Rapid growth in scale

ÖKOWORLD 1 October 2021 Update
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ÖKOWORLD

Rapid growth in scale

Diversified financials

Scale research report - Update

1 October 2021

Price

€98.6

Market cap*

€696m

*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 2021

€99.2m

Business description

ÖKOWORLD Group’s business is focused on asset management, insurance brokerage and advisory services. Founded in 1975, it is one of Germany's pioneers in SRI and ethical-ecological investment advice. It has preserved its successful core investment principles and reached AUM of c €3.8bn at end August 2021.

Bull

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

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

Proven track record and numerous awards.

Bear

Only preference shares available to investors.

Strong dependency on German customers.

High valuations in equity markets.

Analysts

Michal Mordel

+44 (0)20 3077 5700

Michal Mierzwiak

+44 (0)20 3077 5700

ÖKOWORLD (ÖWAG) is rapidly expanding its assets under management (AUM), predominantly by attracting new capital. Socially responsible investing (SRI) is gaining in popularity and the robust performance of ÖWAG’s five funds (one-year return in the 28.7–54.6% range) may appeal to investors. In H121, ÖWAG’s funds reported €577.7m of net capital inflow, which led to high management and performance fees (revenue up 229% y-o-y) and a net profit of €33.9m versus €8.5m in H120. AUM has continued to rise post the reporting date; at end-August it stood at €3.8bn, representing a further 10% increase since the end of H121.

Unit prices reaching new highs

Each of ÖWAG’s five funds reached its all-time high price in 2021, delivering strong year to date (ytd) returns of 10–24%, though most were below the MSCI World Index, which delivered 23% in total return (TR) terms. The largest fund managed by ÖKOWORLD LUX (ÖWAG’s fund management subsidiary) remains ÖKOWORLD Ökovision Classic with AUM of €2.3bn at end-August (up 40% versus end-2020, and 62% of the total). This fund invests in ESG leaders predominantly in developed markets. The highest return ytd (24%) was delivered by ÖKOWORLD Growing Markets 2.0, which invests in sustainable companies in emerging markets.

German investment market turns green

At end-June 2021, sustainable funds in Germany had aggregate AUM of €361bn according to the German Investment Fund Association (BVI). Green investing is rapidly rising in popularity in the German market – H121 net inflows of €22.2bn were already above 2020 levels (€20.6bn). It is also important to highlight that in the last few quarters, 30–45% of new capital in all retail investment funds in Germany was allocated to sustainable funds.

Valuation: Share price rally continues

ÖWAG’s share price has rallied 161% since the beginning of 2021, putting its valuation at a slight premium versus peers on a last 12-month (LTM) P/E multiple as at 30 September 2021. The share price rise has also compressed the dividend yield to 1.1% despite the record-high dividend payout of €1.11 per share from FY20 profits. The market is likely discounting prospective returns and a continuous increase in AUM as SRI is becoming a major theme among investors. Market expectations are difficult to gauge, as consensus estimates are unavailable.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17*

15.8

9.7

1.02

0.60

96.7

0.6

12/18*

15.3

5.1

0.50

0.40

197.2

0.4

12/19

40.4

23.2

2.40

0.62

41.1

0.6

12/20

78.7

52.6

5.35

1.11

18.4

1.1

Source: ÖWAG. Note: FY17 and FY18 figures based on standalone financial statements.

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: Fourfold y-o-y increase in profits

In H121, ÖWAG posted solid results, delivering €33.9m in net profit (versus €8.5m in H120) as the increasing scale of operations and growing AUM of underlying funds translated into higher management fees. The total AUM of its five investment funds increased to €3.4bn at end-H121 (up 86% y-o-y). The results were also likely supported by performance fees as every fund set a new high watermark during the period. All of the funds (except for ÖKOWORLD Klima) have subsequently set new highs post the reporting date.

ÖWAG’s H121 revenues increased 229% y-o-y to €64m, which includes income from its insurance and brokerage business (not reported separately in H121). Most new capital for ÖWAG’s funds is raised by third-party distributors and their fees are reflected in costs of services (up 96% y-o-y). Personnel expenses increased 190% y-o-y to €7.1m on the back of variable remuneration components (€6.7m), dependent on the company’s overall performance. In turn, operating profit was €47.7m (up 301% y-o-y), implying a 75% EBIT margin (up 13pp y-o-y).

Exhibit 1: ÖKOWORLD – group financials

(€000)

H121

H120

y-o-y

Revenues

63,601

19,311

229%

Increase/reduction in work in progress

718

369

95%

Other operating income

37

74

(50%)

Costs of services

(7,840)

(3,996)

96%

Personnel expenses

(7,105)

(2,454)

190%

Other operating expenses

(1,618)

(1,360)

19%

D&A

(129)

(62)

110%

EBIT

47,663

11,883

301%

EBIT margin

75%

62%

13pp

Income from other investments

3

0

N/A

Other interest and similar income

3

3

18%

Interest and similar expenses

(174)

(87)

100%

PBT

47,495

11,798

303%

PBT margin

75%

61%

14pp

Income tax

(13,588)

(3,308)

311%

Effective tax rate

29%

28%

1pp

Net profit for the period

33,906

8,490

299%

Net income margin

53%

44%

9pp

Source: ÖWAG accounts

The company maintains a net cash position, which stood at €99m at end-H121 (up from €62m at end-FY20), and the interest burden is minimal. The tax burden increased only slightly, with an effective tax rate of 29%, compared with 28% in H120, and ÖWAG paid €13.6m in income tax. As a result, net income increased by 299% y-o-y to €33.9m.

As we highlighted in our previous note, ÖWAG increased its dividend payout from FY20 profits (€37.4m net profit) by 79% y-o-y to €1.11 per share. The dividend is paid once a year with the latest payment made in July 2021.

