Quaestio transactions completed

DeA Capital 10 December 2019 Update
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DeA Capital

Quaestio transactions completed

Q3 results

Financial services

10 December 2019

Price

€1.42

Market cap

€369m

Holding company net financial position (€m) at 30 September 2019

78.6

Shares in issue
(excluding treasury shares)

260.0m

Free float

30.4%

Code

DEA

Primary exchange

BIT

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.9

7.5

13.1

Rel (local)

4.6

2.3

(7.2)

52-week high/low

€1.56

€1.23

Business description

DeA Capital, a De Agostini group company, is Italy’s leading alternative asset manager of real estate, private equity and NPLs, with AUM of c €11.8bn at 30 September 2019. The investment portfolio, including co-investment in funds managed, investment in the asset management platform, and direct investment, amounted to c €369m.

Next events

2019 results

April 2020

Analyst

Martyn King

+44 (0)20 3077 5745

DeA Capital is a research client of Edison Investment Research Limited

DeA Capital (DEA) is exploiting its financial strength and leading Italian position in alternative asset management (AAM) to grow and internationalise its AAM platform, extend its customer reach and enhance its product capability. The completed agreements with Quaestio Group mark an important step in this process. Before any contribution from Quaestio, the Q319 financial report shows year-on-year growth in alternative assets under management (AUM) and underlying earnings.

Year end

Closing AUM (€bn)

AAM fees* (€m)

NAV/share
(€)

DPS (declared) (€)

P/NAV
(x)

Yield
(%)

12/17

11.7

59.8

1.92

0.12

0.74

8.5

12/18

11.9

63.3

1.84

0.12

0.77

8.5

12/19e

14.4

64.0

1.75

0.12

0.81

8.5

12/20e

14.8

68.8

1.68

0.12

0.85

8.5

Note: NAV as reported, including goodwill. *Divisional AAM fees before group consolidation adjustment for own funds managed.

Quaestio transactions increase scale and capability

The Quaestio transactions agreed in July were completed in early November (Q419). DeA has acquired the Quaestio SGR non-performing loans (NPL) business with AUM of €2.35bn for an outlay of €12.2m, increasing directly managed alternative AUM to €14.4bn, and significantly broadening its capabilities. DeA has also acquired a 38.8% stake in the Quaestio SGR holding company for an initial outlay of €14.1m, becoming its largest single investor. Quaestio SGR will focus on traditional liquid investments (AUM of €7.5bn) and under a product and marketing partnership between the two companies, DeA will not develop its own liquid products but will offer those of Quaestio, whereas the latter will not develop illiquid products and will offer those of DeA. DeA will gain access to Quaestio’s added-value investment solutions and capital allocation capabilities.

Growth in existing AUM and underlying earnings

Alternative AUM of c €11.8bn at end-Q319 was similar to the previous quarter and start of the year but up c €0.4bn or 3% from a year earlier, up from c €11.2bn at end-H118 but slightly down from €11.9bn at end-Q119. AAM divisional fee income increased from €45.1m (€44.4m excluding consolidation adjustments in respect of own funds held) in the first nine months of FY18 (9M18) to €48.0m (€47.2m) in 9M19. Edison adjusted attributable earnings (excluding investment gains/losses, non-recurring items, and other adjustments) increased by c 20% from c €7.5m to c €8.9m. At the group level, NAV per share increased to €1.73 (Q219: €1.69) and the holding company net financial position remained strong at €78.6m or €0.30 per share (c 17% of NAV).

Valuation: Low P/NAV and high yield

At c 0.8x H119 IFRS NAV, DeA has the lowest P/NAV among a range of peers and the highest yield. The discount to our adjusted NAV per share is larger still; the increase in our adjusted NAV per share to €1.94 (€1.83 previously) is driven by the AAM business valuation (see page 8).

Focused on growing asset management

The year to date has seen significant progress in the development of DeA’s AAM platform. Alternative AUM and recurring AUM earnings are ahead year-on-year. Strategically this progress includes completion of the buyout of minorities in DeA Capital Real Estate and the international roll-out of DeA’s real estate activities as well as the recent completion of a series of agreements with Quaestio Group and its main shareholders. This increases AUM, enhances DeA’s NPL management offering and broadens its product capabilities and investor reach. The key features of the Q319 financial report were:

Alternative AUM increase year-on-year. At 30 September 2019 (end-Q319), AUM was c €11.8bn, a similar level to the previous quarter and start of the year but up c €0.4bn/ c 3% year-on-year. The year-on-year increase in AUM includes the contribution from new fund launches, partially offset by fund maturities and liquidations.

