24 September 2015 DeA Capital’s NAV per share at 30 June 2015 was €2.18, which compares to
€2.15 at 31 March 2015 (after adjusting for the capital distribution in May 2015). The company continues its transformation from a private equity investor to an alternative asset manager with the completion of the Migros sale in July (included in the June NAV at transaction value). Our current sum-of-the-parts calculation is €2.02 per share compared to €2.19 on 26 May when we published on the Q1 results. The decline arises from lower market multiples currently being given to asset management businesses and a reduction in our asset management profit forecasts in 2015. If it makes further progress in reducing its private equity investments in line with its valuations, the gap between the share price and our SOTP could be narrowed.
Year
end (€bn) AUM Fees from AAM (€m) NAV/share (€) DPS (€) P/NAV (x) Yield (%)
12/13 10.51 76.4 2.30 0.00 0.56 N/A
12/14 10.46 66.1 2.41 0.30 0.54 23.3
12/15e 10.20 62.5 2.21 0.10 0.58 7.8
12/16e 11.20 64.5 2.18 0.10 0.59 7.8
Note: NAV is stated NAV, including goodwill.
Private equity investments diminishing in importance
DeA Capital is in the process of selling off its private equity investments and either returning the proceeds to investors or buying alternative asset management businesses. At end FY14 private equity (direct and through funds) amounted to 65% of its NAV; we estimate this would fall to around 55% after the proceeds of the Migros sale were received in July 2015.Slow growth in assets under management
DeA Capital’s real estate assets under management (AuMs) were unchanged at €9.0bn during the quarter. Many of its funds are approaching the end of their fixed-term lives and capital is being returned to investors, so to keep AuMs flat in the quarter is a good achievement. DeA Capital still plans to launch a real estate REIT in H215 of around €0.5bn. Its private equity funds at IDeA Capital Funds SGR of €1.6bn at 30 June 2015 were €0.1 higher than at end Q115, due to it becoming the manager of a fund, Investitori Associati IV. However, this fund is in liquidation so is unlikely to be a future growth channel.
Valuation: Fair value of €2.02
Our preferred measure of valuation for DeA Capital is its SOTP, as this includes its asset management subsidiaries at our estimate of fair value rather than the published NAV, which includes them at book value. At the current price, DeA is trading at 61% of our estimated SOTP of €2.02 per share, yet we estimate the company will pay an ongoing dividend producing a yield of over 7%. This suggests that the market continues to take a very cautious approach towards the company.
DeA Capital
Q215 results
Transformation continues
Price
€1.29
Market cap
€342m
Net cash (€m) at 30 June 2015 8.2
Shares in issue 265m*
*excludes treasury shares
Free float 26.2%
Code DEA
Primary exchange BIT
Secondary exchange N/A
Share price performance
% 1m 3m 12m
Abs (6.3) (14.8) (14.6)
Rel (local) (3.5) (5.7) (18.8) 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 June 2015, it had an investment portfolio of €626m and €10.6bn of assets under management.
Next event
Q315 results 5 November 2015
Analysts
Peter Thorne +44 (0)20 3077 5765 Martyn King +44 (0)20 3077 5745
[email protected] Edison profile page
Q215 NAV
DeA Capital’s NAV per share at end-June 2015 was 1.4% higher than at the end of March 2015 when the figure for March is adjusted for the €0.3 per share return of capital by means of special dividend in May 2015 (€79.9m in total), which resulted in the company having net debt at 30 June 2015. At 31 March 2015 DeA Capital owned 13.7% of Migros Turkey, a Turkish supermarket chain, through its holding of 17% of Kenan Investments, which held 80.5% of Migros. Half of this stake was sold and DeA Capital received €107.7 from the sale on 24 July 2015, and its financial statement at 30 June 2015 incorporated this valuation for that element. DeA Capital’s remaining holding in Migros was valued at €89.2m, composed of two elements: 1.6% subject to put or call options agreed with the buyer at TRY26.00 per share and 5.2% valued at the market price of TRY21.10.
DeA Capital had net debt at 30 June 2015 compared to net cash of a comparable amount at 31 March 2015, largely as a result of the payment of the cash dividend in May of €79.9m. After the Migros proceeds are received we estimate the cash balance would be around €71m and private equity investments (including the Migros stake) would be 55% of total NAV, down from 65% at the end of March 2015. This is in line with DeA Capital’s policy to reduce the importance of its private equity investments.
