doValue S.p.A. (DOV) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the doValue 9 Months 2025 Financial Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Daniele Della Seta, Head of IR of doValue. Please go ahead, sir.

Good morning, everyone. I'm Daniele Della Seta, Head of Investor Relations and M&A at doValue. Today, I'm joined by Manuela Franchi, our Group CEO; and Davide Soffietti, our Group CFO, as we present our 9 months results. Manuela will begin with an overview of our performance, including key insights into market and business trends. Next, Davide will provide a detailed analysis of our financial results for the period. We conclude with a Q&A session to address any questions you may have. Thank you for joining us today. I will now hand over to Manuela.

Good morning. Building on last week's successful bond issuance to finance the coeo acquisition, I'm delighted to share the strong momentum behind our 2024-2026 strategic plan. Today, results reaffirm the strength of our foundations with consistent performance across all key metrics and a clear path towards our full year guidance. The first 10 months of '25 have been marked by solid profitability and continued cash flow generation. Non-NPL revenue continues to drive diversification and represent 57% of gross revenue, fully aligned with our strategic vision. EBITDA ex-NRI grew 43% year-on-year, supported by accelerated synergies and disciplined cost management and representing a higher percentage of full year target performance compared to 2024. New business intake already exceeds the revised full year target at EUR 12.4 billion, reflecting continued strong flows from locked-in contracts in the third quarter, evidence of the stability of our business. Operating cash flow more than doubled year-on-year thanks to a threefold improvement in cash conversion, in line to reach the full year guidance of EUR 60 million to EUR 70 million free cash flow in 2025. Finally, the recent successful issuance of EUR 350 million senior notes due November 2031, eliminates any financing risk for the coeo acquisition, reinforces our established position in the capital markets and it does at an excellent fixed rate of 5% with a first time 6-year maturity for doValue and the sector. The regulatory approval for the acquisition are progressing smoothly, and we remain on track to close by January 26. This timeline allows us to demonstrate continuous delivery on our full year guidance on a stand-alone basis, something we are fully confident in achieving given these 9 months results. If you follow me on Page 3, you will see the tangible results of our commercial efforts. In the first 9 months, we have already reached the revised full year target of more than EUR 12 billion with EUR 12.4 billion in new business GBV. The positive momentum in new business continued in the third quarter with new mandates from a leading Spanish bank and new UTP flows in Italy, further strengthening our UTP segment. We foresee for the full year up to EUR 14 billion. UTPs now account for 8.5% of our GBV, confirming the progress we are making in diversifying our portfolio and capturing opportunity beyond traditional NPL. GBV inflows from locked-in contracts with banks, which we normally refer to as forward flow, continue to deliver solid flows in the third quarter. And once again, they were able to cover 85% of collections. This performance was driven by sustained contribution across countries with Spain showing a remarkable plus 46% increase in flows from Santander alongside continued inflows from Italian and Greek banking partners, which fits very well with the potential renewal in the short term of the Santander contracts. These flows confirm the recurring nature of our NPE franchise, which remains a cornerstone of our strategy and a source of stable visible cash flows. The new business inflows over the first 9 months, together with those secured in '24, further underscore the long-term resilience of our traditional NPE servicing model, even in periods of economic strength and healthy bank balance sheets. Building on our latest commercial milestone, the extension of the BPER partnership to include the Banca Popolare di Sondrio Perimeter, we anticipate an even higher contribution from forward flows going forward, net of the exit of UniCredit from the perimeter from November 1. Our current pipeline comfortably exceeds the annual new business target of EUR 6 billion, excluding forward flows, providing clear visibility on delivery. Looking ahead, we see an estimated EUR 45 billion of mandates in the market over the next 18 months, with significant opportunities in Italy and Greece and promising prospects in Spain, particularly in the banking sector. Nonfinancial receivables remain a major growth avenue, further enhanced by coeo's specialized expertise, technology and client relationships. Let's move to the next page. Page 4 provides further proof of this trend through the expansion of our strategic partnership with BPER Group announced last week. This agreement follows BPER recent acquisition of Banca Popolare di Sondrio and significantly announced the scope of our existing