AAM management fees and core profitability also increased. AAM divisional fee income increased from €45.1m (€44.4m excluding consolidation adjustments in respect of own funds held) in the first nine months of FY18 (9M18) to €48.0m (€47.2m) in 9M19. In addition to the increase in AUM, the growth includes c €0.8m earned by DeA Capital Real Estate France, which has completed its first two transactions, performance fees (we estimate c €2.5m in Q119) and a retrospective recognition of fee income in respect of the CCRI and CCRII funds (we estimate c €1.0m in Q319), partly offset by a non-repeat of one-off fund sales fees and some overall erosion of average management fee margins. Reported attributable net profit of the asset management division increased from €5.2m in 9M18 to €9.5m in 9M19 and Edison adjusted attributable earnings (excluding investment gains/losses, non-recurring items, and other adjustments) increased by c 20% from c €7.5m to c €8.9m.

The group investment portfolio, comprising the investment in the AAM division (€188.0m), as well as its direct shareholding (€61.5m) and fund investments (€119.4m), was €368.9m at end-9M19 compared with €366.6m at end-FY18.

Exhibit 1: Summary of net asset value

30 September 2019

30 June 2019

Adjusted for distribution*

31 December 2018

€m

€ per share

€m

€ per share

€m

€ per share

AAM

DeA Capital Real Estate

138.0

0.53

135.0

0.52

140.4

0.55

DeA Capital Alternative Funds

42.6

0.16

41.6

0.16

43.4

0.17

Other (inc YARD, DeA Capital RE France/Spain)

7.4

0.03

7.1

0.03

6.8

0.03

Total AAM

188.0

0.72

183.7

0.71

190.6

0.75

Alternative Investment

Funds

119.4

0.46

123.0

0.47

125.0

0.49

Direct shareholdings

61.5

0.24

46.7

0.18

51.0

0.20

Total private equity investment

180.9

0.70

169.7

0.65

176.0

0.69

Total investment portfolio

368.9

1.42

353.4

1.36

366.6

1.45

Other net assets/(liabilities)

3.0

0.01

4.4

0.02

3.4

0.01

Holding company net financial position

78.6

0.30

81.5

0.31

65.3

0.26

Net asset value (NAV)

450.5

1.73

439.3

1.69

435.3

1.72

Source: DeA capital. Note: *31 December 2018 adjusted for subsequent €0.12 per share distribution.

The relatively small changes in the carried value of the AAM division during FY19 reflect distributions from the asset management subsidiaries to the group (€22.9m), investment to eliminate the remaining minority interest in DeA Capital Real Estate (c €8m) and profit retention. The reduction in the value of the fund investments in 9M19 includes distributions in excess of capital calls (€3.0m) and negative fair value movements (€2.6m).

Exhibit 2: Fund holding movement

€m

Q319

FY19 YTD

Fund holdings at beginning of period

123.0

125.0

Capital calls

1.7

8.8

Distributions (net of withholding tax

(5.3)

(11.8)

Fair value movement

0.0

(2.6)

Fund holdings at end of period

119.4

119.4

Source: DeA Capital

The increase in the carried value of the direct shareholding investments year to date primarily reflect the improved valuation of the indirect investment in Turkish retailer Migros, owned via DeA’s shareholding in Kenan Investments and a Q319 co-investment, alongside the IDeA Taste of Italy Fund (IDeA ToI), in the Alice Pizza group, Italy’s number one pizza by slice chain. The €5m direct investment represents a c 10% interest in Alice Pizza, and IDeA ToI, in which DeA has a c 11.6% ownership has also increased its investment by €5.1m to €25.7m. In November, Kenan investments, in which DeA has a 17.1% stake, reduced its stake in Migros from 23.2% to 12.2%. The 11% stake was sold at a price of TRY22.5, above the TRY20.76 price that the shares were carried in the balance sheet at 30 September and generating funds to DeA of c €11m.

