Growing fast

Lloyd Fonds 9 May 2019 Update
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Lloyd Fonds

Growing fast

Fund management

Scale research report - Update

9 May 2019

Price

€5.32

Market cap

€54m

Share price graph

Share details

Code

L10A

Listing

Deutsche Börse Scale

Shares in issue

10.1m

Net cash at December 2018

€12.3m

Business description

Lloyd Fonds is repositioning as a leading asset manager with its own range of retail funds, digital portfolio management and individual direct asset management. It has over 20 years’ experience as an asset and investment manager in a range of alternative real assets, primarily in the areas of shipping and real estate.

Bull

Proposed broadening of business to become an active asset manager.

Ambitious targeted AUM growth.

New, experienced management and sound finances.

Bear

Execution risk in repositioning the company.

Markets for current activities remain challenging.

Regulatory risks.

Analyst

Richard Finch

+44 (0)20 3077 5700

Lloyd Fonds is accelerating its transformation into a leading asset manager in Germany with the proposed acquisition of highly regarded SPSW Capital. This follows the recent sales launch of its new business model, focused on open-end retail funds and targeting assets under management to exceed €5bn by 2023 (€1bn+ in 2019). While repositioning makes financials difficult to assess, this move gives reassurance as growth in assets under management is the stated driver of future earnings.

Busy execution of ‘Strategie 2019+’

Following the recent acquisition of Lange Assets & Consulting (€350m assets under management), which is subject to completion, the proposed takeover of SPSW Capital brings further scale (€650m assets under management) and complementary expertise to Lloyd Fonds’ reorientation towards open-end investment products. The deal (expected purchase price in shares and cash in the mid double-digit million range) is due to complete by next year, effecting also a new CEO (current company chairman as well as co-founder of SPSW) and a change of name to Lloyd Capital (subject to AGM approval). Meanwhile, the sales launch foran initial four retail funds is newly underway, supplemented by a reworking of the Lloyd Fonds brand. Repositioning has been supported by key management changes, including a chief investment officer from April, new anchor shareholders, notably DEWB, a listed private equity company, and first expansion from the company’s Hamburg base with office openings in Munich and Frankfurt.

2018 results as forecast

In view of such operational change, analysis of recent financial performance offers limited guidance. In addition, repositioning brings substantial one-off costs, eg in infrastructure, IT, and above all new staff. In 2018 these amounted to €2.5m, moving net profit firmly into loss, albeit in line with guidance and despite a late surge in real estate sales. Finances remained sound with €12m year-end net cash.

Valuation: Long-term appeal

After early investor appreciation of Lloyd Fonds’ reorientation (share price more than doubled after the arrival of new shareholders a year ago), consolidation is understandable in the absence of a quick earnings fix (guidance of 2019 break-even, albeit with risk of one-off costs) and possibly no dividend payout. Evident strategy execution enhances the prospect of exposure to the open-end funds market, which is attractive in terms of size, expected growth and high margins.

Historic financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

11.4

1.8

0.17

0.07

31.3

1.3

12/16

9.5

3.2

0.35

0.16

15.2

3.0

12/17

7.5

1.2

0.15

0.00

35.5

N/A

12/18

7.9

(1.0)

(0.16)

0.00

N/A

N/A

Source: Lloyd Fonds accounts

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Review of 2018 results

We reiterate that the current wholesale shift in Lloyd Fonds’ activities mitigates concern about the financial performance of activities soon to be superseded, although there is of course considerable risk in execution of the repositioning strategy. Moreover, the refocusing of management and array of one-off items, both accounting and restructuring-related, make it difficult to assess underlying performance, notwithstanding acknowledgement of persistent market pressures.

In 2018, the guidance had to be adjusted due to the implementation of the new business model. The shortfall was anticipated after H1 results and was largely attributed to €2.5m (€1.0m in prior year) restructuring-led costs rather than underlying trading, although shipping markets in particular did remain challenging. This accounts for the sharp rise in other operating costs (net), notably a doubling in H2 (see Exhibit 1), since the category’s other material items, asset impairments and valuation gains, broadly cancelled each other out. Predictably, there was an encouraging fall in H2 labour costs owing to 20% reduced headcount and lower severance payments (the comparative was inflated by settlement costs associated with the premature exit of the CEO following strategic disagreement). Lower depreciation reflected a change of accounting policy with the expense transferred to the finance result, while associates in 2017 was flattered by a €1.5m tax refund.

Exhibit 1: Financial performance

Year end December (€m), HGB

H117

H217

FY17

H118

H218

FY18

Revenue

3.9

3.6

7.5

3.1

4.8

7.9

Material costs

(0.3)

(0.2)

(0.5)

(0.2)

(0.3)

(0.5)

Labour costs

(2.1)

(2.7)

(4.8)

(2.0)

(2.3)

(4.3)

Depreciation/impairment

(0.3)

(0.2)

(0.5)

(0.1)

Neg.

(0.1)

Other operating costs (net)

(1.7)

(1.6)

(3.3)

(1.9)

(3.3)

(5.2)

Associates

1.7

0.4

2.1

0.4

0.1

0.5

EBIT

1.3

(0.8)

0.5

(0.8)

(1.0)

(1.8)

Finance income

0.1

1.3

1.4

0.4

0.7

1.1

Finance expenses

(0.4)

(0.3)

(0.7)

(0.2)

(0.1)

(0.3)

Pre-tax profit/(loss)

0.9

0.3

1.2

(0.5)

(0.5)

(1.0)

Net profit /(loss)

1.0

0.4

1.4

(0.8)

(0.7)

(1.5)

Source: Lloyd Fonds accounts

As for real estate, after a quiet H1, two sizeable transactions in December 2018 (see Exhibit 2) justified management confidence about macro factors. Disposals of an office building in Eindhoven and hotels in Hamburg and Sylt realised pre-tax annual returns of 10% and 11.5% respectively for fund investors over a decade’s ownership. Shipping, the other prime field, saw some improvement in charter rates but markets remain subdued with container tanker fleet oversupply. The company mitigates this by pooling 8 container ships, thereby stabilising income and optimising utilisation, and has agreed a flexible debt service until 2020.

Exhibit 2: Sales and PBT by segment

Year end December (€m), HGB

H117

H217

FY17

H118

H218

FY18

Revenue

Real estate

0.9

0.6

1.5

0.5

2.5

3.0

Share

22%

17%

20%

16%

52%

38%

Shipping

2.2

2.2

4.4

1.9

1.6

3.5

Share

57%

61%

59%

61%

33%

44%

Other assets

0.8

0.8

1.6

0.7

0.7

1.4

Total

3.9

3.6

7.5

3.1

4.8

7.9

Pre-tax profit

Real estate

(0.1)

0.3

0.2

0.1

2.4

2.5

Shipping

2.0

1.3

3.3

1.9

0.8

2.7

Other assets

0.7

0.7

1.4

0.7

0.5

1.3

Central costs

(1.7)

(2.1)

(3.8)

(3.2)

(4.2)

(7.5)

Total

0.9

0.3

1.2

(0.5)

(0.5)

(1.0)

Source: Lloyd Fonds accounts


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Frankfurt +49 (0)69 78 8076 960

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General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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