Sustainable investments grow in popularity

The funds managed by ÖKOWORLD LUX show a robust increase in AUM, driven by both attractive returns and new capital inflow. At end-June 2021, AUM stood at €3.4bn, following an 11% increase since end-FY20. Over the past year, these funds have performed broadly in line with surging equity markets, with the one-year performance (to end-August 2021) ranging between 29% and 55%, compared with the 32% TR delivered by the MSCI World Index in euro terms. We note that the recent performance follows strong FY20 returns, when ÖWAG’s funds fell less than the broad equity markets and recovered quicker from the COVID-19-induced sell-off. Since the end of 2019 (to end-August 2021) the funds have generally outperformed the index, posting 29–64% increases versus the index’s 31% rise.

According to management, the funds successfully mitigated the impact of the pandemic through active portfolio management, accumulating cash positions in the initial phase of the pandemic which were then used to purchase favourably priced shares.

We believe that robust performance, coupled with increasing demand for SRI products throughout the world, has contributed to increased capital inflows into the ÖKOWORLD funds. In H121, ÖKOWORLD LUX reported €577.7m of net capital inflow, three times the amount recorded in H120 (€192.1m). These funds have been favoured by investors since the onset of the pandemic and are not supported by a low base effect, as ÖWAG announced a 60% y-o-y increase in fund shares sold in the March to June 2020 period. Continued demand could in part be explained by ongoing monetary stimulus driving demand for most asset classes.

Exhibit 2: Summary of funds statistics

31-Aug-21

31-Dec-20

 

AUM (€m)

ytd return

1Y return

AUM

1Y return

ÖKOWORLD Ökovision Classic*

2,340

18.0%

29.2%

1,676

14.7%

ÖKOWORLD Klima

729

10.3%

32.3%

425

46.1%

ÖKOWORLD Rock'n'Roll

337

13.4%

28.7%

203

13.7%

ÖKOWORLD Growing Markets 2.0*

291

23.6%

53.3%

178

33.0%

ÖKOWORLD Water for Life

71

17.7%

38.3%

46

12.2%

Total

3,768

 

 

2,528

 

Source: ÖWAG. Note: *Return of the main share class.

ÖWAG’s flagship fund’s (ÖKOWORLD Ökovision Classic) AUM increased 40% ytd to €2.3bn and currently represents about 62% of total AUM at end-August 2021. The fund invests solely in stocks, picking up companies that are market leaders in environmental, social and governance (ESG) with attractive prospective returns. US-based stocks accounted for most of its portfolio at 30% followed by UK-based stocks at 8%. Leading investment themes include healthcare and energy efficiency.

ÖKOWORLD Klima, ÖWAG’s second-largest fund manages €0.7bn in assets (or 19% of ÖWAG’s total AUM) and saw a 71% ytd increase in AUM. It posted a 10.3% return ytd. The fund’s investments are focused on companies contributing to slowing down climate changes, predominantly by reducing the carbon footprint. The main investment theme in the fund’s allocation is energy saving products and services (20% of its portfolio), followed by energy and materials saving production (17%).

The best-performing fund both on a ytd (24%) and one-year (53%) return basis was ÖKOWORLD Growing Markets 2.0. The fund invests in companies delivering long-term sustainable growth prospects in emerging markets. At end-August 2021, the largest exposures were in Indian (19%) and South Korean (10%) markets.

Exhibit 3: Funds performance versus MSCI World Index since 31 December 2019 (rebased)

Source: Refinitiv

Valuation

ÖWAG’s share price has rallied 161% ytd (to 30 September 2021) supported by robust growth in AUM and financial results. We continue to compare ÖWAG’s valuation with a group of well-established European asset managers in the equities space. We note that large players usually report lower dynamics of AUM growth due to their scale. To put that in context, ÖWAG’s AUM increased 86% y-o-y to end-June compared with 13–54% reported by peers. Meanwhile, on LTM results, ÖWAG currently trades only slightly above the market average P/E ratio. The company generated significantly higher income from its AUM due to 1) the insurance and investment funds brokerage business, which is not captured in AUM; and 2) high performance fees generated on robust returns. As a result, its price/AUM multiple of 18% is significantly higher than the peer group average of 3%. However, ÖWAG’s dividend yield is significantly below the market average. We believe that the market may be discounting the prospective earnings and robust growth path that ÖWAG currently follows, which is impossible to put into context as consensus data for ÖWAG is unavailable.

Exhibit 4: Peer group valuation as at 30 September 2021

Mcap
(£m)

AUM

Mcap/AUM (%)*

P/E (x)

Dividend yield (%)

H121 LTM

2021e

2022e

2020

2021e

2022e

Ashmore Group**

2,419

US$135.3bn

1.87

10.1

13.0

15.0

5.0

5.0

5.0

Azimut Holding

2,930

US$94.4bn

4.45

7.3

9.1

9.7

4.2

4.6

4.8

Jupiter Fund Management

1,378

€76.6bn

2.28

11.1

8.2

9.4

8.0

6.9

7.4

Man Group

2,882

£60.3bn

2.87

12.4

7.6

10.0

2.9

3.4

3.8

Peer group average

2.88

10.2

9.5

11.0

5.0

5.0

5.3

ÖKOWORLD

598

€3.8bn

18.47

11.1

N/A

N/A

1.1

N/A

N/A

Discount/premium to peers

15.6pp

9%

N/A

N/A

(3.9pp)

N/A

N/A

Source: ÖWAG accounts, Refinitiv. Note: *AUM of ÖWAG at end-August 2021; peers at end-June 2021. **Values based on financial year ending 30 June.

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