Exhibit 3: Direct shareholdings

Q319

H119

FY18

Kenan Investments (holding company for Migros)

25.8

16.7

19.4

Crescita/Cellularline

6.7

7.4

7.5

IDeaIMI

22.3

22.3

23.8

ToI due/Alice Pizza

5.0

0

0

Minor investments & other adjustments

1.7

0.3

0.3

Total direct shareholdings

61.5

46.7

51.0

Source: DeA Capital data, Edison Investment Research

Group NAV per share was €1.73 at end-Q319 compared with €1.69 at end-Q219 and €1.72 at end-FY18 adjusted for the €0.12 per share distribution paid during FY19.

The net financial position of the holding company remained strongly positive at €78.6m, or c 17% of NAV, before the completion of the previously announced Quaestio transactions in early November.

Quaestio transactions completed

On 5/6 November 2019, DeA completed the agreements it entered into with the Quaestio Group and its main shareholders in July 2019. These mark an important step in the development of DeA’s AAM platform and are now included in our group forecasts. We wrote in detail on this complex transaction in our note published in August. The agreements as completed include:

The acquisition by DeA of the NPL management business of Quaestio SGR, a Milan-based independent asset management company, mainly comprising the management contracts for the Atlante Fund and Italian Recovery Fund. This has added c €2.35bn of NPL AUM directly to DeA Capital Alternative Funds and extends its business into the small-ticket NPL/UTP sector, complementary to the IDeA CCRI and IDeA CCRII funds. The consideration of €12.2m is as indicated in the July announcement.

The acquisition by DeA of a 38.8% stake in Quaestio Holding (the parent company of Quaestio SGR) by acquiring shares from its founder and from minority interests for an outlay at closing of €14.1m. This makes DeA the single largest investor in Quaestio Holdings (Fondiazione Cariplo has a 34.0% interest), cementing a product and marketing partnership between the two companies whereby Quaestio will offer DeA’s AAM products to its clients and DeA will offer to its clients the liquid asset-based products that will be the focus of Quaestio SGR going forwards. DeA will gain access to Quaestio’s added-value investment solutions and capital allocation capabilities.

The agreement covering the investment in Quaestio Holding provides for a post-closing price adjustment that will be based on the net financial position of Quaestio Holding and the final terms of the sale by it of certain other assets. The exact amount of any further outlay by DeA is yet to be determined, although we expect this to be matched by a corresponding adjustment to the fair value of the assets acquired by DeA.

Our forecasts for the financial impacts of the transaction are detailed in the Financials section, below. DeA’s directly managed alternative AUM have increased to €14.4bn compared with €11.8bn at end-Q319 and we expect the acquisition of the NPL business to add c €2.5m to attributable net earnings on a full year basis.

Including the traditional liquid AUM that will be retained by Quaestio SGR and equity accounted through the Quaestio Holdings stake, the broad DeA group, AUM will increase to more than €20bn. Beyond the immediate benefits, over the medium term DeA hopes to leverage benefit from its additional scale in alternative AUM, broader product capabilities, enhanced investor reach and both directly and indirectly (through its equity investment) from the product and marketing partnership with Quaestio.

Financials

In this section we update our forecasts and valuation for the Q319 reported data and the completion of the Quaestio transaction.

The AAM division

Our updated AAM division earnings are shown in Exhibit 5. The AAM division as reported in the DeA financial statements comprises the AAM platform (DeA Capital Real Estate and DeA Capital Alternative Investments) plus other asset management activities (primarily the 44%-owned associate YARD, which provides property services to the real estate sector and the recently created European real estate businesses in France, Iberia and going forward, Poland).

Our AAM division adjusted earnings forecasts (reported earnings adjusted for intangible amortisation/impairment, non-recurring investment earnings and other items) increase by c 4% or c €0.5m for FY19 and by c 27% or c €2.5m for FY20. The changes are primarily driven by the inclusion of the Quaestio NPL business for a part year in FY19 and a full year in FY20, with a further small uplift by the forecast of further fee income from the new pan-European real estate platform, itself partly offset by increased costs for the platform rollout (Exhibit 4). The pan-European real estate platform has generated c €0.8m in fee income in the year to date and we now assume c €0.9m for the year and a €1.0m in FY20 (previously nil).