Exhibit 1: Evolution of reported NAV in Q115
NAV 31 March 2015 30 June 2015
Stake Value (€m) Stake Value (€m)
Sale proceeds from Migros part disposal 107.7
Migros investment 13.7% 205.9 6.8% 89.2
Migros 205.9 196.9
Other PE direct investments N/M 11.3 N/M 11.6
PE funds N/M 207.0 N/M 219.6
Private Equity 424.2 428.1
IDeA Capital Funds SGR 100% 50.4 100% 47.5
IDeA Fimit SGR 64.3% 146.5 64.3% 142.2
Innovation RE 97.0% 7.1 97.0% 7.8
Alternative Asset Management 204.0 197.5 Total investment portfolio 628.2 625.6
Other net assets/liabilities (9.8) (8.0)
Net financial (debt)/cash 37.2 (37.1)
NAV 655.6 580.5
Shares outstanding (excluding treasury stock) 268 266.2 NAV per share 2.45 2.18 Source: DeA Capital, Edison Investment Research
Alternative asset management
DeA Capital‘s alternative asset management operations encompass real estate funds (managed by IDeA FIMIT), private equity funds and fund of funds (managed by IDeA Capital Funds), as well as project and property management services (IRE/IRE advisory services). It is currently repositioning both its private equity funds (launching thematic funds with appeal outside Italy) and its real estate funds, where it is seeking to gradually replace liquidating funds by new funds in the REIT and reserved funds segments.
Key figures for the alternative asset management activities for H115 together with our forecasts for 2015 and 2016 are given in Exhibit 2 below.
end-led to a slightly higher net profit contribution. The company maintains its target of IDeA Capital Funds of €2bn by the end of 2018.
Exhibit 2: Alternative asset management – key figures
H114 H214 H115 H215e 2014 2015e 2016e AuMs (€bn) – end period
IDeA Capital Funds 1.4 1.5 1.6 1.7 1.5 1.7 1.8
IDeA Fimit 9.0 9.0 9.0 8.5 9.0 8.5 9.4
10.4 10.5 10.6 10.2 10.5 10.2 11.2
AuMs (€bn) – average
IDeA Capital Funds 1.4 1.4 1.5 1.6 1.4 1.6 1.8
IDeA Fimit 9.1 9.0 9.0 8.7 9.1 8.8 9.0
10.5 10.4 10.5 10.4 10.5 10.4 10.7 Management fees/AuM bp
IDeA Capital Funds 96 108 98 100 102 99 100
IDeA Fimit 62 58 55 55 60 55 55
Management and service fees (€m)
IDeA Capital Funds 6.7 7.8 7.6 8.2 14.5 15.8 17.5
IDeA Fimit 28.1 26.0 24.8 24.1 54.1 48.8 49.2
IRE 10.1 10.6 9.5 9.0 20.7 18.5 16.5
44.94 44.0 41.9 41.3 89.3 83.2 83.2
Adjusted net profits (€m)
IDeA Capital Funds 1.9 1.7 2.0 2.1 3.6 4.1 4.6
IDeA Fimit* 8.9 7.9 5.6 5.3 16.8 10.9 11.0
IRE 1.7 1.7 0.9 1.4 3.4 2.2 1.2
12.5 11.4 8.5 8.8 23.9 17.3 16.6
Minorities (3.2) (2.9) (2.0) (1.9) (6.1) (4.0) (3.9)
9.3 8.5 6.5 6.9 17.8 13.3 12.7
Net profit/management and service fees bp
IDeA Capital Funds 28% 22% 26% 26% 25% 26% 26%
IDeA Fimit 32% 31% 23% 22% 31% 22% 22%
IRE 17% 16% 9% 15% 17% 12% 15%
Source: Compiled by Edison Investment Research from DeA Capital segmental analysis. Note: *Adjusted for intangible amortisation, impairments and provisions.
IDeA Fimit, the real estate asset manager, maintained its AuMs at €9bn in H115 but fees as a
percentage of AuMs fell due to a general market squeeze on management fees. This was expected and is in line with management guidance. Net profits, after adjusting for intangible amortisation, impairments and provisions, fell more than the decline in fees as a result of a higher corporation tax charge.
IDeA Fimit continues to proceed with its REIT initiative and anticipates approval from CONSOB, the Italian regulator, by the second half of November 2015. It is seeking to raise a minimum of €500m of equity, which over time could be geared up to total assets of €1bn. Italian real estate yields are considerably higher than those available on government bonds (Italian state 10-year bonds yield 1.8%) with, for instance, prime office space in Milan office space giving a rental yield of 4.75%. This compares to 4.2% for London City offices, according to CBRE. There has been an increase in investment in Italian real estate over the last year due to economic recovery and low bond yields, as we show in Exhibit 3 below. International investors are the main source of funds and accounted for 70% of Q215 volume according to CBRE calculations, with US investors responsible for around 70% of the total. IDeA FIMIT intends to target international investors for its REIT with a particular focus on those in the US. It hopes to earn a management fee of 0.4% of the REIT’s gross asset value for rented property and 0.2% for unrented property. IDeA Capital will take a small stake in the REIT of around €20m to €25m as seed capital, as it does with many of its other funds.
