Growing interest in its offering

ÖKOWORLD 16 September 2020 Update
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ÖKOWORLD

Growing interest in its offering

Diversified financials

Scale research report - Update

16 September 2020

Price

€24.4

Market cap*

€172m

*Based on 7.06m total shares issued (after deducting treasury shares). Only 3.05m non-voting preference shares are listed on the stock market.

Share price graph

Share details

Code

VVV3

Listing

Deutsche Börse Scale

Shares in issue

3.05m

Last reported net cash at 30 June 2020

€24.5m

Business description

ÖKOWORLD Group’s business is focused on asset management, insurance brokerage and advisory services. It is one of Germany's pioneers in socially responsible investing (SRI) and ethical-ecological investment advice and was founded in 1975. It preserved its successful core investment principles and reached AUM of c €2.0bn at end July 2020.

Bull

A strong brand with established distribution channels and constant AUM growth.

SRI investments have become mainstream with more companies following SRI rules.

Proven track record and numerous awards.

Bear

Despite its long history, still relatively low AUM.

Only preference shares available to investors.

Strong dependency on German customers.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Michal Mierzwiak

+44 (0)20 3077 5700

ÖKOWORLD (ÖWAG) posted solid H120 results, which we believe may reflect, among other things, improving interest in its insurance brokerage business focused on pension products. Entering 2020, assets under management (AUM) of its fund managing subsidiary ÖKOWORLD LUX amounted to c €1.7bn then expanded to almost €2.0bn at end July 2020. While this has driven growth in its management fees, we assume the subsidiary earned limited (if any) performance fees in H120, as funds exceeded previous high-water marks for a short time only before the pandemic outbreak. However, we note that on the back of the strong rebound in broad equity markets in Q220, the fund performance recovered from the initial downturn in late Q120.

Significant improvement in net profit

In H120, ÖWAG reported net profit of €7.4m against €2.5m in H119. The increase was likely driven by strong insurance brokerage business and the dividend of €4.9m (vs €2.4m in H119) from ÖKOWORLD LUX. Furthermore, personnel expenses in the period decreased by 47.3% y-o-y to €1.5m, which is largely attributable to the high comparative base in H119 (€2.8m), inflated by reorganisation costs and performance bonuses.

Funds reporting positive returns in 2020

Healthy returns over the three-month period ending 31 July 2020, reported by all funds managed by ÖKOWORLD LUX, helped offset Q120 losses. The largest fund in the portfolio, ÖKOWORLD ÖKOVISION CLASSIC (c 72% of overall AUM), has already reported a positive year to date performance, reaching 3.4% at end July 2020. Meanwhile, the best performing fund, ÖKOWORLD KLIMA, recorded a c 18.5% ytd return and increased its AUM from €150.6m at the beginning of the year to €258.4m at 31 July 2020.

Valuation: Setting new record-high share price

Although ÖWAG’s share price is currently at a record-high level, the valuation against its peers, based on the last 12-month P/E multiple, indicates a c 20% discount. Based on the market cap to last reported funds AUM ratio, ÖWAG is trading 4.1pp above the peer group median, which may reflect its solid insurance brokerage business. ÖWAG currently offers a dividend yield of 2.5%.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

9.2

5.2

0.60

0.51

40.7

2.1

12/17

15.8

9.7

1.02

0.60

23.9

2.5

12/18

15.3

5.1

0.50

0.40

48.8

1.6

12/19

20.3

13.5

1.54

0.61

15.8

2.5

Source: ÖKOWORLD 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.

Financials: Further expansion of AUM

With interest rates remaining stable at a record-low level over H120, investment funds have gained in significance as an investment opportunity for individuals looking for a reasonable risk-return tradeoff. ÖKOWORLD LUX is clearly benefiting from this trend, further assisted by strong sentiment towards sustainable investments. Its AUM has made steady progress through the year to date, with July volume of nearly €2bn (vs €1.7bn at 31 December 2019 and more than €1.3bn at 30 June 2019), likely driving improved management fees. The company has not disclosed detailed information regarding the performance fee. We note, however, all five funds managed by ÖKOWORLD LUX (the fund management subsidiary) reached new records in terms of unit price over the analysed period and the previous high-water marks were exceeded for a short time only before the pandemic. We also note that performance fee (if any) earned in H119 was limited.