Exhibit 4: Summary of change in AAM division forecast

€m

FY19e

FY20e

Previous AAM adjusted earnings forecast

11.2

10.0

Quaestio period-end AUM (€bn)

Quaestio NPL business:

2.4

2.4

Quaestio average AUM (€bn)

0.4

2.4

Fee margin (bp)

30.0

30.0

Revenue

1.1

7.1

Personnel costs

(0.5)

(3.0)

Other costs

(0.1)

(0.5)

Pre-tax contribution

0.5

3.6

Tax

(0.2)

(1.1)

Tax rate

30%

30%

Quaestio NPL business after tax contribution

0.4

2.5

Other changes AAM adjusted earnings forecast

0.1

0.2

New AAM adjusted earnings forecast

11.7

12.6

Percentage change in forecast

4%

27%

Source: Edison Investment Research

Quaestio NPL business assumptions

The Quaestio transactions completed on 5/6 November 2019 and will contribute for less than two months in FY19 but will make a full contribution in FY20. The NPL AUM acquired by the DeA Capital Alternative Funds subsidiary was €2.35bn and we estimate an annual revenue margin of 30bp. As part of the transaction, the Quaestio NPL management team, consisting of eight investment professionals, joined DeA and we estimate annualised personnel costs of €3.0m with an additional €0.5m in other expenses. On a full-year basis, after tax at an assumed 30%, we forecast a €2.5m contribution to the AAM division/DeA Capital Alternative Funds adjusted attributable earnings after tax.

Exhibit 5: AAM division summary and forecasts

Reported/forecast

Last published

Change

€m unless stated otherwise

2017

2018

2019e

2020e

2019e

2020e

2019e

2020e

Period-end AUM (€bn)

DeA Capital Alternative Funds

2.190

2.430

4.915

4.915

2.534

2.634

2.381

2.281

DeA Capital Real Estate

9.542

9.451

9.497

9.897

9.497

9.897

0.000

0.000

Total period-end AUM (€bn)

11.732

11.881

14.412

14.812

12.031

12.531

2.381

2.281

Period average AUM (€bn)

0.0

0.0

DeA Capital Alternative Funds

1.944

2.230

2.888

4.913

2.520

2.545

0.369

2.369

DeA Capital Real Estate

9.282

9.266

9.303

9.697

9.339

9.697

(0.036)

0.000

Total period average AUM (€bn)

11.226

11.495

12.191

14.610

11.858

12.242

0.333

2.369

Management fees/AUM bps

DeA Capital Alternative Funds

95

105

84

55

87

78

(3)

(23)

DeA Capital Real Estate

45

43

42

42

42

42

0

0

INCOME STATEMENT

DeA Capital Real Estate

41,381

39,768

38,909

40,727

38,947

40,727

(38)

0

DeA Capital Alternative Funds

18,438

23,483

24,157

27,059

21,886

19,750

2,271

7,309

Other (European RE platform)

893

1,000

405

0

488

1,000

Total alternative asset management fees (before group consolidation adjustments)

59,819

63,251

63,959

68,786

61,238

60,478

2,722

8,309

Income from equity investments

822

717

150

1,137

498

1,174

(349)

(36)

Other income/expense

1,676

(4,212)

1,975

1,931

1,592

2,080

383

(149)

Income from services

703

1,867

35

0

33

0

2

0

Total revenue

63,020

61,623

66,119

71,855

63,361

63,732

2,758

8,123

Total expenses

(91,116)

(47,539)

(46,925)

(51,372)

(45,450)

(46,716)

(1,475)

(4,656)

Finance income/expense

13

(39)

(175)

0

(117)

0

(58)

0

Profit before tax

(28,083)

14,045

19,019

20,483

17,794

17,016

1,225

3,467

Taxation

(2,991)

(4,817)

(7,058)

(6,956)

(6,325)

(5,774)

(732)

(1,183)

Profit after tax

(31,074)

9,228

11,962

13,527

11,469

11,242

493

2,285

Minority interests

13,575

(109)

518

0

377

0

141

0

Attributable profits

(17,499)

9,119

12,480

13,527

11,846

11,242

634

2,285

Adjustments (net of tax & minorities)

PPA amortisation*

592

543

443

442

305

165

139

277

SFP impairment**

2,460

632

0

0

0

0

0

0

Goodwill impairment

24,897

0

0

0

0

0

0

Other income/expense

(839)

2,948

(1,248)

(1,352)

(973)

(1,456)

(275)

104

Provisions against investment impairment

0

0

0

0

0

0

Adjusted attributable earnings

9,611

13,242

11,675

12,617

11,177

9,951

497

2,666

o/w DeA Capital Real Estate

5,889

7,103

8,243

8,450

8,097

8,439

146

11

o/w DeA Capital Alternative Funds

3,153

6,114

5,335

5,470

4,643

2,978

691

2,491

o/w other (inc YARD and European RE platform)

569

25

(1,903)

(1,303)

(1,563)

(1,466)

(340)

164

Source: DeA Capital accounts, Edison Investment Research. Note: *Purchase price amortisation. **The SFP asset relates to financial equity instruments within DeA Capital Real Estate that represents DeA share in the carried interest of certain funds.

