High tempo

Deutsche Grundstücksauktionen 24 May 2019 Update
Download PDF German PDF Download

Deutsche Grundstücksauktionen

High tempo

Real estate

Scale research report - Update

24 May 2019

Price

€17.50

Market cap

€28m

Share price graph

Share details

Code

DGR

Listing

Deutsche Börse Scale

Shares in issue

1.6m

Net cash at December 2018

€4.9m

Business description

Deutsche Grundstücksauktionen AG is market leader in the auctioning of properties in Germany. The company was founded in Berlin in 1984.

Bull

Sustained demand for property thanks to favourable economic and interest rate outlook.

Clear market leader with experienced management and wide client base.

Sound finances, allowing generous, unbroken dividend record.

Bear

Macroeconomic uncertainties; rising interest rates would diminish yield appeal of property.

Intensely competitive.

Potential supply shortage as a result of excess demand and unrealistic seller expectations.

Analyst

Richard Finch

+44 (0)20 3077 5700

Strong momentum in H218 has ensured yet another successful year for Deutsche Grundstücksauktionen (DGA). Boosted by a bumper €15m Q1 auction lot, 2018 saw a 30% rise in both net profit and dividend as surplus cash (DGA has no debt) allows full profit distribution. The current year has also started well with Q1 gross turnover and net commission slightly above the average of last 10 years and positive indications for Q2 auctions. While 2018 will be a hard act to follow thanks to that bumper sale, the offer of further high-value lots is not wishful thinking, given DGA’s good relationship with the Federal Bundesanstalt and excellent publicity as a reference sale. Therefore management’s target for 2019 gross turnover of €109m (average of last five years) may prove cautious.

Satisfactory H218

While not repeating the exceptional-led step-change in financials of H1, DGA’s H2 performance (see page 2), was creditable, matching year-on-year gross turnover, which had been buoyed by the most valuable item then to date at €7m. Also, the net commission rate improved markedly (9.9% vs 9.5%) despite continued price appreciation (average sales price up 8%). As in the first half, the parent company, which bears central costs, was unusually profitable (more than doubled at the net level) but this was substantially offset by a c 30% fall in the subsidiaries’ contribution on 5% lower gross sales. Regional volatility, if acute in the period, is characteristic of DGA and performances tend to compensate for each other.

More of the same

A favourable outlook statement reflects reiteration of positive fundamentals, notably interest rates, disposable income and employment. Management’s 2019 aim of reaching the average gross turnover of the last five years (€109m) appears undemanding as that would only be flat, adjusted for 2018’s €15m exceptional, and ignores further high-value lots. 8% higher adjusted Q1 gross turnover is complemented by encouraging signs from imminent summer auctions.

Valuation: Generous yield

While 2018 set a high bar, DGA’s pride in its dividend record (increased for five years in a row) and strong finances (€5m net cash at end 2018 vs €1.6m historical dividend cost) suggest that its payout may at least be maintained. A historical yield of almost 6% is well ahead of that of the small cap market (no direct listed peer).

Historical financials

Year
end

Net commission (€m)

Net profit

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/15

10.3

1.13

0.71

0.70

24.6

4.0

12/16

10.6

1.17

0.73

0.72

24.0

4.1

12/17

11.2

1.22

0.76

0.77

23.0

4.4

12/18

12.0

1.59

1.00

1.00

17.5

5.7

Source: Company 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

Exhibit 1: Revenue, margin and dividend progression

Source: Edison Investment Research

The financial statements are in accordance with HGB. DGA, the parent company, is influenced to a considerable extent by the results of its fully owned subsidiaries but is not obliged to present consolidated accounts and management reports. As a result of profit transfer agreements with its five subsidiaries, the total result of the group is therefore shown in the statements of the parent company.

Consequently, for the sake of clarity we show (shaded below) both gross turnover (auction sale proceeds) and net commission at the group level, as these drive the transferred profits. They are also regarded by management as key indicators. However, they are, of course, only proxies for the subsidiaries’ revenue, which is not disclosed, so accurate top-line analysis is not possible.

