DeA Capital Currently Trading At Fair Value
Edison | Mar 29, 2015 04:03AM ET
Increased focus on asset management
DeA Capital (MILAN:DEA) is an Italian alternative asset manager with fund management activities, as well as investments in private equity. It is exiting some of its direct investments in private equity at close to NAV. A large part of the proceeds will be returned to shareholders, while a smaller part will be used to build up alternative asset management, thus capitalising on the growth in this area. Our fair value of €2.43 is based on a sum-of-the-parts (SOTP) methodology and provides c 33% upside.
Step one: Realising the NAV of private equity investments
In line with other listed private equity funds, DeA Capital has traded at a discount to NAV. It is now in the process of exiting its direct investment portfolio. Générale de Santé (GDS) was sold in October 2014, while half the stake in Migros Turkey is currently being sold, with the remaining stake also likely to be divested over the next 12-24 months. After these transactions, DeA Capital should have a net cash position of €150m, which it is largely returning to shareholders in the form of a partial distribution of the share premium reserve of €0.30 per share.
Step two: Focusing on asset management
DeA Capital intends to increase the focus on its private equity and real estate fund management activities. The expiry of real estate funds and maturing private equity funds could put pressure on AUM in the near term, but DeA Capital is repositioning the business. In private equity, it is launching thematic funds with appeal outside Italy. Over the next two to three years, it expects private equity AUM to grow from €1.4bn to €2.0bn (net of outflows). With real estate seeing the first signs of recovery, DeA Capital expects AUM of €10bn by 2017. Both organic and inorganic growth opportunities exist in this market and DeA Capital’s strong balance sheet will allow it to capitalise on these opportunities.
Valuation: Fair value of €2.43
DeA Capital trades at a 17% premium to tangible NAV, but a 25% discount to stated NAV (including significant goodwill). Given its increased focus on asset management, we prefer a SOTP approach, which removes goodwill but values asset management on a P/E basis (13.0x 2015e). At €2.43 per share, this is similar to stated NAV, suggesting some investor caution on the value of the remaining investment portfolio. We note though that it is possible that investors will continue to apply some discount due to a still sizable fund investment portfolio, but we believe this is likely to progressively decline from the historical level.
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