‘Other group’ forecasts

For our group forecasts, in addition to our estimates for the AAM profit contribution, our reported earnings and NAV forecasts seek to capture at least part of the potential return that would be expected from those parts of the investment portfolio that are not captured in the AAM segment. This includes the private equity fund holdings and the direct investments (Kenan Investments/Migros, Crescita/Cellularline and IDeaMI), the co-investment in Alice Pizza and going forward the 38.8% equity accounted stake in Quaestio Holdings. The group’s investment in own-managed real estate funds are accounted for within the AAM division (in DeA Capital Real Estate). We assume 7.5% per year ‘normalised’ growth in the carried value of all of the private equity fund investments whether carried as available for sale investments, consolidated (eg 47% owned IDeA Opportunities Fund 1) or equity accounted (eg 30% owned IDeA EESS Fund). We believe this is a useful way to capture at least some of the returns that may be earned on these investments, even though our approach differs from the way these assets are actually managed, seeking to maximise the internal rate of return. Our forecasts assume no change to the last published value of (or income from) the quoted investments, Migros (Kenan Investments), Cellularline (formerly Crescita) and IDeaMI, although for valuation purposes our adjusted NAV (see below) does mark these to market values. For the real estate funds owned by Within DeA Capital Real Estate, we assume a total return of 4% per year, substantially representing the expected income returns, but exclude this from recurring adjusted earnings.

Quaestio investment

We have included the €14.1m investment in a 38.8% stake Quaestio Holdings within equity investments on the balance sheet, at cost, and for now assume no equity accounted return on the stake, although this may prove conservative. DeA has disclosed that in the year ending 31 December 2018 the asset management subsidiary of Quaestio Holdings, Quaestio SGR, generated revenues of €37.0m (of which €7m from the NPL business that has been sold to DeA) and a net profit of €2.9m.

For now, relatively little information is publicly available about the profitability of Quaestio Holdings, either before or after its divestment to DeA of the NPL management business and we will look to refine our assumptions. Pending more detailed disclosure, we have included the €12.2m investment to acquire the Quaestio NPL management business within intangible assets on the balance sheet, anticipating relatively low tangible asset value as is common in the asset management industry.

Forecast FY19 group IFRS NAV per share increased to €1.75

Our forecast for FY19 IFRS NAV per share is now €1.75 compared with €1.72 previously. For end-FY20 we forecast €1.67 including payment of a €0.12 share distribution, ahead of our forecast earnings and reflecting the continuing strong liquidity position. We estimate a holding company net financial position of €71.3m at end-FY19, lower than the €98.5m that we previously forecast predominantly as a result of the €26.3m investment in Quaestio Holdings and the Quaestio NPL management business as well as the €5m co-investment in Alice Pizza Group, partly offset by the Migros part-divestment (€11.0m).

Edison adjusted NAV per share now €1.94

Our adjusted NAV replaces the stated book value of the AAM platform with our assessment of a fair value based on P/E multiples observed across a global peer group of both alternative and more conventional asset management companies. We also mark to market DeA’s quoted investments. Our updated adjusted NAV per share is now €1.94 compared with our last published value of €1.83.

In the AAM division, from the stated NAV of €188.0m we have reallocated the value of the real estate funds (€51.0m) owned to what we call the ‘investments’ division. We value the division at €189.3m on a multiple of 15.0x our forecast FY20 adjusted earnings of €12.0m. Our previous valuation was €156.6m and was based on our previous forecast for FY19 AAM division adjusted earnings of €11.2m using a multiple of 14.0x. We have decided to base the analysis on FY20 earnings given the late stage of the current financial year and because we expect the Quaestio NPL business to make a meaningful contribution to earnings on a full-year basis in FY20. The higher multiple reflects our updated analysis of peer group multiples (Exhibit 7). An increase or reduction in the multiple to 16.0x/14.0x would lift or reduce adjusted NAV by c €0.05.

