doValue Spreads Tighter On Capital Increase: Term Risk

doValue spreads tightening on capital increase news (DOV IM). We’d caution that operating fundamentals weren’t great at results last month and the loss of the Unicredit contract is unhelpful. High risk, especially when the capital raise isn’t for another six months.

• doValue, the Italian loan servicer, was reported to be in talks with shareholders of competitor Gardant, in Jan-24, to takeover the business. It’s entered exclusive talks this morning, seeing 100% acquisition of Gardant by DOV.
• Firstly, the industrial logic is sound – loan servicing is a scale business, bringing these two businesses together certainly makes sense, especially with Italy still a country with relatively high non-performing loan levels compared to European averages.
• Secondly, DOV needs an equity issue to get this done, guidance from the CEO today is that it will be <EUR200m (still >100% of current market cap) with a binding acquisition deal seen by end-Apr and the capital raising after Sep-24. The equity and credit was hit hard in Feb by both sub-consensus results but also the loss of Unicredit’s servicing contract. The capital raise should, at least in the short term, stabilise the situation.