Solid AUM expansion in FY17

Oekoworld 12 June 2018 Update
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ÖKOWORLD

Solid AUM expansion in FY17

Diversified financials

Scale research report - Update

12 June 2018

Price

€18.33

Market cap*

€136m

*Market cap based on 7.43m total shares issued (after deduction of treasury shares); only 3.44m non-voting preference shares listed on the stock market.

Share price graph

Share details

Code

VVV3

Listing

Deutsche Börse Scale

Shares in issue (non-voting preferred)

3.44m

Last reported net cash (€m) as at 31 December 2017

12.8

Business description

ÖKOWORLD is the listed holding company for asset management, insurance brokerage and advisory services. It is one of Germany’s pioneers in SRI and ethical-ecological investment advisory, with its nucleus reaching back to 1975. It preserved its successful core investment principles and reached AUM of €1.1bn as at end-April 2018.

Bull

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

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

Proven tracker record and numerous awards.

Bear

Despite long history, still relatively low AUM.

Strong dependency on German Market.

Only preference shares available to investors.

Analyst

Milosz Papst

+44 (0)20 3077 5700

ÖKOWORLD (ÖWAG) recorded an upsurge in profits on the back of a healthy performance in managed funds (with its flagship Ökoworld Classic posting an 11.4% return in FY17) and growth in assets under management (AUM) to €1.08bn as at end December 2017. The increase in management and performance fees by €4.6m and €1.8m respectively resulted in 66% y-o-y EBIT growth in FY17. AUM have continued to grow in 2018 and reached c €1.13bn at end April 2018. However, continued weakness in equity markets will have a negative impact on ÖWAG’s performance fees.

FY17 results boosted by fund performance

ÖWAG posted 91.2% y-o-y growth in EBIT to €9.9m (based on Edison calculations) and an EBIT margin improvement of c 6.4pp to 62.6%, supported by top-line growth of 71.8% y-o-y. The latter was driven by higher performance and management fees on the back of AUM growth and solid returns in ÖWAG investment funds. However, it also contains a €1.3m non-recurring item related to pension provision reversal. Equity as a percentage of the balance sheet total reached 75% (vs 73% at end FY16) and the cash position stood at €12.8m compared with €8.8m in FY16.

Subdued equity markets may limit performance fees

AUM were c €1.13bn as at end April 2018 (based on our calculations). However, after a strong FY17, ytd fund returns as at 30 April 2018 are more muted due to overall weakness in equity markets (the DAX has remained broadly flat ytd with high volatility). ÖWAG’s Ökovision Classic fund (71% of total AUM) posted a ytd return close to nil, while the second-largest Growing Markets 2.0 fund has posted a return of c -3% ytd. As ÖWAG’s key funds remain close to their high-water marks, we expect performance fees for FY18 are probably relatively low at present.

Valuation: Share price rally continues

Following the 35.3% share price rally ytd, ÖWAG shares trade at a premium to peers on P/E and EV/EBITDA multiples for FY18e of 73% and 86%, respectively. The premium widens in FY19e due to limited earnings growth expectations (8-9% vs FY18) as per Bloomberg consensus estimates. Consequently, the shares trade at an even higher premium on FY18e and FY19e numbers. However, we note that consensus is based on the estimates of a single analyst.

Consensus estimates

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/16

9.2

5.2

0.60

0.51

30.6

2.8

12/17

15.8

9.7

1.02

0.59

18.0

3.2

12/18e

18.8

6.4

0.66

0.55

27.8

3.0

12/19e

19.8

7.0

0.71

0.56

25.8

3.1

Source: Ökoworld accounts, Bloomberg consensus

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: Results assisted by performance fees

ÖWAG reported robust FY17 results with EBIT growing by 91.2% y-o-y to €9.9m, compared with €5.2m in FY16. Total revenue increased by €6.6m (or 71.8%) y-o-y and amounted to €15.8m. As brokerage income declined by 3.5% y-o-y (€1.44m in FY17 vs €1.49m in FY16), the main driver behind the improved results was the asset management area. The investment trust Ökoworld LUX SA, which executes the SRI-driven fund management within the group, recorded an increase in assets under management (AUM) to €1.076bn. At the same time, ÖWAG’s main funds were able to surpass their high-water marks. As a result, the performance fee booked in FY17 exceeded FY16 by €4.6m, while the management fee improved by €1.8m and amounted to €8.5m. Revenue growth was partially offset by an increase in total expenses and a decrease in income from related companies. Both factors resulted from the merger of Ökoworld Lux S.A. Repräsentanz with the parent company which took effect on 1 January 2017. As a result, 11 employees joined ÖWAG, which drove salary costs up by 75.5% to €2.6m (vs €1.5m in FY16). This number was compensated for by one-off items related to a reversal in the pension provision of c €1.3m, which resulted in only a 2.9% y-o-y rise in personnel expenses. However, income from related companies decreased by almost €2.0m (54.8% y-o-y) to €1.6m in FY17. Despite net interest expenses increasing from €35k to €194k the EBT margin increased by 551bp (61.4% in FY17 vs 55.8% in FY16). The higher effective tax rate (22.3% in FY17 vs 10.3% in FY16), resulted from the decline in dividends received from subsidiaries (which are taxed with the lower rate). The net profit for the period increased 63% y-o-y to €7.6m. However, due to higher income tax paid, the net margin declined by 244bp to 47.7% in FY17.