joint venture, which is 70% owned by doValue and 30% by BPER. The JV currently manages approximately EUR 2.7 billion of NPEs and benefits from long-term servicing rights until December '33, including 50% of new UTP inflows and 90% of new NPL inflows generated annually by BPER and Banca di Sondrio. We are proud to announce that we successfully extended this rights to the enlarged perimeter of BPER Group, which has aggregated customer loans of around EUR 126 billion, an increase of roughly 40% compared to BPER premerger. This expansion, which was not contractually provided for, significantly increases the potential inflows under the existing contracts and reinforces the sustainability of our forward flow model. Beyond the servicing rights, we expect the partnership to contribute stock in mid-'26 from the enlarged BPER Group perimeter. In addition, doValue will acquire a minority stake of 5.1% in Alba Leasing, Italy fourth-largest leasing operator with total assets of EUR 5 billion and NPE ratio of approximately 5%, the investment was made at very attractive valuation with a limited cash outlay of EUR 6 million that does not impact our leverage targets for '25. The small acquisition will give us a board seat in Alba Leasing and could open further opportunities to service NPEs from Alba Leasing given the servicing partnership with its 2 largest shareholders, BPER and Banco BPM and the portfolio with an NPE ratio of more than 4% on EUR 4 billion of assets. This proactive approach confirms doValue positioning as BPER Group trusted partner, one of the most dynamic player in the Italian market and underscore the strength of our value proposition for banks. Moving to Page 5. We would like to provide a status update on the integration of Gardant, which remains firmly on track to deliver all promised synergies, reinforcing our ability to execute complex projects effectively. It's important to highlight that despite the recently announced acquisition of coeo, we have been fully focused on the integration of Gardant and consequent release of synergies. As you probably remember, we guided up to EUR 15 million of annual pretax synergies with approximately EUR 5 million already achieved in '25. These synergies are primarily cost driven for 80%, complemented by revenue synergies for 20% from cross-selling opportunities and enhanced service offering. The integration plan is structured around 17 projects grouped into 8 work streams covering critical areas such as business model optimization to drive workforce efficiency and streamline corporate functions. Merger of master servicing platform, doNext and Master Gardant, unlocking savings in back-office operation and improving scalability. HR savings through voluntary exits, optimized outsourcing practices and reducing hiring needs, thanks to a more stable workforce. IT and process harmonization, ensuring operational consistency and cost efficiency across geographies. On the revenue side, synergies come from the extension of doValue services to Gardant mandates, including offerings such as Data master legal and real estate services. These initiatives allow us to leverage our specialized capabilities and create incremental value for clients across both platforms. To date, we have achieved EUR 13 million on a run rate basis. And by '26, the full effect of the promised EUR 15 million will be visible, supporting margin expansion. On Page 6, we go through our most recent achievement, the successful issuance of EUR 350 million senior secured notes due November 2031, confirming our strong and proven access to the capital markets. This is our second bond issuance in '25, following the February transaction that effectively reopened the bond market to our sector, a clear testament to our credibility in financing vis-a-vis comparable companies. The new issuance was upside from EUR 300 million original offering on the back of exceptionally strong investor demand, over 3x initial offering, highlighting the confidence of the market in our strategy and financial profile. The notes carry a fixed coupon of 5.375%, significantly below our underwriting assumption and 163 basis points lower than the February issuance with a longer tenure that extends our maturity profile, removes near-term refinancing risk and spreads out the maturity of the 2 bonds, which are now 21 month apart. This established access to capital markets give us strategic flexibility. We can optimize our capital structure further by refinancing higher cost instruments, including the 2030 bond, which became callable in 2027. This action could allow us to lock in lower rates and increase cash flows while maintaining a competitive funding profile over the medium term. The successful transaction reinforces investor confidence and underlines doValue ability to secure attractive financing conditions, supporting our long-term growth ambitions and diversification strategy. Addition, with issuance, we optimized financial costs by avoiding the drawdown of the bridge facility to finance the acquisition of coeo, which we expect to close by January 26. I will now hand over to Davide, who will take you through the financials.

