Increased rate of new investment in FY15
Deutsche Beteiligungs (XETRA:DBANn) has made a positive start to FY15, reporting a 5.0% increase in NAV in the first quarter and committing a total of €55.9m to five new investments. The portfolio additions are all engineering and industrial service companies, confirming DBAG’s focus on these sectors. The main contributor to earnings was €13.0m in valuation gains, driven by higher 2015 earnings forecasts for portfolio companies. DBAG management’s unchanged FY15 earnings guidance equates to c 9% pa NAV growth and new investments add potential for the medium term.
First quarter results show steady progress
DBAG reported Q115 net income of €13.3m compared with €12.5m in Q114 and €47.8m in FY14. The main constituent was a €12.2m net result of investment activity, primarily comprising valuation gains resulting from a shift in the valuation basis of portfolio companies from 2014 to 2015 earnings. Fee income from fund services of €5.2m was modestly lower than €5.6m in Q114, matched by a decline in net operating expenses to €4.9m. The adoption of IFRS 10 has had only a minor effect on consolidated net income and net assets. Adjusting for dividend payments, NAV per share increased by 5.0% to €23.17 during the quarter, compared with a 4.7% increase in the comparative quarter of the previous year and 15.8% in FY14.
Improving medium- and long-term prospects
Before adjustment for the shortened financial year to 30 September 2015, DBAG’s management guidance for FY15 is unchanged, with net income expected to exceed comparable FY14 net income of €23.1m by up to 10%, which would equate to a 9% pa NAV return, excluding dividends. The increased rate of new investments in FY15, with five MBO and expansion-capital transactions announced, is encouraging for medium- and long-term prospects. After these acquisitions and a €27.4m payment in March 2015, we estimate that DBAG has financial resources of €65m which should provide adequate funding for the next 12 months without any portfolio realisations.
Valuation: Premium rating
DBAG shares have moved from parity to a more than a 40% premium to NAV over the past four months. Over this period, the LPX Europe index has seen its discount narrow from 17% to 5%. In our view, DBAG’s premium rating is explained by the predictable stream of recurring fee income. The implied earnings multiple of DBAG’s fund services business, while around 20x, is significantly lower than that of 3i in the UK, its most direct peer.
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