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Rating action

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

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

Key rating drivers

Business risk profile: BB- (unchanged). Duna House's business risk profile still benefits from its leading positions in Hungary and Italy as a real estate and financial broker respectively. The company's continued revenue growth (a robust 33% increase in core revenue YoY, excluding real estate sales) is driven by positive trends in real estate and mortgage volumes in both the Italian and Hungarian real estate markets, which are rebounding after the 2023 downturn. Scope expects this higher growth rate to persist, supported by both organic expansion and potential acquisitions. Domestically, Duna House holds a comparable market position to its main competitor, Otthon Centrum (rated BB-/Stable), but is larger and more geographically diversified, with operations in Italy in addition to Hungary and Poland. The company is growing but remains a small player in the European real estate and financial brokerage industry, which constrains its ability to offset cash flow volatility and defend market share against potential new entrants.

Duna House's business risk profile is constrained by the inherent cyclicality of its products, which are directly influenced by broader macroeconomic conditions and interest rate fluctuations. However, this risk is partially offset by the company’s presence in multiple countries and its provision of recurring-revenue services such as insurance and property management.

Profitability, as measured by the Scope-adjusted EBITDA margin*, has been falling over the past few years amid the company’s expansion policy. In 2023, the EBITDA margin declined to around 8% (from 12.6% in 2022) due to inflation and rising operating costs. In 2024, the margin returned to the previous level of around 12%, as less severe inflation and a general market recovery supported higher revenue growth. The completed onboarding of the Italian business also contributed to higher margins. Looking ahead, Scope anticipates slight margin volatility from the expected return to an acquisition strategy. However, Scope projects that robust cost control, a more moderate inflationary environment, the potential realisation of economies of scale, and revenue growth will collectively enable margins to be sustained within the 11%-15% range.

The company's strategic shift to an exclusive focus on the brokerage business and the planned divestiture of all real estate assets by the close of 2025, combined with robust EBITDA growth, are expected to increase the EBITDA return on capital invested. Scope projects that this figure will fall within the 20% to 40% range.

Financial risk profile: BB (unchanged). Duna House’s financial risk profile benefits from strong debt protection, evidenced by a high EBITDA interest cover. This is largely due to the substantial portion of debt held at fixed interest rates. While new debt financing in 2025 is expected to temporarily reduce the ratio to around 8x (from 18x in 2024), robust EBITDA growth should quickly restore interest cover to above 10x.

After a temporary spike in 2023 driven by weakening EBITDA, leverage (debt/EBITDA) rebounded to below 3x in 2024. The issuer intends to fund upcoming acquisitions with 70% of its own funds and 30% of new debt, projecting an increase of HUF 4bn to HUF 8bn in total debt, contingent on acquisition volume. Scope forecasts that leverage will remain below 3x, as robust EBITDA growth from existing and new operations is expected to counteract the rising debt.

Scope’s assessment of Duna House’s 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 (unchanged). Liquidity is adequate, supported by strong available cash (around HUF 5.6bn at year-end 2024) and positive free operating cash flow. Approximately HUF 2bn in debt repayment is projected in 2026 (one of the bonds starts amortising at a 20% rate and other loans), which is largely covered by available cash.

Scope points out that Duna House’s senior unsecured bonds issued under the Hungarian National Bank’s Bond Funding for Growth Scheme have 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 one notch. Scope therefore sees no significant risk of the rating-related covenant being triggered.

Supplementary rating drivers: credit-neutral (unchanged). Overall, supplementary rating drivers have no impact on this credit rating action.

Outlook and rating sensitivities

The Stable Outlook is based on the expectation that the company will successfully implement its expansion strategy while maintaining its current solid credit metrics. This includes debt/EBITDA below 3x, which is supported by organic and inorganic EBITDA growth, thanks to normalising demand in its main markets.

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

1. Debt/EBITDA maintained below 3.0x.
    
2. Improved business risk profile, e.g. through increased size leading to greater diversification.
    
3. Stabilized group structure.

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

1. Debt/EBITDA around 4.0x on a sustained basis.
    
2. Increased substitution risk for the issuer's business model, e.g. indicated by declining market shares or profitability deterioration.

Debt rating

Scope has affirmed the BB- rating on all senior unsecured debt issued by Duna House. The rating agency based its recovery assessment on an ongoing concern in a hypothetical default scenario in 2026 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 starts in 2026 with 20% early amortisation. 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 amortisation.

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, 14 February 2025; European Business and Consumer Services Rating Methodology, 15 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: 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 17 June 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
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