Alternative asset management

Transcription

1 DeA Capital Transformation continues Q215 results Investment companies 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 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 AUM ( bn) Fees from AAM ( m) NAV/share ( ) DPS ( ) P/NAV (x) 12/ N/A 12/ /15e /16e Note: NAV is stated NAV, including goodwill. Yield (%) 24 September 2015 Price 1.29 Market cap 342m Net cash ( m) at 30 June Shares in issue 265m* *excludes treasury shares Free float 26.2% Code Primary exchange Secondary exchange Share price performance DEA BIT N/A 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 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 fixedterm 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. % 1m 3m 12m Abs (6.3) (14.8) (14.6) Rel (local) (3.5) (5.7) (18.8) 52-week high/low 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) Martyn King +44 (0) financials@edisongroup.com Edison profile page DeA Capital is a research client of Edison Investment Research Limited

2 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 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 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 TRY 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 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 June 2015 Stake Value ( m) Stake Value ( m) Sale proceeds from Migros part disposal Migros investment 13.7% % 89.2 Migros Other PE direct investments N/M 11.3 N/M 11.6 PE funds N/M N/M Private Equity IDeA Capital Funds SGR 100% % 47.5 IDeA Fimit SGR 64.3% % Innovation RE 97.0% % 7.8 Alternative Asset Management Total investment portfolio Other net assets/liabilities (9.8) (8.0) Net financial (debt)/cash 37.2 (37.1) NAV Shares outstanding (excluding treasury stock) NAV per share 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. IDeA Capital Funds, DeA s private equity asset manager, increased AuMs by 0.1bn from end- December 2014 as it took over the management of the Investitori Associati IV fund from another provider. Management fee rates in H115 were similar to those of H114 and the higher asset base DeA Capital 24 September

3 led to a slightly higher net profit contribution. The company maintains its target of IDeA Capital Funds of 2bn by the end of Exhibit 2: Alternative asset management key figures H114 H214 H115 H215e e 2016e AuMs ( bn) end period IDeA Capital Funds IDeA Fimit AuMs ( bn) average IDeA Capital Funds IDeA Fimit Management fees/aum bp IDeA Capital Funds IDeA Fimit Management and service fees ( m) IDeA Capital Funds IDeA Fimit IRE Adjusted net profits ( m) IDeA Capital Funds IDeA Fimit* IRE Minorities (3.2) (2.9) (2.0) (1.9) (6.1) (4.0) (3.9) 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 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 DeA Capital 24 September

4 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) e 52,944 63, (1) e 15,977 12,663 (20) (2) 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 option to pay the dividend from the share premium reserve, which we estimate amounted to just over 300m at the end of June. Net debt (our definition, balance sheet cash less borrowings) DeA Capital 24 September

5 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 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 Transaction value and market prices Other PE direct investments 11.6 Net equity PE Funds Fair value Private Equity Alternative Asset Management Edison valuation of asset management at 12x 2015e earnings Other net assets/liabilities (8.0) Net financial (debt) / cash (37.1) Sum-of-the-parts Shares outstanding at 16/9/ SOTP per share ( ) 2.02 Source: DeA Capital, Edison Investment Research DeA Capital 24 September

6 Exhibit 6: Financial summary 000s e 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, ,122 0 Revenue 68,199 78,686 27, ,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 Other Operating Profit (13,071) (50,810) (60,558) 90,175 16,957 Net Interest (6,759) (438) 2,905 3, 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) EPS - normalised (3.7) 15.1 (15.4) EPS - normalised and fully diluted (3.7) 15.1 (15.4) EPS - (IFRS) (9.5) (11.4) (21.0) Dividend per share (p) Gross Margin (%) EBITDA Margin (%) Operating Margin (before GW and except.) (%) BALANCE SHEET Fixed Assets 1,060, , , , ,382 Intangible Assets 314, , , , ,891 Tangible Assets 58,669 73,336 39,988 42,257 42,257 Investments 687, , , , ,234 Current Assets 66,884 81, , , ,375 Stocks Debtors 27,537 44,406 53,389 37,295 37,295 Cash 29,156 26,396 55, , ,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, , , , ,927 Minorities (136,309) (177,070) (173,109) (175,098) (171,598) Shareholders' equity 723, , , , ,329 Year-end number of shares m NAV per share CASH FLOW Operating Cash Flow (23,752) (49,664) 188, ,513 35,663 Acquisitions/disposals (1,049) (4,519) (1,476) 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, ,076 3,503 Other items (1,174) 1,149 0 (97) 0 Opening net debt/(cash) 117, , ,220 (50,022) (99,777) Movement in debt 23,960 1,725 (184,055) 80,224 0 Closing net debt/(cash) 158, ,220 (50,022) (99,777) (103,280) Source: DeA Capital, Edison Investment Research DeA Capital 24 September

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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. Frankfurt +49 (0) DeA Schumannstrasse Capital 34b 24 September 280 High 2015 Holborn 245 Park Avenue, 39th Floor Level 25, Aurora Place Level 15, 171 Featherston St Frankfurt Germany London +44 (0) London, WC1V 7EE United Kingdom New York , New York US Sydney +61 (0) Phillip St, Sydney NSW 2000, Australia Wellington +64 (0) Wellington 6011 New Zealand