Exhibit 2: Analysis of revenue and profit

Year end December (€m), HGB

H117

H217

FY17

H118

H218

FY18

Group:

Turnover from auction sales

57.10

59.50

116.60

63.80

60.12

123.92

Change (%)

+40%

Flat

+16%

+12%

+1%

+6%

Net commission

5.49

5.67

11.16

6.07

5.93

12.00

Rate (%)

9.6%

9.5%

9.6%

9.5%

9.9%

9.7%

Change (%)

+18%

-5%

+5%

+11%

+5%

+8%

Revenue + other operating income

2.39

2.35

4.74

3.44

2.83

6.27

Material costs

(0.10)

(0.08)

(0.18)

(0.07)

(0.10)

(0.17)

Labour costs

(0.89)

(1.06)

(1.95)

(1.02)

(0.99)

(2.01)

Other operating costs

(1.45)

(0.93)

(2.38)

(1.14)

(1.08)

(2.22)

Depreciation / interest etc

(0.06)

(0.08)

(0.14)

(0.07)

(0.13)

(0.20)

Parent company profit

(0.11)

0.20

0.09

1.14

0.53

1.67

Profit from subsidiaries

0.94

0.76

1.70

0.12

0.56

0.68

Pre-tax profit

0.83

0.98

1.81

1.26

1.09

2.35

Net profit

0.56

0.66

1.22

0.89

0.70

1.59

Source: DGA accounts

2018 gross turnover was the second best in the company’s history and the highest since the financial crisis. The 6% increase built on an already buoyant 2017, which was up 16%, driving further steady improvement in net commission, net profit and in particular the dividend, as shown in Exhibit 1. Again, it was a year of two halves as H2 top-line and net profit consolidation contrasted with the exuberance (net profit up c 60%) of the first, which was flattered by the bumper lot sale in Berlin.

Given our H1 results review, we focus here on second half performance. Despite the volatility of quarterly auctions (the 11% rise in Q3 gross turnover was substantially offset in subsequent winter auctions), total sale proceeds were maintained at the high level of the three previous second halves. Individual auction house businesses are also inevitably volatile but they tend to compensate for each other; the subsidiaries’ composite reduction of 5% in H2 was more than made up by the parent company’s 10% higher outturn despite the demanding comparative of the €7m Berlin area lot sale in Q4, then a record for the group.

Second half net commission (effectively revenue in terms of company accounts) was up slightly by 5% y-o-y at a rate of 9.9% against 9.5% (see Exhibit 2). This was despite the mix of lots sold (average sales price up 8% at €70,000) and consequently rates, which were lower and indeed potentially negotiable.

Good prospects

While understandably prudent after a bumper year, management guidance for 2019 remains upbeat after auction sale proceeds and net commission in Q1 slightly above the average for the last 10 years and positive indications of the volume of deliveries for the summer auctions in June. Gross turnover, adjusted for Q118’s €15m record transaction, rose by 8% to €23.5m with a sales ratio of almost 90%, up from an already impressive 84%, which confirms the strength of demand for real estate. The net commission rate was appreciably higher (10.5% vs 9.0%), even if such a high-value item was presumably at a lower than average commission rate.

The target for full year gross turnover is the average of the last five years (€109m). This is €15m down on 2018 (€123.9m), thereby effectively excluding the benefit of last year’s bumper sale. Management expectation is thus for underlying proceeds simply to be maintained. Q1’s performance (up 8% adjusted, as mentioned above) suggests this may be cautious. Also, importantly, guidance assumes such a high-value transaction to be exceptional but the company has a good relationship with the Federal Bundesanstalt, so the offer of further such lots is not wishful thinking. The deal brought DGA excellent publicity in terms of using the auction channel for substantial items and as a reference sale in the valuable Berlin market

Balance sheet and cash flow

Finances remain sound with €4.9m net cash at December 2018 (up €1.6m in the year). Surplus cash (the company has no debt) allows profit to be distributed almost entirely by way of dividend. Management is proud of its dividend record and well aware of investor demand for attractive yield at a time of low interest rates.

Valuation

With no direct peer listed on the Frankfurt Stock Exchange, we look at the iShares MSCI Germany Small-Cap ETF, which seeks to track the investment results of an index composed of small-cap German equities. This shows a historical P/E ratio of 13.9x (DGA 17x) and 12-month trailing yield of 2.4% (DGA 5.7%). As noted above, the history of a sustained and attractive dividend should lend support to the shares.

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.

Australia

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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

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.

Australia

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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

Share this with friends and colleagues