CapMan - Upgrade to BUY

CapMan will report Q1 results on April 23rd. We expect weak earnings on paper due to negative fair value changes (non-cash) as a result of implications of the Coronavirus pandemic. CapMan was heading into a year of major AUM growth potential, which is now put at some risk due to plausible fundraising challenges. We adjust our target price to EUR 1.95 (2.50) following revised estimates and upgrade to BUY (HOLD).

Negative fair value changes to burden Q1 results
We expect CapMan to report weak Q1 results due to negative fair value changes, although these are non-cash items. The largest relative hit will come from portfolio companies due to peer valuation declines. We currently estimate fair value changes of EUR -14.2m in 2020. We estimate a Q1 adj. EBIT of EUR -7.5m. Apart from the fair value changes, the Coronavirus pandemic will not yet have had a significant impact on other business areas and we expect decent results from the Management Company and Service businesses, not expecting significant carry or success fees in the quarter.

2020 growth outlook more challenging
CapMan was heading into a year of major AUM growth potential with on-going projects as well as significant new fundraising projects announced in late 2019. COVID-19 will in our view have a detrimental effect on fundraising and we will be looking for any comments implying the magnitude of the impact from the Q1 results. Although growth expectations are pointing downwards, the Management Company business enjoys a healthy base of recurring fees that for now remain unaffected. We expect the Services business revenue and profits to decline in 2020, as Scala in particular would be affected by any possible dry-up of new fundraising projects.

(BUY) HOLD with a target price of EUR 1.95 (2.50)
Following estimates revisions and the increased uncertainty we adjust our TP to EUR 1.95 (2.50) based on our SOTP and peer multiples and upgrade to BUY (HOLD) due to share price declines.

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