WASHINGTON, DC — December 7, 2020 — DHS has announced a landmark 50/50 banking joint venture with Austrian Post (VIE: POST, market cap c €2.4bn) where DHS is supplying the technology while Post offers its established infrastructure. The deal creates a new growth arm for DHS that is expected to break even in 2022 and could act as a blueprint for similar deals in other countries. Meanwhile, H1 results were in line with expectations as margins benefited from strong growth in brooking volumes. If DHS can meet its objective of generating €35m net income from the joint venture with Post by 2025, it would provide significant upside in the shares for the cost of the 7% dilution in the capital increase that has funded the deal.
H1 results: In line, transactions jump 20%
H1 results were broadly in line with management’s expectations. Revenue rose by 18% to €58.5m while EBITDA jumped 42% to €18.4m. The growth was driven by the core Financial Services (FIN) segment, which saw its revenues rise 26% to €52.3m as its EBITDA margin soared by 620bp to 28.9%, reflecting operational gearing as transactions increase. The Technologies (TECH) segment dipped as the division continues to undergo heavy investment in new functionality.
A free ride to Austria
Both DHS and Post are investing €112.5m in the new joint venture. DHS is funding its investment with a €35m share placement with Post and transferring its interest in its Austrian flatex.at business at a €25m valuation. The remaining €52.5m is payable over 2020 to 2023 and is effectively fully funded as the joint venture will pay DHS at least €10m per year for the IT infrastructure. The joint venture has the use of Post’s 433 post office branches as well as 1,351 postal partners; this infrastructure would have been impossible for DHS to establish on its own. Following the collapse of the arrangement with its previous financial services partner, BAWAG, Post conducted a ‘beauty contest’ for a new partner and stressed it wanted to hold an equity interest. After an extensive search, it selected DHS partly because it was the only company that could provide banking and technology.
Valuation: Attractive relative to peer group
The shares trade on 16.2x FY19e consensus earnings. We continue to believe this rating looks very attractive relative to its peer group (see page 4), given DHS’ favorable growth profile along with improving margins, and with further significant upside potential from the banking joint venture with Post.
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Revenue rose 18% to €58.5m while EBITDA jumped by 42% to €18.4m, as the EBITDA margin jumped by 520bp to 31.5%. The growth was driven by the FIN segment, which saw its revenues rise 26% to €52.3m. This reflected the strong growth in transaction volumes, and the operational gearing fed through to the bottom line with the FIN division’s EBITDA margin surging 620bp to 28.9%. The new partnership with Goldman Sachs is going well; FTG has nine product partners; the top five are Morgan Stanley, BNP Paribas, Goldman Sachs, UBS and Vontobel. The TECH segment dipped as the division continues to undergo heavy investment in the core banking system DHS:CBS and this will continue in H2.
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