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Rating action

Scope Ratings GmbH (Scope) has today affirmed the B issuer rating on DVM Group Kft (DVM) and revised the Outlook to Negative from Stable. Concurrently, Scope has affirmed the senior unsecured debt rating at B+.

The rating affirmation is driven by DVM's strong backlog of HUF 54.5bn as of April 2025, which provides some visibility on cash generation over the next 12-18 months. The Outlook revision reflects the risk that leverage will remain at a level that is not commensurate with the rating, given a significant reduction in available cash.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: B- (unchanged): The company’s business risk profile continues to benefit from DVM’s good vertical integration which spans a wide spectrum of services across different stages of the construction value chain. DVM also maintains a good domestic network and longstanding relationships with its main customers. The company's business risk is constrained by its small size within both the European and Hungarian contexts. Additionally, the company faces weak diversification due to a geographically, segment, and client-wise concentrated backlog, as well as continued pressure on profitability.

Operationally, the company's delivered a strong performance, achieving HUF 41.1bn – based on preliminary 2024 results – (up 82% vs 2023) in revenues – the highest in its history. Top line growth was driven by strong base building activity and the successful development of two utility-scale solar power plants (43 MW / 54 MWp total capacity). Both projects are in commercial operation and backed by fixed-price power purchase agreements. DVM is planning for the sale of both plants and expects to sell at least one project in 2025.

Scope-adjusted EBITDA* depicted an increase to HUF 1.3bn (up from HUF 0.6bn in 2023), mainly related to strong top-line growth at largely unchanged profitability levels (EBITDA margin of 2.8%), dividend income from the joint venture DVM-MAN Hungary Kft. as well as no significant change in provisions.

DVM's backlog benefits from the active engagement in flagship developments including Duna Terasz Vista, one of Budapest’s largest residential projects. The project backlog reached HUF 54.5bn as of April 2025, which is 1.7x the average sales of the last three years (3.4x as of April 2024). As such Scope expects DVM's revenues to remain at least at historical levels in 2025, but to decline in 2026 and 2027.

Although positive, the backlog is subject to high cluster risk, as 43% of the company's current order book is dependent on a single project and client, and the top three projects account for 72%.

However, DVM continues to expand its portfolio through DVM Greenfield, a joint venture with a focus on industrial construction. With HUF 8.5bn in contracts delivered, the platform is scaling toward a sustainable annual target revenue of around HUF 9bn to HUF 10bn, leveraging Hungary’s foreign direct investment driven industrial expansion. This diversification enhances DVM’s resilience and long-term growth prospects.

Scope's forecast assumes that DVM's EBITDA margin will improve towards 4% in 2025, driven by general contractor margin visibility on the current order book. However, Scope expects that continued strong competition in DVM's domestic market and high raw material prices will continue to put pressure on profitability. As a result, Scope is cautious on future profitability development, with the EBITDA margin likely to remain between 3-4%.

Financial risk profile: B+ (unchanged): The company’s financial risk profile reflects volatile free operating cash flow, high leverage and a strong debt protection.

After years of significant investments in co-development projects, including two solar projects and a residential development, which led to substantial cash absorption, free operating cash flow is expected to turn positive in 2025 due to limited capital expenditure needs and improved visibility of operating cash flow. However, the residential development project Andor requires additional financing, including a HUF 3.7bn shareholder loan, making the company reliant on external financing or the successful execution of planned disposals of the solar projects and logistics sites. These disposals are not considered in Scope's rating case as sales and purchase agreements have not been signed yet. Consequently, Scope expects debt to increase to above HUF 10bn in 2025 (end-2024: HUF 9.4bn).

Leverage, as measured by debt/EBITDA, improved to 7.3x based on preliminary results for 2024 (down by 7.8x YoY). This improvement was driven by the aforementioned increase in EBITDA balancing the HUF 0.7bn increase in debt. Scope sees the risk that leverage remains at or above 6x going forward as the company's debt is expected to increase and there is limited visibility on margin recovery beyond 2025, both not mitigated by increased dividend income from DVM's joint ventures. Scope notes that the previously existing rating support from a significant available cash buffer has diminished as cash declined to HUF 2.7bn at end-2024 (from HUF 7.3bn at end-2023), mainly due to solar project financing and working capital needs. Scope acknowledges the company's targeted asset sales to release capital. However, it highlights the risk associated with the use of related exit proceeds, which are likely to be spent on further residential developments.

Debt protection was strong in 2024 with a positive net interest income in 2024, supported by interest income and low debt expense as the HUF 8bn bond (85% of debt as at end-2024) carries a fixed interest rate of 3%. Scope anticipates that the EBITDA interest cover to weaken in 2025-2026, due to the planned increase in bank borrowings to finance the Andor residential development and the use of excess cash to commence similar projects.

Liquidity: adequate (unchanged). Liquidity is adequate as cash sources (HUF 2.7bn in available cash as at end-2024 and HUF 1.5bn in forecasted free operating cash flow for 2025) cover uses (repayment of HUF 0.7bn in shareholder loans). The refinancing profile includes a HUF 8.0bn bond maturing in 2030, with the first instalment of HUF 2.4bn due in 2026.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers remain credit neutral with no impact on the overall rating. The company's financial policy, including the planned dividend payout of 20% of profit after tax, has no effect on the rating.

Outlook and rating sensitivities

The Outlook has been revised to Negative, reflecting the risk of leverage (debt/EBITDA) remaining above 6x beyond 2025 due to the lack of visibility on a sustained margin recovery to historical levels, combined with limited visibility on sales beyond 2025. Additionally, the Outlook considers the company's weakening cash reserves, which could necessitate external financing if individual projects from its concentrated backlog experience delays, leading to increased cash absorption from net working capital.

The upside scenarios for the ratings and Outlook are (individually):

1. Debt/EBITDA improving to below 6x.
    
2. Significant recovery in the company’s cash position, reaching a level comparable to the company’s gross indebtedness.

The downside scenarios for the ratings and Outlook are (collectively):

1. Debt/EBITDA ratio exceeding 6x beyond 2025, indicating sustained high leverage.
    
2. Lack of significant recovery in the company’s cash position, failing to reach a level comparable to the company’s gross indebtedness.

Debt ratings

In July 2020, DVM issued a HUF 8.0bn senior unsecured bond (ISIN: HU0000359781) through the Hungarian Central Bank’s Bond Funding for Growth Scheme. The bond has a tenor of 10 years and a fixed coupon of 3%. Bond repayment is in three tranches starting from 2026, with HUF 2.4bn of the face value payable in 2026 and 2028 and the remaining portion payable as a balloon payment at maturity. Bond covenants include no dividend payments before 2022, plus change of control and LTV clauses regarding co-development financing (LTV greater than 50% for single co-development projects and greater than 30% for overall co-developed projects).

Scope’s recovery analysis is based on a hypothetical default scenario occurring at year-end 2026. It assumed outstanding senior unsecured debt of HUF 8.0bn, additional secured bank debt of HUF 6.2bn to partially finance DVM’s co-development projects as well as HUF 5.3bn in payables we classify to rank senior to the bond and resulted in an ‘above average recovery’ for the company’s unsecured debt. Scope therefore affirms the B+ rating for this debt category (one notch above the issuer rating).

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

DVM Group Kft.

Issuer rating: B/Negative, Outlook change

Senior unsecured debt rating: B+, 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, 14 February 2025; Construction and Construction Materials Rating Methodology, 24 January 2025), 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: Vishal Joshi, Analyst
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 26 May 2020. The Credit Ratings/Outlook were last updated on 2 May 2024.

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
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab 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. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.