Thank you, Manuela, and good morning, everyone. On Page 8, you can see a summary of the first 9 months financials. Overall, in the first 9 months, we registered very positive results across all key metrics with solid growth in EBITDA, once again triggered by our non-NPL business. Gross revenues in the first 9 months of 2025 was EUR 404 million, showing a solid double-digit growth of 28.9 percentage versus previous year. A trend once again driven by non-NPL revenue, which determined more than 50% of growth at group level, continuing on the positive momentum of the recent quarters. Net revenue rose to EUR 364 million, 28.9 percentage higher versus the 9 months of 2024, mirroring the gross revenue growth in the presence of a stable trend in outsourcing costs on a year-on-year basis. EBITDA ex-nonrecurring items was EUR 137 million, growing 43.2% versus the 9 months of 2024, supported by the successful release of synergies in Italy and cost savings in Spain. EBITDA ex-nonrecurring item margin stood at 34% up by 3.4 percentage points from 31% on a year-on-year basis, thanks to continued cost discipline alongside the impact of synergies related to the acquisition of Gardant. Net income ex-nonrecurring items, more than doubled to EUR 12 million from EUR 5 million the prior year, thanks to the growth in EBITDA, which more than offset the increase in financial expenses and minorities. Moving now to Page 9, we can find a breakdown of gross revenues by region. In the Hellenic region, gross revenues was stable, down minus 0.7% year-on-year as solid dynamics in non-NPL revenue were offset by lower disposals in the 9 months, which impacted revenue. In Italy, gross revenue grew 81% year-on-year, driven by Gardant contribution and by very positive trends in non-NPL servicing and recurring value-added services. In Spain, revenue declined only by EUR 1.7 million year-on-year as the third quarter was stable year-on-year, while in the first half, declining REO's were mitigated by improvement in all other categories. On Page 10, we show how we continue to successfully contain the natural increase in operating costs from the consolidation of Gardant. Thanks to continued cost discipline, which allows us to unlock savings across functions and markets. Indeed, cost containment remain a key focus for the group, even in the current context of business expansions. In the first 9 months of 2025, HR costs were up by 25% versus the same period in 2024, linked to the effect of Gardant consolidation. The increase slowed down versus first half of 2025, thanks to the initial effects of synergies. HR costs increased in Greece due to the onboarding of new portfolios in the first half of the year. This effect was effectively mitigated by cost containment measures in Spain and Italy. When it comes to IT, real estate and SG&A expenses, we recorded an increase of only EUR 5.4 million year-on-year, thanks to already achieved EUR 5 million synergies that mitigated the effect of Gardant Consolidation. On Page 11, EBITDA ex-NRI for the group was EUR 137.2 million, up EUR 43 million versus the first 9 months of 2024, thanks to the continued positive performance of recurring value-added services driving revenue and the acceleration of the synergies, which more than offset the lower disposal in Greece. EBITDA ex-NRI margin increased significantly, thanks to the accretive impact of government and non-NPL servicing and continued focus on cost containment. The EBITDA for the Hellenic region decreased by 5% year-on-year to EUR 74.5 million as positive trends in UTP and value-added services WERE more than offset by the year-on-year decrease in disposals in the first 9 months with an improvement in profitability in the third quarter. The region delivered EBITDA margin of 46.7%, generating over half of the group's profitability. In Italy, EBITDA rose to EUR 71.1 million, excluding group costs, an increase of EUR 46.2 million versus the first 9 months of 2024, thanks to Gardant on which we are accelerating the release of synergies as well as to positive contribution of value-added services to gross revenue. Gardant continues to contribute proportionally to our full year expectations. In Spain, EBITDA delivered a positive growth, albeit on a small contribution, thanks to continued cost efficiencies and new portfolio onboard. Nonrecurring items were limited to minus EUR 4.4 million despite the cost of integration of Gardant, mostly related to fee linked to coeo leading to an EBITDA reported of EUR 132.8 million. Moving to Page 12. We show very positive dynamics in net income evolution, which, excluding nonrecurring items, more than doubled year-on-year despite the higher financial costs and the new minorities related to BPER and Banco BPM inherited to the Gardant acquisition. Breaking down the number, we start from a higher EBITDA driven by positive momentum across key products and markets. Write-downs on property, plant, equipment, intangibles, loans and equity investments were EUR 67.4 million, in line with our expectation, including also Gardant portfolios. Financial interest and commissions increased to EUR 43.7 million, driven by the interest on the new bond