The company has reiterated to us its 2017 targets of €10bn under management at IDeA Fimit, but strong asset growth is not likely before 2016.
Exhibit 3: Real estate investment in Italy
Source: CBRE Research
IRE, the real estate service company, suffered a squeeze in profits in H115 with revenue down 6% y-o-y and costs up 8%. Currently 75% of its revenue is earned from servicing properties owned by IDeA FIMIT funds, which has referred less business in H115. The company plans to win contracts from companies outside the group and reduce this proportion to 50%, but this will take time. We have revised down our forecasts for alternative asset management activities and anticipate adjusted net profits of €13.3m in 2015 and €12.7m in 2016 compared with our previous estimates of €16.0m and €17.4m respectively. This is mainly due to lower expectations for AuM growth and management fees for the remainder of 2015 and 2016 in light of recent experience.
Forecast revisions
Our revised forecasts are summarised as follows:
Exhibit 4: Changes to estimates
Net profit (€000s)* NAV (€) Dividend (€)
Old New Change (%) Old New Change (%) Old New Change (%)
2014 (57,601) (57,601) 2.41 2.41 0.3 0.3 0
2015e 52,944 63,472 19 2.23 2.21 (1) 0.1 0.1 0
2016e 15,977 12,663 (20) 2.22 2.18 (2) 0.1 0.1 0
Source: Edison Investment Research. Note: *Excluding minority interests.
Although we anticipate a decline in asset management profits in 2015, we expect that at the group level profits will benefit from private equity gains realised from the partial sale of Migros (€45m) and the group’s share of gains and revaluations made in the IDeA Opportunity Fund, which it fully consolidates, of around €14m. In 2016 we have not anticipated such gains, hence the large fall in reported profits.
DeA Capital is in the process of selling its private equity investments and either returning the funds to shareholders or acquiring asset management businesses. For 2014 it paid a large special dividend of €0.3 per share and we anticipate that for 2015, payable in 2016, it will begin to pay a regular dividend of €0.1 per share, amounting to around €27m per year in total. In the foreseeable future this is unlikely to be met from earnings from the asset management activities alone, but private equity gains/revaluations when they are made could be used and the company has the
amounted to €0.3m at the end of June 2015, but the proceeds from the Migros disposal and earnings in H215 should boost this to a net cash position of around €100m by end 2015. The cause of the change in the net profit estimate for 2015 is largely the result of the inclusion in Q215 of net gains of €33.7m (group share €15.8m) earned by IDeA Opportunity Fund, which we had not previously anticipated. This fund of €147.8m at 30 June 2015 is 46.99% owned by DeA Capital and is fully consolidated on a line-by-line basis in DeA Capital’s financial statements in accordance with IFRS 10 (consolidated financial statements).The decline in estimated net profits for 2016 mainly arises from our lower expectations for the alternative asset management activities.
Valuation: Still at a discount to SOTP
Our preferred valuation measure for DeA Capital is a sum-of-the parts (SOTP). In its financial statements its private equity assets are valued at fair value and its asset management activities are valued at their equity value. In our SOTP valuation we have included the private equity investments at fair value and estimated the fair value of the asset management activities, using P/E ratios for comparable companies. In our previous note in May 2015 we used a multiple of 13.5x for the earnings of the asset management business to calculate their value, lower than that implied by US and UK and Italian asset managers to account for the early stage of development of the business. Since then the average multiple of UK and US asset managers has fallen 15% (from 14.2x to 12.1x) while that for Italian asset managers has fallen 10% (from 16.8x to 15.1x). We believe it reasonable to apply a multiple of 12x to determine the valuation of the asset managers. This is 12% lower than we used previously. We have also lowered our 2015 net profit expectation for 2015 to €13.3m from €16.0m, so our estimate of the value of alternative asset management falls to
€159.6m from €214.6m. After deducting net debt we estimate an SOTP for DeA Capital of €2.02 per share. This is lower than our previous estimate of €2.19 mainly because of the decline in value of the asset management activities.