The ‘investments’ (€233.7m) shown in Exhibit 6 include the €188.0m of direct shareholding and fund investments shown in the breakdown of NAV in Exhibit 1, plus the value of the real estate funds that we have reallocated. We have also adjusted for the recent divestment of a 11% stake in Migros by Kenan investments and have marked to market DeA’s listed investments, of which the most significant is the remaining indirect investment in Migros, using a Migros share price of TRY23.3 and a TRY/€ exchange rate of 6.43 (both as at 9 December 2019) compared with the balance sheet valuation based on a share price of TRY20.76 and a TRY/€ exchange rate of 6.16.

The ‘other’ column represents the holding company net financial position (predominantly cash) and other net assets, shown in Exhibit 1, adjusted for the Migros part-divestment proceeds.

Exhibit 6: Summary of Edison adjusted NAV

€m except where stated otherwise

AAM

Investments

Other

Total

Per share

Last published NAV

188.0

180.9

81.6

450.5

1.73

Adjustments

(51.0)

51.0

Listed investment mark to market as at date of report

1.8

Sale of Migros

(11.0)

11.0

Adjustment to earnings valuation

52.3

Adjusted NAV

189.3

222.7

92.6

504.5

1.94

FY20 earnings

13.5

(14.8)

(1.3)

Adjustments

-0.9

Adjusted earnings

12.6

P/E (x)

15.0

Source: Edison Investment Research

The increase in adjusted NAV to €1.94 compared with our previous estimation of €1.83 is partly driven by the increased AAM multiple that we are using (with an unchanged 14.0x AAM multiple the adjusted NAV would be €1.89), partly due to our slight increase in AAM adjusted earnings before the inclusion of Quaestio, and partly due to the increasing weight of AAM within the total as a result of the acquisition of the Quaestio NPL business. However, our peer group analysis does show that DeA’s increasing AAM focus and scale has the potential to lift the valuation, especially if the group can successfully lift ROE as a result.

Low P/NAV compared with peers

DeA shares trade at a P/NAV of c 0.8x, the lowest in the peer group shown in Exhibit 7. At the same time, DeA’s yield of c 8.6% is the highest in the group and although the pay-out is not covered by recurring income, it is supported by a strong holding company financial position and significantly net positive cash flow from its investment portfolio. In our view, there is significant value in DeA that is not captured in the current share price. In part, this reflects the low ROE that it generates compared with the peer group, partly but not wholly explained by the depressing effect of high liquidity (c 20% of NAV).

We have divided Exhibit 7 into two groups. The first is a ‘narrow’ group of companies that DeA management believes mostly closely resemble its own strategy of combining AAM for third parties with balance sheet investment (both co-investment in funds managed and direct investment) supported by permanent capital. We have also included a broad range of other private equity, specialist and conventional asset managers, many of which focus on ‘balance sheet-light’ third-party asset management. Given this mix of strategies among its peer group, combining widely differing reliance on ‘recurring’ asset management earnings and balance sheet-driven investment earnings, we would caution against focusing on any particular valuation multiple. In our view, Exhibit 7 highlights the significant value in DeA, as well as the immediate returns to shareholders via strong and regular distributions.

Exhibit 7: Peer group valuation summary

Price (local)

Market cap ($m)

Last year-end

P/E last reported year (x)

P/E current year (x)

P/NAV last reported year (x)

P/NAV current year (x)

ROE last reported year (%)

ROE current year (%)

Historic yield (%)

