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Rating action

Scope Ratings GmbH (Scope) has today affirmed Duna House Holding Nyrt.’s issuer rating at BB-/Stable. Scope has also affirmed the senior unsecured debt rating at BB-.

Key rating drivers

Business risk profile: BB-. The business risk profile benefits from the group’s market position as one of the leading real estate and loan brokerage firms in its home market of Hungary and in Poland. Duna House’s acquisition in early 2022 of one of the top three loan brokers in Italy, Hgroup, has also improved diversification and reduced the dependency on Central and Eastern European markets and real estate products (mostly personal loans and insurance). Nonetheless, the acquisition has increased the exposure to the Italian market, which represented 51% of total sales in 2023.

The business risk profile remains constrained by the growing but still small absolute size of the business in very fragmented markets and the weak service strength, as the issuer offers typically one-off transaction with limited opportunities for recurring revenue and long-term customer relationship. The shrinking Scope-adjusted EBITDA margin* is also a constraint, a result of the aggressive policy of recent years to prioritise market share gains over efficiency.

Following a decrease of EBITDA margin to 8.3% in 2023 (from 12.6% in 2022) Scope anticipates profitability to return to between 10-12% in the forecast period and EBITDA to increase to HUF 3.4bn in 2024, from HUF 2.4bn in 2023. The agency’s view is supported by a confirmed market recovery in Hungary and Poland, combined with stabilizing inflation. The development of the Italian market remains uncertain, with volumes declining in Q1 2024 by 7.2% compared to Q4 2023. Nonetheless operating results are expected to improve as well in Italy thanks to efficiency measures related to the closure of the two loss-making real estate brokers and the integration of their services in Professione Casa (Duna House recently acquired 10% in the real estate agency and signed a collaboration agreement to offer exclusive loan brokerage to Professione Casa customers). Scope projections are supported by the preliminary Q1 2024 result of Duna House, showing HUF 996m in reported core EBITDA (excluding development business) representing an increase by 141% YoY.

Financial risk profile: BB. Duna House’s financial risk profile continues to benefit from strong interest coverage thanks to the large portion of fixed-rate debt. High interest income on cash deposits in Hungary have also been driving up net interest income in 2022 and 2023. Even if interest rates on deposits fell again, the issuer’s interest cover would remain above 10x supported by the absence of new debt financing.

Leverage as measured by the Debt/EBITDA has suffered from debt-financed acquisitions in recent years, reaching above 3x at YE 2021. As anticipated by Scope, leverage increased to around 5x in 2023, driven by the profitability downturn. Leverage is anticipated to return to around 3x in 2024 as profitability recovers on the back of the positive sales trend in Hungary and Poland, and no new debt issuances are planned. Scope’s assessment of the financial risk profile also incorporates execution and integration risks related to the issuer’s strategic focus on acquisitions, which creates uncertain and volatile cash flow.

Liquidity: adequate. Liquidity is adequate, supported by strong available cash (around HUF 8.2bn at year end 2023) and given the absence of significant short-term debt. One of the two bonds will start amortizing in 2026 at a 20% rate which is largely coverable by available cash and cash flow generation.

Scope highlights that Duna House’s senior unsecured bonds issued under the Hungarian National Bank’s Bond Funding for Growth Scheme has a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 12.9bn) if the debt rating of the bonds stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 15 days). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is 1 notch. Scope therefore sees no significant risk of the rating-related covenant being triggered.

Outlook and rating sensitivities

The Stable Outlook reflects Scope's expectation that Duna House will maintain strong interest cover and Debt/EBITDA will return to below 4x in 2024 after its peak in 2023 due to an anticipated recovery in EBITDA, amid the market turnaround in Poland and Hungary as well as a more efficient cost structure in Italy.

The upside scenario for the rating and Outlook is seen as remote, but would require:

1. Further significant growth of the business leading to improved diversification and strengthening of the business risk profile while maintaining a Debt/EBITDA ratio below 3.0x on a sustained basis.

The downside scenario for the rating and Outlook is:

1. Debt/EBITDA to remain above 4.0x in 2024. This could be caused by weaker-than-expected revenue due to overall transaction market weakness or debt-funded investments substantially beyond Scope’s base case.

Debt rating

Scope has affirmed the BB- rating of on all senior unsecured debt issued by Duna House. Scope based its recovery assessment on a liquidation value in a hypothetical default scenario in 2025 and expects an ‘average’ recovery for bond holders.

Duna House has issued two bonds through the Hungarian central bank’s Bond Funding for Growth Scheme. The first bond was issued in September 2020 (HUF 6.9bn, HU0000359914) with a tenor of 10 years and a fixed coupon of 3%. Bond repayment start in 2026 with 20% early amortization. The second bond was issued in January 2022 (HUF 6bn, HU0000361217), with a tenor of 10 years and a fixed coupon of 4.5%. Bond repayment starts in 2028 with a 20% yearly amortization.

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action.

All rating actions and rated entities

Duna House Holding Nyrt.

Issuer rating: BB-/Stable, affirmation

Senior unsecured debt rating: BB-, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; European Business and Consumer Services Rating Methodology, 15 January 2024; European Real Estate Rating Methodology, 28 March 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the Rated Entity or Related Third Party participation   YES
With access to internal documents                                      YES
With access to management                                               YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Claudia Aquino, Associate Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 31 July 2020. The Credit Ratings/Outlook were last updated on 16 November 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.