issued in February, which amounted to EUR 14.7 million, including amortized costs, the interest on the new term loan funding the Gardant transaction, which amounted to EUR 20.7 million, including amortized costs and the residual interest on the 2026 senior secured notes redeemed in February of EUR 1.3 million. The line also includes EUR 7.3 million nonrecurring costs related to the early redemption of the 2026 bond and of the portion of the term loan dedicated to refinancing the 2026 bond, which was not utilized. Income tax for the period was higher due to the one-off effect in the 9 months of 2024 from the tax claim in Spain. If we adjust for that, tax is only slightly higher on the back of the higher EBITDA and the consolidation of Gardant's profit-making legal entities in Italy. Finally, minorities increased due to Gardant's partnership with Banco BPM and BPER Banco. The nonrecurring items at the net income level amounted to negative EUR 19.3 million, mainly due to the one-off costs related to the refinancing of 2026 bond as well as the EUR 8.8 million cost related to the exit of employees as part of the integration in Italy. Moving to Page 13. Let's have a look at the cash flow dynamics, which improved significantly. Cash flow from operations in the first 9 months increased considerably to EUR 101.4 million, up a staggering EUR 77.8 million increase versus the first 9 months of 2024 as cash conversion tripled over the same period. This positive result was achieved, thanks to continued reduction in net working capital, thanks to improved control of the invoicing cycle for the securitization and positive dynamics in advanced payments. We confirm our target of EUR 50 million positive effect from working capital in the full year. CapEx was EUR 15.5 million, with acceleration expected in the fourth quarter in line with historical seasonality as well as full year guidance. Lease payments slightly increased versus previous year to EUR 14.2 million due to Gardant's offices, mitigated by real estate efficiencies carried out by the value. Redundancies decreased slightly year-on-year to EUR 8 million in 9 months, mainly from the effect from the voluntary exit program part of the Gardant integration, which is expected to continue in the fourth quarter. Other change in other assets and liabilities was slightly higher, driven mainly by payments for legal cases and circa EUR 9 million temporary impact of the 2024 MBO paid in 2025, higher than the 9 months 2025 MBO accrual. This negative effect will be offset by year-end. Free cash flow was significantly higher than the previous year at EUR 41.5 million, up from negative minus EUR 15.5 million in the first 9 months 2024. The EUR 57 million increase in free cash flow was a notable result, in line with our ambition to return to the historical levels of cash generation. The slightly decrease in free cash flow in the third quarter was expected due to the tax down payments and the coupon on the new bond, both paid in the third quarter. Minorities of EUR 7.7 million linked to BPER and Banco BPM were unchanged versus first half and no further significant payments are expected to minorities in 2025. Investment in equity and the financial assets includes the earn-out for [indiscernible] paid in January 2025. We confirm our full year guidance of EUR 60 million to EUR 70 million free cash flow before debt repayment. Based on this, do value currently trades at a free cash flow yield of around 13%, which is exceptionally high and underline the attractive valuation of our stock. To conclude, let's now move on Page 14 and look at our financial structure. Net leverage at the end of September stood at 2.3x on a pro forma basis with 12 months of Gardant EBITDA, decreasing from the 2.4x level at December 2024 and exactly in line with the level reported at the end of the first half. This is a very positive result when considering the typical seasonality of Q3. Historically, leverage tends to increase in this quarter due to concentrated cash outflows before declining again at the year-end. For example, last year leverage moved from 2.9x in June to 3.1x in September before closing at 2.4x in December. Maintaining 2.3x in the first 9 months despite the seasonal dynamics and extraordinary cash outflows related to earn-outs and minorities confirms the robustness of our deleveraging path, progressing steadily towards our targets. We also maintained a solid liquidity buffer of EUR 257 million, including EUR 135 million of undrawn revolving credit facilities. Even after the payment of the first tranche of the term loan amortization and the interest on both term loan and the 2030 bond. Our corporate rating remains stable at BB with a stable outlook affirmed both Fitch and Standard & Poor's following the announcement of coeo acquisition and the recent bond issuance. Overall, this set of results confirms that we have continued to deliver on our targets with discipline and consistency, strengthening our foundations and positioning -- due to achieve its full year guidance and long-term strategic ambitions. This is all on our side today. Thank you all for your attention. We will now take your questions.

