Deutsche Beteiligungs AG
XETRA:DBAN
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Deutsche Beteiligungs AG
Earnings Call Analysis
Summary
Q3-2023
In a challenging market, the company successfully disposed of one investment and made four add-on acquisitions, prompting a 20% year-to-date net asset value (NAV) increase. The net income hit EUR 140 million, reaching the upper guidance range. Earnings from funds investment service remained stable, contributing to the robust EUR 103 million pre-tax earnings with nearly EUR 100 million cash flow from investments. The company confirmed its guidance, with assets under management at EUR 2.5 million and fund investment service earnings expected between EUR 13 million to EUR 15 million.
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Good morning, everyone, and a warm welcome also from my side. I'm Roland Rapelius, Head of Investor Relations, and it's a pleasure for me to welcome you this morning. It's been a good quarter. So without much ado, I would like to hand over to Tom Alzin, spokesman of the Board of Management of DBAG. Please go ahead, Tom.
Thank you, Roland. I'm happy to report to you another set of strong results. So during the quarter, we managed one more successful disposal to a strategic buyer. And we did for add-on acquisitions. Overall, successful transactions, positive operating development drove us to a 20% year-to-date NAV growth, which is quite good in this environment, but quite frankly, also driven because of the low starting point last year when we started in September, the tax was at quite a low point for some time.
Our earnings from funds investment service proved to be, again, very stable source of income. And so we are very happy to reconfirm our raised guidance. What does that mean? Our net asset value has increased to EUR 36. Our earnings before taxes reached EUR 103 million roughly, and especially strong as our cash flow from investment activity, which is nearly EUR 100 million, which shows again that our earnings are not only based on peer group going higher, but also on strong realized earnings in what is still a very tough environment here.
On the investment side, earnings before tax translate to EUR 11 million this year and our assets under management have been quite stable with EUR 2.5 million. Overall, this leads to a net income of EUR 140 million, which is also the upper end of our guidance or close to our upper end of our guidance. Depending on how Q4 develops in terms of multiples, we could overachieve our guidance, but it's too early to tell. Frankly, it depends on some singular events, which, for the time being, we cannot foresee. Thus, we have not really have refrained from further increasing our guidance.
We are still -- and I said that many times on this call in a very healthy market, you see that in this market, 67% are still primaries. Primary is really the focus area for us with our strong brand because we are the ones who interact with the family founders, and that's really where we saw most of our investments here. The total number of investment opportunities has a bit decreased. And quite frankly, most of the MBOs are on the lower side in terms of volume from what we tend to do. So our investments, which we did so far this year have also been on the lower side because here, the market is still very healthy functioning in terms of financing supply.
As I alluded already to the disposal of BTV multimedia. And what we did is really after this quarter ended, we sold our first long-term balance sheet investment to a strategic buyer. It was supposed to be a long-term investment. But when the strategic showed up with a number which we found quite attractive, we then decided to make it a shorter-term investment, quite frankly. And this resulted in a very, very good result for us. And we invested some of the proceeds in NOKERA, which is the largest operator -- or the largest woodworking factory for a sustainable lower social housing. We're very excited about that. And if you look at the other themes, we played our AOE Group in the IT services space.
Avrio Group is biogas producer and TBD is also a service company in the renewable energy space. So we really repositioned part of our portfolio towards clear growth, structural growth sectors here. Furthermore, we were quite active on the add-ons side. We did 3 add-ons for akquinet, our IT service platform. We did one with in-tech. One with Metalworks, which we are still to announce. And we continue to buy smaller add-ons for operasan, our dialysis platform.
With that, I would hand over to Roland who can guide you through the granularity of our numbers.
Thank you very much, Tom. On this slide, you are already familiar with that. On the left-hand side, you see how the split of the portfolio by subsectors has changed over the past years and how the growth factors were gaining importance, especially IT services and software, which is quadrupled over the last 3 years.
And on the right-hand side, you are familiar with that. In the meantime, we have 2 columns on the right side, you have the column showing the effect of the pandemic. The middle column shows the effect of the change of the impulse rate regime in 2022, which was, of course, a negative effect on the capital markets and also in our portfolio. And on the left -- left column -- the second came from the left, June '23, you see the current snapshot of the portfolio, and you see an increasing valuation, IFRS divided by acquisition costs across all sectors here.