Brookfield Asset Management

58.3

58,679

31-Dec

17.1

32.2

1.9

2.0

NULL

7.3

1.0

KKR

29.1

16,035

31-Dec

15.1

17.1

1.9

1.6

21.5

10.5

2.2

3i Group

1070.5

13,703

31-Mar

8.3

8.3

1.3

1.2

16.8

14.8

3.3

Intermediate Capital

1561.0

5,964

31-Mar

16.7

16.9

3.2

3.0

19.6

18.3

2.9

Tikehau

23.6

3,581

31-Dec

-22.7

18.7

1.1

1.0

-4.5

6.3

1.1

Deutsche Beteiligungs

40.5

676

30-Sep

18.2

14.6

1.4

1.3

7.5

9.4

3.6

EQT

10.6

11,193

31-Dec

N/A

48.2

N/A

10.8

N/A

33.1

N/A

Average narrow group

8.8

17.9

1.8

1.7

12.2

11.1

2.3

Blackstone

53.9

63,771

31-Dec

22.8

23.8

5.6

5.6

43.8

21.2

4.5

Partners Group

856.4

23,167

31-Dec

29.9

27.9

11.5

10.2

39.2

39.0

2.6

Apollo

44.7

9,933

31-Dec

-212.6

19.3

10.9

8.4

-6.0

72.1

4.3

Schroders

3217.0

11,345

31-Dec

15.2

16.5

2.0

2.4

16.9

14.8

3.5

Janus Henderson

24.9

4,665

31-Dec

9.1

10.2

1.0

1.0

11.1

9.6

5.8

Man Group

2.0

3,032

31-Dec

14.3

11.7

1.9

1.8

13.1

16.0

5.7

Ashmore

476.0

4,463

30-Jun

19.0

16.6

3.8

3.6

22.3

22.8

3.5

Jupiter

376.2

2,265

31-Dec

11.9

13.3

2.8

2.8

22.9

21.2

4.5

Azimut

22.4

3,569

31-Dec

24.9

11.4

5.5

4.2

21.1

44.9

6.7

Patrizia

19.3

1,977

31-Dec

33.8

25.1

1.5

1.2

5.4

5.3

1.4

Average: broader group

-3.2

17.6

4.7

4.1

19.0

26.7

4.3

Average whole group

1.3

17.7

3.6

3.2

16.7

20.8

3.5

Median narrow group

15.9

17.0

1.6

1.4

16.8

9.9

2.5

Median broader group

17.1

16.6

3.3

3.2

19.0

21.2

4.4

Median whole group

16.0

16.8

2.0

2.2

16.9

15.4

3.5

DeA Capital – Edison*

1.41

403

31-Dec

32.3

37.8

0.8

0.8

2.2

1.5

8.5

Source: Refinitiv. Note: Prices at 9 December 2019. *Forward-looking DeA figures are Edison forecasts and are group figures, which differ from the AAM segment forecasts.

Although it has been consistently positive over the past three years, return on equity is currently relatively low, both in absolute terms and compared with the peer group. As noted in the financial section, the forecast data in Exhibit 8 for FY19 and FY20 reflects the impact of both our recurring AAM earnings forecasts and the notional return on investments that we factor in. We believe that the successful execution of DeA’s strategy, subject to market conditions, should result in:

less cash drag as DeA commits further liquidity to higher-yielding investments or continuing distributions; and

greater capital efficiency as the less capital-intensive AAM platform continues to grow in size and as a share of the group.

Exhibit 8: NAV total return

€ per share unless otherwise stated

FY16

FY17

FY18

FY19e

FY20e

Opening NAV per share

2.07

2.03

1.92

1.84

1.75

Distributions per share

0.12

0.12

0.12

0.12

0.12

Closing NAV per share

2.03

1.92

1.84

1.75

1.68

NAV total return

3.5%

0.5%

2.2%

1.5%

2.9%

Source: Company data, Edison Investment Research

Exhibit 9: Financial summary

Period ending 31 December (€000's)

2014

2015

2016

2017

2018

2019e

2020e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

AAM fees (after inter-company eliminations)

66,045

62,416

59,114

57,944

62,422

63,588

67,709

Income (loss) from equity investments

(786)

(539)

524

3,898

(59)

160

1,649

Other investment income/expense

(56,149)

72,464

12,338

8,633

37,848

6,061

9,215

Income from services

19,176

18,496

8,509

2,208

2,505

298

0

Other income

3,204

288

144

141

32

0

Revenue

28,286

156,041

80,773

72,827

102,857

70,139

78,573

Expenses

(87,957)

(128,514)

(66,888)

(98,616)

(56,232)

(55,158)

(60,172)

Net Interest

2,905

4,982

(1,220)

(84)

485

(226)

0

Profit Before Tax

(56,766)

32,509

12,665

(25,873)

47,110

14,755

18,401

Tax

1,720

6,452

(199)

(420)

(5,765)

(5,849)

(4,409)

Profit After Tax

(55,046)

38,961

12,466

(26,293)

41,345

8,906

13,991

Profit from discontinued operations

(887)

286

0

682

0

0

0

Profit after tax

(55,933)

