Deutsche Beteiligungs AG Initiation Of Coverage

Deutsche Beteiligungs AG (DBAG) is a private equity firm listed in Frankfurt since 1985. Listed private equity (LPE) funds, like DBAG, provide broad access to an asset class that has performed well over the long term in a tradable form with a low minimum investment size. DBAG is differentiated from most of its peers due to its geographic and sector focus. DBAG combines the LPE model with access into the German Mittelstand, the core of Germany’s ongoing success. DBAG has a long and successful track record of performance and the current net discount to NAV of 26% (ex cash and listed securities) could prove unjustified if the underlying companies are more resilient than is being priced in or if markets recover faster than expected.

Strong long-term value creation
DBAG has built up a wealth of experience since 1965 and has become the largest listed private equity player in Germany, being involved in more than 300 private equity deals since inception, and with current assets under management (including co-investment funds) of around €1.2bn. With a market cap of c €230m and average annual turnover of c 34%, DBAG is one of the more liquid European based LPE funds. Performance has compared favourably with both Germany equities and its peers, with a total return on NAV of 208% over 10 years (DAX Index: 94%) to 3 August 2012

Unique access to the Mittelstand
DBAG has focused in recent years on mid-market German management buyouts (MBO) in its core Mittelstand market, a broad range of small-to medium-sized privately owned companies which have widely been credited with being a core strength of the German economy. Its primary focus is on the mechanical and industrial engineering, automotive suppliers, chemicals and industrial services. With credit markets remaining tight, DBAG expects more opportunities for expansion financing going forward.

Large underlying discount
DBAG has generally traded at a premium to other listed PE funds. We ascribe this to its robust balance sheet, strong long-term track record, regular dividend and its focused investment mandate. DBAG’s 10-year NAV growth of 208% is strong, although its share price performance has been less robust (c 86%). Amid the eurozone turmoil its discount to NAV has increased to c 12%, or c 26%, excluding net cash of €113m and its listed investment in Homag, which appears anomalous for a company with such strong historical NAV growth.

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