[Operator Instructions] The first question comes from Tommaso Nieddu of Kepler Cheuvreux.

The first one is on your shareholders. There have been some market rumors suggesting a potential overhang linked to the position of your anchor shareholders. So could you please comment on this and whether there have been any discussion or signals regarding possible changes in their ownership and then if you can provide reassurance about their continued commitment to do value. The second one is on new mandates. You have already surpassed the EUR 12 billion target on new mandates for 2025, targeting as I -- if I understood well, around EUR 14 billion for the end of the year. So looking ahead to 2026, do you expect a continuation of this momentum and still on forward flow agreement, do we have any news on Santander's contract renewal? And the last one on net working capital. Over the last 3 quarters, you have had a positive release of around EUR 24 million. And do you still expect for the end of the year around EUR 10 million, EUR 15 million? I think you already answered this, but I wanted to be sure. So implying around EUR 10 million absorption in Q4. And if you can give us more color for 2026.

Thank you, Tommaso, for your question. On the first point, we have no indication from our shareholders of any intention to sell their stake, and we have not been involved in any such process. Given the strategic nature of their investment and our tight partnership in servicing, a relevant amount related to their investment in NPs we strongly believe that the shareholders are more interested in the strategic nature of the holding in value rather than short-term monetization. Moreover, given the current valuation levels and the growth prospects, especially after the coeo acquisition, in which our shareholders are strong supporters, it wouldn't be financially reasonable to sell at these prices for sure. On your second question on new mandates, yes, I indicated that I foresee -- we didn't increase the guidance because, honestly, we are at the end of the year, it didn't really make sense to upsize it twice. But I see that we will close the year probably at around EUR 14 billion. For 2026, we are finalizing our budget. Our original guidance was EUR 8 billion per annum, including the EUR 2 billion forward flow. Clearly, on the forward flow side, we have positive element, which comes from the Sondrio agreement. And also to your other point, we see also positive news on the Santander side that we will communicate more officially in the next couple of weeks, while we were already estimating the exit, obviously, of the forward flow from UniCredit. So overall, the outlook on the new business is positive. I don't feel like giving today an upsized guidance for '26. Probably -- we can give it as soon as we announce the full year '25 results and finalize the budget estimates. also looking into the current market dynamics and opportunity we foresee in all the countries as we are today.

And going to your question on Working Capital, I confirm that our guidance for the full year to have a Working Capital impact of roughly EUR 15 million. This is because in the last quarter, we are growing a lot in terms of revenue EBITDA as always happened in the -- according to our historical trends. So we will have this absorption of roughly EUR 10 million. Going forward in 2026, we see a normalization in the working capital dynamics. So probably we will have still a positive impact, but of a lower amount, probably around EUR 5 million of positive contribution from Working Capital. From '26 onwards, we expect to have a normalized Working Capital impact with 0 impact in terms of contribution to the cash flow.

The next question is from Simonetta Chiriotti of Mediobanca.

A couple of questions from my side. The first is on coeo. In the last call, you shared with us the progress of this company in the first 5 months. So I'm wondering if you can provide us an update on this front. And second, looking at the third quarter trends in isolation. So it is visible a lower revenue growth year-on-year, while EBITDA continued to progress at around 30%, 35%, which, if I remember when was your target for the year. So if you can explain the trends, maybe giving some color also in the different markets. And finally, tax receivable were flagged in the past as an opportunity in Italy and in Greece. Also on this side, if it is possible to have some color and updates?

Thank you, Simonetta, for your question on coeo, I just visited them last week. They are progressing well ahead of their seller plan. So they will close the year much above our buy-side case, probably in the area of EUR 85 million to EUR 90 million EBITDA, so both in terms of new business opportunities, they are adding new clients and enlarging the perimeter of the current clients they service with -- especially on the banking clients they serve like Santander, consumer finance, they are enlarging the size of the tickets they manage while adding more on the utilities and telecom space. In terms of your last question, and then I'll leave to Davide the second, clearly, now the opportunity is more clear on the side of the budget law. So what the government seems to have created a project whereby they will tackle for beginning of next year, the local receivables, while they will then tackle in the second phase, the central receivables. The local one will be supported for the recoveries from AMCO as a sort of master servicer. There, the size of these claims are around EUR 40 billion, EUR 45 billion spread around the different regions. So obviously, we are in contact with AMCO to support them in these activities. These are mostly small ticket unsecured. So the capabilities we have tried to develop organically for the small ticket for corporates as well as the competencies and the operating platform of coeo will definitely help for this type of claims. While for the central tax receivable, the one of the agency they didn't tried to be clear, these are more close to the larger loans, both secured and unsecured that are closer to our traditional model. So I would say that the market is moving -- opening to the servicing, and we are there to tackle both opportunities with all the instruments in place also thanks to the latest M&A.