Duna House-Profit exploded on Italy, guidance is kept despite surging interest rates

In short:

• After the consolidation of the Italian operation every fin. Figure increased materially. 2022 Q1 EPS reached 14.3 HUF (+78% yoy). For us the main takeaway is that mgmt kept its guidance unchanged despite that mortgage loan demand is expected to fall given the surging interest rates (FY Guidance is EPS 65). Q1 was supported by heavy Hungarian volumes - green loan - but the margin on subsidized loans are significantly lower.
• Ex div date for the DPS is 9^th

 

• Key positives of the Q1 report:
  • Realization of Forest Hill project started – total CF is equivalent of 25% of the market cap.
  • kept its profit guidance despite strong headwinds (FY cleaned EPS: 65 vs. Q1: HUF 14)
  • Valuation is still attractive: Excluding the real estate portfolio (HUF 50 per share) and the expected CF from development portfolio (HUF 134 per share) from share price (HUF 564 per share) we end up with a P/E’22 of 5.8x.
  • To show the true upside in Italy, mgmt. pointed out that the share of loan intermediation in total loan origination in Italy is 20% vs in HU or PL where it is around 50%. Please note Italy’s share in group’s profit is around 35%.
  • Mortgage loan volumes in Italy dropped 25% y-o-y in Q1, yet EBITDA almost doubled as DHG increased its market share, and focused on other financial product’s intermediation.
  • Mgmt increased its market cap target to EUR 200 million in 4-5 yrs from former EUR 150m.

• Key negatives of the Q1 report:
  • Loan intermediation in Poland on a market level showed a signs of weakness and decreased by 10% y-o-y.
  • DHG indicated that they either distribute or look for another M&A target from the inflow of Forest Hill. The latter may seem to be risky in an environment where more liquidity is rather an advantage.