Duna House - DH Continues Its Expansion In Poland

Duna House -  Equity Note

Recommendation:  Accumulate

Target price (12M): under revision

 

 

• In short: Duna House announced an acquisition of another credit intermediator (so far the second) in Poland, which seems positive at first glance as the implied price is relatively low. Management indicated a payback period of 4 to 5 years implying a P/E multiplier of 4-5 which is lower compared to DH Group’s overall ’19 P/E (including the developments = 11.4x and calculating only with the core operation = 9.2x). The EV of the transaction amounted to HUF 340 million which was financed by debt, pushing debt level to HUF 1.6 billion implying a very comfortable net debt to EBITDA to 1x on our calculations (please note that we exclude the debts which is used to finance the development projects) and moving DH’s capital structure into a more optimal level (please note Masterplasts has a net debt to EBITDA figure of 3x; and DH has investment properties with a value of HUF 1.4 bn).

 

• Given the transaction price and the transaction multiple we expect that the ATG – the acquired company - will add ca. HUF 70 million profit to the group’s bottom-line (6% of F2019 FY profit). After the transaction DH remains the 5^th largest loan intermediator, and could be able to increase its brokered loans by ca 60% in Poland (the 4^th largest brokered amount is still double from here). With the transaction, group’s profit from Poland for the next year could potentially climb to HUF 180 – 220 million prior any synergies (vs. our previous HUF 130 million forecast), ca. 20% of the Hungarian Core profit.

 

• As far as we understand the acquired company (ATG) does not need reconstruction (please see our graph below) as Gold finance did, and will contribute to profit positively from day one. We are of the view, that the ATG transaction could support the organic growth as DH will have an additional 40 office (mainly in North Poland) totalling in 120 offices.

 

Polish operation’s financial turnaround – Mgmt guides a FY 70 million profit for 2019

Source: DH, Concorde

 

• On the dividend side, since the transaction is financed entirely by debt, thus dividend paying potential is intact and remains at ca. DPS 410 (DY: 10.5%) assuming that large part of developments (Forest Hill phase 1 and MyCity Residence) will be completed until the AGM – initially DH had planned to complete majority of projects by 2019 year end, but due to labour shortage they pushed the expected completion date to 2020 H1. Alternatively, DPS should remain at HUF 130 per share (DY: 3%) in our view and special dividend (i.e. on top of the ordinary) may probably come later – assuming no further acquisition.

 

• Opinion: All in all, DH continued its expansion in Poland with a relatively cheap acquisition that was financed by debt, therefore its dividend paying potential remain intact, in our view. Also, we appreciate the direction toward a more optimal capital structure, given the low debt level (net debt to EBITDA 1.0x) and the cheap financing – please note that it is relatively low level and DH has ca. investment properties amounted to HUF 1.4 bn vs. total debt of HUF 1.6 bn that is linked to core operation.  We believe as long as dividend paying potential is not affected, investors may not react negatively, in our view.

To assess the effect on our target price we put DH under revision, but leave our recommendation at Accumulate

 

Gellert Gaál
Senior Equity Analyst

CONCORDE SECURITIES LTD.

HILLSIDE
55 - 61 Alkotás street, H-1123 Budapest.
Phone:
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MEMBER OF THE CONCORDE GROUP

 

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