Exhibit 5: SOTP
30 June 2015
Value (€m) Valuation method
Migros 196.9 Transaction value and market prices Other PE direct investments 11.6 Net equity
PE Funds 219.6 Fair value
Private Equity 428.1
Alternative Asset Management 159.6 Edison valuation of asset management at 12x 2015e earnings 587.7
Other net assets/liabilities (8.0) Net financial (debt) / cash (37.1)
Sum-of-the-parts 542.6 Shares outstanding at 16/9/2015 268.0
SOTP per share (€) 2.02 Source: DeA Capital, Edison Investment Research
Exhibit 6: 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 62,518 64,525
Income (loss) from equity investments (18,442) 6,586 (1,673) (57) 100
Other investment income/expense (7,884) (24,617) (56,149) 35,377 3,500
Income from services 10,863 16,329 18,667 18,445 16,500
Other income 1,658 4,032 509 45,122 0
Revenue 68,199 78,686 27,399 161,405 84,625
Cost of Sales (64,623) (56,212) (71,857) (65,845) (61,669)
Gross Profit 3,576 22,474 (44,458) 95,560 22,957
EBITDA 3,576 22,474 (44,458) 95,560 22,957
Operating Profit (before amort. and except.) 3,035 21,574 (45,240) 94,859 22,256
Intangible Amortisation (16,106) (72,384) (15,318) (4,685) (5,300)
Exceptionals 0 0 0 0 0
Other 0 0 0 0 0
Operating Profit (13,071) (50,810) (60,558) 90,175 16,957
Net Interest (6,759) (438) 2,905 3,153 500
Profit Before Tax (norm) (3,724) 21,136 (42,335) 98,012 22,756
Profit Before Tax (FRS 3) (19,830) (51,248) (57,653) 93,328 17,457
Tax 1,621 (4,381) 1,720 (8,594) (2,793)
Profit After Tax (norm) (2,103) 16,755 (40,615) 89,418 19,963
Profit After Tax (FRS 3) (18,209) (55,629) (55,933) 84,734 14,663
Minoriy interests (8,068) 24,499 (1,668) (21,262) (2,000)
Net income (FRS 3) (26,277) (31,130) (57,601) 63,472 12,663
Average Number of Shares Outstanding (m) 277.5 274.0 274.7 269.1 266.6
EPS - normalised (3.7) 15.1 (15.4) 25.3 6.7
EPS - normalised and fully diluted (3.7) 15.1 (15.4) 25.3 6.7
EPS - (IFRS) (9.5) (11.4) (21.0) 23.6 4.7
Dividend per share (p) 0.0 0.0 0.3 0.1 0.1
Gross Margin (%) 5.2 28.6 -162.3 59.2 27.1
EBITDA Margin (%) 5.2 28.6 -162.3 59.2 27.1
Operating Margin (before GW and except.) (%) 4.5 27.4 -165.1 58.8 26.3
BALANCE SHEET
Fixed Assets 1,060,645 971,549 786,141 687,382 671,382
Intangible Assets 314,883 244,778 229,711 224,891 218,891
Tangible Assets 58,669 73,336 39,988 42,257 42,257
Investments 687,093 653,435 516,442 420,234 410,234
Current Assets 66,884 81,018 117,585 230,872 234,375
Stocks 0 0 0 0 0
Debtors 27,537 44,406 53,389 37,295 37,295
Cash 29,156 26,396 55,583 185,562 189,065
Other 10,191 10,216 8,613 8,015 8,015
Current Liabilities (94,621) (72,338) (36,193) (113,408) (113,408)
Creditors (49,532) (32,920) (35,833) (32,824) (32,824)
Short term borrowings (45,089) (39,418) (360) (80,584) (80,584)
Long Term Liabilities (173,461) (173,670) (40,911) (39,422) (39,422)
Long term borrowings (142,802) (150,198) (5,201) (5,201) (5,201)
Other long term liabilities (30,659) (23,472) (35,710) (34,221) (34,221)
Net Assets 859,447 806,559 826,622 765,424 752,927
Minorities (136,309) (177,070) (173,109) (175,098) (171,598)
Shareholders' equity 723,138 629,489 653,513 590,326 581,329
Year-end number of shares m 274.6 274.0 271.6 266.6 266.6
NAV per share 2.63 2.30 2.41 2.21 2.18
CASH FLOW
Operating Cash Flow (23,752) (49,664) 188,419 151,513 35,663
Acquisitions/disposals (1,049) (4,519) (1,476) 163 0
Financing 14,657 55,917 (151,805) 66,332 0
Dividends (6,290) (5,643) (5,951) (87,932) (32,160)
Cash flow (16,434) (3,909) 29,187 130,076 3,503
Other items (1,174) 1,149 0 (97) 0
Opening net debt/(cash) 117,167 158,735 163,220 (50,022) (99,777)
Movement in debt 23,960 1,725 (184,055) 80,224 0
Closing net debt/(cash) 158,735 163,220 (50,022) (99,777) (103,280) Source: DeA Capital, Edison Investment Research
Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com
DISCLAIMER
Copyright 2015 Edison Investment Research Limited. All rights reserved. This report has been commissioned by DeA Capital and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2015. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.