We believe that the 29.4% y-o-y improvement in revenues, which reached €9.5m in H120 (vs €7.3m in H119), may be mainly attributable to improved fund fee income and strong insurance brokerage business (focused on pension products). However, we note that management fees earned by ÖWAG (which are charged by ÖKOWORLD LUX as a percentage of AUM and partially transferred to the parent company) are largely passed on to distributors, with the higher fees paid in H120 resulting in costs of services growing from €2.5m in H119 to €3.3m in H120. Over the first six months of 2020, ÖWAG recognised €4.86m in income from related companies in the form of dividends from ÖKOWORLD LUX against €2.43m in H119. However, management indicates this dividend was partly paid from previous period retained earnings.

Over the same period, personnel expenses fell from €2.8m to €1.5m. However, we note that in FY19 company incurred some reorganisation costs and paid performance bonuses to its staff. H120 personnel costs are on a par with the H118 total of €1.4m.

Exhibit 1: Financial highlights

€000s

H120

H119

y-o-y

Revenues

9,497

7,340

29.4%

Other operating income

43

43

0.9%

Costs of services

(3,345)

(2,470)

35.4%

Personnel expenses

(1,453)

(2,756)

-47.3%

Other operating expenses

(943)

(969)

-2.7%

D&A

(56)

(88)

-36.3%

Income from related companies

4,860

2,430

100.0%

EBIT

8,603

3,529

143.7%

EBIT margin

90.6%

48.1%

42.5pp

Other interest and similar income

0

1

-66.2%

Interest and similar expenses

(45)

(11)

307.8%

EBT

8,558

3,519

143.2%

EBT margin

90.1%

47.9%

42.2pp

Income tax

(1,118)

(1,064)

5.0%

Effective tax rate

13.1%

30.2%

-17.2pp

Net profit for the period

7,440

2,455

203.0%

Net income margin

78.3%

33.5%

44.9pp

Source: ÖKOWORLD accounts, Edison Investment Research

As the company has a net cash position (€24.5m at end June 2020), both interest income and expenses have an insignificant impact on its results. EBT is on a par with EBIT at c €8.6m in H120 (€3.5m in H119), translating into an EBT margin of more than 90%. Assisted by an effective tax rate reduction from 30.2% to 13.1%, ÖWAG reported a threefold improvement in net profit, which reached €7.4m in H120 vs €2.5m in H119.

Funds rebounding from coronavirus downturn

Based on the last available data, as at 31 July 2020, ÖWAG recorded a 19.3% ytd increase in AUM to €1.97bn from €1.65bn as at 31 December 2019. As the weighted average rate of return over the period for all five funds managed by ÖKOWORLD LUX stood at c 5% (according to our calculations), the increase is largely attributable to net capital inflows. However, we note that the strong rebound in the broad equity market in Q220 (MSCI World Index improving by 18.8% in the period) assisted expansion, as AUM increased by 17.5% over the last three months alone from €1.68bn at end April 2020. We also note that due to the pandemic-induced sell-off in March, the strong 2019 returns may be hard to replicate in 2020. Nevertheless, we note that ÖKOWORLD ÖKOVISION CLASSIC has already returned to its February 2020 peak, while ÖKOWORLD KLIMA visibly surpassed its previous peak.

Exhibit 2: Funds performance since 1 January 2020 (rebased)

Source: Refinitiv

The largest share of overall assets (sitting at c 72%) is still attributable to ÖKOWORLD ÖKOVISION CLASSIC, with the overall volume exceeding €1.41bn. The fund reported a healthy 3.4% ytd return, with 6.4% generated over the last three months. To benefit from attractive market valuations following the March downturn, the fund improved its investment volume by reducing cash holdings from c 14.5% at end April 2020 to 8.5% at end July 2020. Its key investment areas include demography and medicine (19.6% share), information and communication (16%) and energy efficiency (13.3%), all of which seem relatively resilient to the impact of the pandemic.