Exhibit 1: FY17 financial highlights

Year end December (€000)

FY17

FY16

% y-o-y

Total revenue

15,844

9,222

71.8%

Costs of services

(3,758)

(4,552)

-17.4%

Personal expenses

(1,527)

(1,485)

2.9%

Other operating expenses

(2,125)

(1,448)

46.7%

D&A

(139)

(137)

1.3%

Income from related companies

1,620

3,585

-54.8%

EBIT

9,915

5,185

91.2%

EBIT margin (%)

62.6%

56.2%

636bp

Other interest and similar income

29

108

N/M

Interest and similar expenses

(223)

(143)

55.5%

EBT

9,721

5,150

88.7%

EBT margin (%)

61.4%

55.8%

551bp

Income tax

(2,171)

(531)

309.1%

Effective tax rate (%)

22.3%

10.3%

N/M

Net profit for the period

7,551

4,620

63.4%

Net margin (%)

47.7%

50.1%

-244bp

Source: Ökoworld accounts, Edison Investment Research

Asset management business performance

The FY17 results were driven mainly by developments in the asset management area. The company has achieved its goal of exceeding €1bn of assets under management (AUM) which it set last year. As at end-December 2017, the company managed €1.076bn of assets compared to €838m as at end-December 2016 (an increase of 28.4% y-o-y). This is in line with broader customer interest in sustainable retail funds in Germany, which as at the end of March 2018 had an aggregate AUM of €21bn, but attracted €2.7bn of new inflows in 2017 alone (according to BVI data). The investment trust within the group currently manages six funds, all of which follow the SRI strategy and recorded positive returns in FY17. The largest fund, Ökoworld Ökovision Classic, representing c 71% of total AUM, recorded an 11.4% positive return in FY17. The best-performing fund however was Ökoworld Growing Markets 2.0 (ÖWAG’s second-largest fund with AUM of €155m), which generated a return of 24.8%.

Exhibit 2: Funds AUM and performance

Fund

YTD return as at end-April 2018 (%)

2017 return
(%)

AUM as at end-2017
(€m)

Ökovision Classic

-3.4%

11.4%

763.1

Growing Markets 2.0

-4.5%

24.8%

155.3

New Energy Fund

-1.9%

5.1%

59.1

Rock 'N' Roll (formerly: Ökotrust)

-2.0%

13.7%

50.2

Klima

-2.2%

21.1%

28.0

Water for Life

-1.4%

15.4%

19.9

Total

 

 

1,075.6

Source: Ökoworld

Valuation

ÖWAG’s market cap is c €153.9m and its enterprise value (EV) stands at c €163m. The company had €1.076bn in assets under management (AUM) as the end of FY17 and achieved a ROE of 47% in the period (though this was somewhat inflated by the non-recurring item described earlier).

Selecting a peer group to compare valuation metrics appears to be difficult, as the market lacks any directly comparable business models. The asset management units are rarely listed, while the funds are listed and trade around NAV. Companies with both business structures might include Patrizia Immobilien (real estate asset management in separate funds, asset structuring and advisory); MLP (an insurance broker and asset advisory, running its own fund group); IMPAX Asset Management (managing and advising on approximately £7.6bn primarily for institutional clients); and AZIMUT asset management (specialised in asset management, the group offers financial advisory services for investors, primarily through its advisor networks).

Following the 35.3% share price appreciation ytd, ÖWAG shares trade at a premium to the peer group on P/E and EV/EBITDA multiples for FY18e of 73% and 86%, respectively. The premium widens in FY19e due to limited earnings growth expectations at 8-9% as per Bloomberg consensus estimates. However, ÖWAG’s earnings growth may differ significantly from current market consensus, given that it is largely driven by performance fees based on the high-water mark approach. Moreover, Bloomberg consensus is currently based on the estimates of one analyst. Importantly, a potential negative factor to take into account in a peer comparison is that ÖWAG’s listed shares are non-voting preference shares, while the non-listed voting stock is in the hands of management and selected employees.

Exhibit 3: Peer group comparison

 

Market cap

PE (x)

EV/EBITDA (x)

Dividend yield (%)

 

(€m)

2017

2018e

2019e

2017

2018e

2019e

2018e

2019e

MLP

600.2

N/A

17.3

15.8

N/A

19.9

18.5

3.8%

4.1%

Patrizia Immobilien

1,655.9

29.9

22.1

17.9

18.1

17.1

14.0

1.7%

2.2%

IMPAX

251.3

26.1

15.5

14.3

31.5

N/A

N/A

2.2%

2.7%

AZIMUT

2,007.0

8.3

11.4

10.2

5.5

6.2

5.5

8.5%

8.3%

Peer group average

 

21.4

16.6

14.5

18.4

14.4

12.7

4.1%

4.3%

Ökoworld

140.3

18.6

28.6

26.6

20.5

25.2

23.1

2.9%

3.0%

Premium/(discount) to peer group

 

-13%

73%

83%

12%

75%

82%

-28%

-31%

Source: Company accounts, Bloomberg. Note: ÖWAG’s consensus is based on the estimates of one analyst.

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