Deutsche Beteiligungs (DBAG) agreed the seventh MBO of DBAG Fund VII (cloudflight.io), which as a result will reach 60% allocation of its investment commitments, reflecting solid portfolio ramp-up. The first months of 2019 witnessed a rebound in equity markets, allowing DBAG to post €29.0m net income for Q219 on the back of portfolio valuation. At the same time, however, the subdued outlook of the German economy coupled with some sector-specific challenges increase the risk of lower than expected growth prospects in portfolio companies and translated into an €8.4m negative valuation impact in Q219.
DBAG’s NAV per share rebounded 7.0% q-o-q in Q219 in total return (TR) terms and amounted to €28.56, translating into a one-year TR of 4.2%. This was achieved amid a broader stock market recovery, as 71% of DBAG’s portfolio as at end-March 2019 was valued based on multiples of listed global peers. H119 net income came in at €7.6m (59% lower y-o-y) and thus the targeted FY19 net income of c €29–38m implied by the guidance remains under pressure. However, we acknowledge that DBAG’s long-term NAV returns are much more important than net profit booked in any given year. The fund services segment’s profit was down 17.3% y-o-y to €1.8m in H119 with lower fee income due to exits coupled with higher personnel costs.
In H119, DBAG finalised three investments and provided additional funding to existing holdings for add-on acquisitions, deploying €56m. Moreover, after the reporting date, DBAG Fund VII agreed its seventh MBO, which will result in it reaching a committed capital deployment level of 60%. The fund is acquiring the software developer cloudflight.io, which was formed following the merger of Austria’s Catalysts GmbH and Crisp Research. DBAG is paying €8.0m for a 12% stake as part of the deal.
DBAG’s shares have traded in a broad corridor of a 10–30% premium to NAV over the last 12 months. In our view, this premium is largely attributable to the marketimplied value of the fund services business. DBAG currently trades at a 24.5% premium to end-March 2019 NAV, which implies an LTM earnings multiple of the fund services business at 26.4x (if we assume a discount in line with the broader market represented by the LPX Europe Index). DBAG’s shares currently offer a dividend yield of c 4.1% vs the peer average of 3.2%.