ÖKOWORLD KLIMA is the second largest and best performing fund in the portfolio at end July 2020, with a ytd return of 18.5% and AUM expanding to €258m from €151m at the beginning of 2020. It is worth noting that it was also the best performing fund in 2019, with a 37.1% annual return rate. The fund successfully deployed its cash position from 12.3% of the portfolio value at end April 2020 to just 1.3% three months later. According to the latest available data, at end July 2020 the share of holdings denominated in US dollars sits at 50.7%. The key investment areas include businesses focused on adaptation to climate change (23.1%), and on energy and resource-saving products and services (19.3% and 19.2% respectively).

Exhibit 3: Summary of funds statistics

Fund name

Ytd performance

FY19 performance

AUM 31.07.2020 (€m)

% of AUM

AUM 31.12.2019 (€m)

% of AUM

ÖKOWORLD ÖKOVISION CLASSIC

3.4%

25.9%

1,412.0

71.7%

1,218.1

73.8%

ÖKOWORLD KLIMA

18.5%

37.1%

258.4

13.1%

150.6

9.1%

Ökoworld Rock'n'Roll

-0.6%

22.7%

149.8

7.6%

120.8

7.3%

ÖkoWorld Growing Markets 2.0

7.1%

27.6%

116.9

5.9%

131.5

8.0%

ÖkoWorld Water for Life

-7.1%

31.9%

31.7

1.6%

29.8

1.8%

Total:

1,968.9

1,650.8

Source: ÖKOWORLD, Edison Investment Research

The uncertainties associated with the pandemic outbreak hit ÖkoWorld Growing Markets 2.0 the most, due to its relatively higher-risk profile resulting from significant exposure to developing economies. Consequently, between end December 2019 and end April 2020, the fund reported a 9.3% loss, coupled with a c 24% decline in AUM to just €100m. Having said that, over the last three months the fund posted an c 18.5% return, bringing the ytd total to 7.1%. The two remaining funds, Ökoworld Rock'n'Roll and ÖkoWorld Water for Life, have not yet fully rebounded from the March downturn, posting 0.6% and 7.1% ytd losses, respectively at end July 2020. However, we note that both expanded their AUM over the period by 24% and 7% respectively.

Valuation

We continue to compare ÖWAG with a group of European asset managers in the equities space for valuation purposes. As Refinitiv consensus is not available for the company, we have used reported earnings calculated for the last 12-month period, which implies a c 20% discount to median of peers’ figures. We note, however, that company’s earnings also reflect significant dividend income booked in H120. Looking at the market capitalisation to total funds’ assets under management ratio, ÖWAG is trading at premium to its peers. However, this ratio does not capture ÖWAG’s insurance and investment funds brokerage business. The company’s share price is reaching record-high levels, which results in a dividend yield of 2.5%, trailing the peer group median by 3.6pp.

Exhibit 4: Peer group valuation

Market
cap (LCYm)

Market cap/AUM (%)
(last reported)

P/E (x)

Dividend yield (%)

H120 LTM

2020e

2021e

2019

2020e

2021e

Ashmore Group

£2,692

4.3

14.8

14.7

15.4

4.4

4.5

4.5

Azimut Holding

€2,354

5.7

13.5

9.9

10.2

6.1

6.3

6.7

Jupiter Fund Management

£1,141

2.9

9.0

10.0

9.1

8.3

8.2

8.3

Man Group

$1,728

1.6

9.9

12.4

9.3

6.5

5.9

5.9

Impax Environmental Markets

£649

3.4

37.3

41.7

32.1

1.1

1.3

1.7

Peer group median

-

3.4

13.5

12.4

10.2

6.1

5.9

5.9

ÖKOWORLD

€172

8.7

10.8

N/A

N/A

2.5

N/A

N/A

Discount/premium to peers

-

5.3pp

(20%)

N/A

N/A

(3.6pp)

N/A

N/A

Source: ÖKOWORLD accounts, Refinitiv data at 15 September 2020.

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