnings guidance for FY18

Lower market valuation multiples have materially affected H118 net income

Deutsche Beteiligungs (DBAG) has announced that it expects to report net income for the year to 30 September 2018 that is moderately (10% to 20%) lower than the €43.0m average of the last five financial years (the reference for previous guidance), equating to net income of between €34m and €39m for FY18. Previous guidance, first given at the time of the FY17 results and confirmed with Q118 results, was for a significant (more than 20%) increase in net income. The revised forecast is based on DBAG’s c €20m expected net income for H118, which reflects lower market valuation multiples being applied in the valuation of portfolio companies at 31 March 2018. DBAG’s guidance assumes constant market valuation multiples and so is subject to upward or downward revisions following significant market moves.

DBAG’s new guidance for €34m to €39m net income in FY18 compares to management’s previous guidance for more than €51m net income, representing a material reduction, largely reflecting the market decline in March 2018, which resulted in lower market valuation multiples being used in the valuation of portfolio companies. DBAG has noted that, within the reduced guidance, there is also a smaller negative effect from individual portfolio companies not yet achieving the planned strategic and operational improvements in the current financial year.

DBAG had already announced that Q218 net valuation gains were likely to be in the single-digit million euro range compared with the €35.4m net valuation gain reported in Q217, which reflected a significant increase in the market valuation multiples applied in the valuation of portfolio companies at 31 March 2017.

At the current share price of €36.10, DBAG’s shares are trading at a 19% premium to its last reported €30.34 NAV per share as at 31 December 2017. DBAG’s published NAV does not reflect the market value of its fund services business and we see the current c €85m premium as the valuation being attributed by the market to this business. Our previous analysis (included in our August 2017 research note on DBAG) suggested that the market was attributing a valuation of up to c €160m to DBAG’s fund services business, and we do not consider that the earnings outlook for the fund services business has altered materially since then.

DBAG is scheduled to report its H118 results in full, covering the six months to 31 March 2018, on 8 May 2018.

Read Edison’s most recent research report on DBAG here.

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