On the next slide, you're also aware of that. On the left-hand side, you see the market position of DBAG. DBAG is clearly the market leader in the mid-market for MBOs -- in the German market here for MBOs and that's over a longer-term time horizon, and that hasn't changed. And on the right-hand side, also you are familiar with that. In essence, it shows really the a key differentiating factor or it proves a key differentiating factor that DBAG is a German stock-listed company, which is focused on follow-on situations -- succession situations for Mittelstand companies, mostly family of founder net in Germany, which is our specialization and where we have a higher share than the market.
And also the recent 3 transactions, which Tom has already described the recent 4 transactions signed in July 3 of which were really bilateral. On the next slide, you see the development of NAV and going up 20% year-to-date. And our forecast, which has been specified now at the upper half of the range. And we will go to the details on the next few slides. Firstly, you can see that the change in value was the main driver of the increase, coupled with the additions in the first 9 months. And the disposals are listed here on the right side. It's BTV multimedia, Cloudflight, high-tech, Pmflex and the partial disposal of GMM Pfaudler. So the count here is 5. And R+S is not included. So if you end up ones, there's also account of 6 in the year-to-date, including July.
Change of value, EUR 56.4 million. We will go to that on the next slide in detail. That change in value is mainly driven here by change of multiples, as you can see, EUR 96.7 million. But as you are aware, within the EUR 96.7 million, there is also -- there are also effects resulting from our successful transactions because if we receive a bit for a portfolio company, which is not yet signed as a disposal, then this positive effect is impacting here the column change in multiples. So therefore, the successful transactions played a major role in the EUR 56.4 million net base and losses on measurement in the first 9 months of DBAG.
Second point to make about this slide is that the operating performance is positive, and that's mainly resulting from a positive change in earnings, which came from nearly all our portfolio companies. And then you see the change in debt, which is reflecting also our buy and build strategy because predominantly, the other acquisitions are debt financed, and therefore, you have a change in that.
On the next slide is on our Fund Investment Services segment. You should not expect major surprises in this segment. There's a relatively steady top line and good visibility on the planning of the top line going up from EUR 32.9 million to EUR 35.2 million. And the bottom line going up, mainly because this year, in the first 9 months, we didn't have one-off tax which we had last year when we had higher personnel expenses by EUR 2 million related to the departure of a member of the Board management. At the same time, we have effects resulting from higher cost in IT, among other things, these costs are going up. On all the EUR 11.3 million, you can see are fully on track to meet the guided range of EUR 13 million to EUR 15 million, I would say.
On the next slide, the cash position, and Tom has mentioned that in the beginning, the cash flow from investing activities here is a substantial figure in the first 9 months, resulting from our successful disposals. And then the financing cash flow, the negative, it's mainly the net reduction of credit lines, EUR 41 million and the dividend payment of EUR 15 million. So resulting in EUR 72.9 million financial resources by the end of the first 9 months.
On this slide, we're also aware, we always show our co-investment commitments along the DBAG funds, which are reflecting a longer-term investment time horizon vis-a-vis our available liquidity. And here, clearly, the available liquidity has benefited from the cash inflow from the disposal. Our forecast, we've talked about that specified at the upper half of the range with our adhoc, which we have released on July 17 this year. And that affects on guided range and our net income guided range. Of course, the Fund Investment Services guidance is unchanged, EUR 13 million to EUR 15 million.
And with that, I would like to hand back to Tom for some closing remarks, please.
Thank you, Roland. I think we can all agree that this has been a very successful 9 months. And we have and still see nice opportunities. It's an environment which has clearly become much more interesting to invest and to deploy money at accretive rates. And actually, 4 transactions we did after this quarter closed. We're done underwritten at a bit of higher multiples than in the past. So we see that money has again -- or capital has again become a valuable resource, especially also in Germany. Because owing us Germany is given macroeconomic headwinds and also headlines on the newspapers, a bit shunned. And we see that we have an environment where competition has become less intense than a few years ago.
We are quite confident with where our portfolio sits and we still think that the overall portfolio is still valued nearly to cost basis and that should leave some upside for further growth. All in all, given also our strong realizations, we have a very, very strong cash flow strong financial basis. Our strong reputation and also a tracker play into our cards in this kind of environment.
So we're looking with further confidence for the next -- starting in the next year, which should begin in October.
And yes, thank you very much, ladies and gentlemen, for attending our Q3 conference call. It was a pleasure to have you, and it was a pleasure to have all your questions here showing a good level of interest in our company. We look forward to speaking to you again when our next scheduled conference call will take place at the end of November with the full year results. With that, I would like to thanks again very much, and wish you a good day. Goodbye.