39,247

12,466

(25,611)

41,345

8,906

13,991

Minority interests

(1,668)

1,825

(39)

13,959

(30,275)

780

(942)

Net income (FRS 3)

(57,601)

41,072

12,427

(11,652)

11,070

9,686

13,050

Profit after tax breakdown

Private equity

(60,739)

78,322

7,859

8,327

39,152

3,584

5,795

AAM

9,464

(37,304)

7,309

(31,073)

9,228

11,962

13,527

Holdings/Eliminations

(4,658)

(1,771)

(2,702)

(2,865)

(7,035)

(6,640)

(4,730)

Total

(55,933)

39,247

12,466

(25,611)

41,345

8,906

14,591

Average Number of Shares Outstanding (m)

273.8

266.6

263.1

258.3

253.8

259.5

260.0

IFRS EPS (c)

(21.0)

15.4

4.7

(4.5)

4.4

3.7

5.0

Distributions per share (declared basis) (€)

0.30

0.12

0.12

0.12

0.12

0.12

0.12

BALANCE SHEET

Fixed Assets

786,141

558,086

559,335

454,156

372,650

395,342

376,206

Intangible Assets (inc. goodwill)

229,711

167,134

156,583

117,233

114,768

126,299

126,299

Other assets

39,988

38,590

35,244

10,305

8,939

25,450

25,450

Investments

516,442

352,362

367,508

326,618

248,943

243,593

224,457

Current Assets

117,585

173,882

141,521

178,161

185,446

139,397

141,325

Debtors

50,711

20,694

15,167

32,955

18,729

12,557

12,557

Cash

55,583

123,468

96,438

127,916

143,767

107,313

109,241

Other

11,291

29,720

29,916

17,290

22,950

19,527

19,527

Current Liabilities

(36,193)

(31,294)

(26,979)

(34,783)

(37,902)

(29,468)

(29,468)

Creditors

(35,833)

(30,643)

(25,757)

(34,583)

(37,698)

(24,638)

(24,638)

Short term borrowings

(360)

(651)

(1,222)

(200)

(204)

(4,830)

(4,830)

Long Term Liabilities

(40,911)

(15,514)

(12,830)

(12,475)

(14,414)

(27,103)

(27,103)

Long term borrowings

(5,201)

0

(19)

0

(2,859)

(15,183)

(15,183)

Other long term liabilities

(35,710)

(15,514)

(12,811)

(12,475)

(11,555)

(11,920)

(11,920)

Net Assets

826,622

685,160

661,047

585,059

505,780

478,168

460,960

Minorities

(173,109)

(138,172)

(131,844)

(95,182)

(39,299)

(24,426)

(25,368)

Shareholders' equity

653,513

546,988

529,203

489,877

466,481

453,742

435,592

Year-end number of shares m

271.6

263.9

261.2

255.7

253.8

260.0

260.0

NAV per share (€)

2.41

2.07

2.03

1.92

1.84

1.75

1.68

CASH FLOW

Operating Cash Flow

188,419

188,492

19,148

91,146

96,408

12,348

33,128

Acquisitions/disposals

(1,476)

70

(290)

(633)

(275)

(793)

0

Financing

(157,756)

(38,148)

(4,362)

(26,073)

(46,994)

(10,476)

0

Dividends

0

(82,432)

(33,494)

(32,962)

(33,098)

(37,531)

(31,200)

Other

Cash flow

29,187

67,982

(18,998)

31,478

16,041

(36,452)

1,928

Other items

0

(97)

(8,032)

0

(190)

(1)

0

Opening consolidated cash

26,396

55,583

123,468

96,438

127,916

143,767

107,314

Closing consolidated cash

55,583

123,468

96,438

127,916

143,767

107,314

109,242

Financial debt

(5,561)

(651)

(1,241)

(200)

(3,063)

(20,013)

(20,013)

Closing consolidated net (debt)/cash

50,022

122,817

95,197

127,716

140,704

87,301

89,229

Holding company net financial position

40,600

90,016

79,739

92,301

100,600

71,318

73,246

Source: DeA Capital data, Edison Investment Research forecasts


General disclaimer and copyright

This report has been commissioned by DeA Capital and prepared and issued by Edison, in consideration of a fee payable by DeA Capital. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by DeA Capital and prepared and issued by Edison, in consideration of a fee payable by DeA Capital. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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