Deutsche Beteiligungs — A play on the German mid-market MBO space

Deutsche Beteiligungs (FRA: DBAN)

Last close As at 24/05/2024

EUR28.10

0.30 (1.08%)

Market capitalisation

EUR529m

More on this equity

Research: Investment Companies

Deutsche Beteiligungs — A play on the German mid-market MBO space

Deutsche Beteiligungs (DBAG) is a well-established private equity company investing primarily in mid-sized German companies. On top of achieving a return on its direct investments, it generates fee income from managing c €1.4bn in third-party funds. This year, DBAG has been steadily deploying its investment commitments, with DBAG Fund VII expected to complete its investment phase soon. The subsequent launch of its successor should drive fee income (as it is based on committed capital). Meanwhile, DBAG’s portfolio is affected by weaker economic and trading conditions in some industrial sectors. In this context, it is encouraging that DBAG continues diversifying its portfolio and performing successful exits.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Investment Companies

Deutsche Beteiligungs

A play on the German mid-market MBO space

Private equity

5 November 2019

Price

€36.30

Market cap

€546.1m

NAV*

€434.9m

NAV per share*

€28.9

Premium to NAV

25.6%

Dividend yield

4.0%

*As at 30 June 2019.

Share price/discount performance

Three-year performance vs index

Share details

Code

DBAN

Listing

Frankfurt

Shares in issue

15.0m

Business description

Deutsche Beteiligungs is a Germany-based and listed private equity investment and fund management company that invests in mid-sized companies in Germany and neighbouring German-speaking countries via MBO transactions and growth capital financings. There is a focus on growth-driven profitable businesses valued between €50m and €250m. DBAG’s core objective is to sustainably increase net asset value.

Analyst

Milosz Papst

+44 (0)20 3077 5700

Deutsche Beteiligungs is a client of Edison Investment Research Limited

Deutsche Beteiligungs (DBAG) is a well-established private equity company investing primarily in mid-sized German companies. On top of achieving a return on its direct investments, it generates fee income from managing c €1.4bn in third-party funds. This year, DBAG has been steadily deploying its investment commitments, with DBAG Fund VII expected to complete its investment phase soon. The subsequent launch of its successor should drive fee income (as it is based on committed capital). Meanwhile, DBAG’s portfolio is affected by weaker economic and trading conditions in some industrial sectors. In this context, it is encouraging that DBAG continues diversifying its portfolio and performing successful exits.

Proceeding with sector diversification

DBAG recently made good progress in broadening its sector exposure. During 9M19 (ending June 2019), it completed five new additions to its portfolio (including two in the TMT sector and one in healthcare), deploying €77.1m including follow-on investments. A further eight acquisitions were performed by portfolio companies. Post the reporting date, DBAG ECF acquired a majority position in the fibre optic full-service provider STG (with up to €14m invested by DBAG alone) and DBAG Fund VII acquired Cartonplast (with DBAG’s co-investment at €26m). On deal closure, DBAG Fund VII will already have allocated 71% of its investment commitments of €808m and we believe the next fund could be launched in 2020.

Unexpected boost to FY19 results

In July, management lowered its guidance due to worsening economic conditions (most notably in the automotive and wind energy sectors), expecting net income to be at least positive in FY19. We appreciate that in the more challenging environment, DBAG was able to realise five successful exits in FY19, which contributed over €40m to its net income. A total uplift of €14.3m was recognised in 9M19, while the realization of Inexio will translate into a c €30m uplift (not reflected in the above guidance) and will assist Q419 results.

Valuation: Premium to NAV at c 26%

12 months
ending

Total share price return (%)

Total NAV return (%)

LPX Europe
(%)

LPX Europe NAV (%)

SDAX
(%)

06/16*

(6.5)

8.5

(8.3)

(1.8)

(2.0)

06/17

51.3

27.1

29.9

17.0

23.5

06/18

(9.0)

9.9

9.3

10.8

10.2

06/19

1.0

3.3

5.9

6.5

(4.8)

Source: Refinitiv. Note: Discrete rolling 12-month total return performance in euros up to last reported NAV. *11-month period due to change in financial year end.

DBAG’s shares continue to trade at a premium to NAV, which in our view comes from the market-implied value of the fund services business. The premium to end-June NAV stands at c 26% vs 10–30% over the previous 12 months, implying an LTM earnings multiple of the fund services business at c 46x (if we assume a discount to the broader market represented by the LPX Europe Index). DBAG’s shares offer a dividend yield of c 4% vs the peer average of c 3%.

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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

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Level 4, Office 1205

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NSW 2000, Australia

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This report has been prepared and issued by Edison. 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.

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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.

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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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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