Helma Eigenheimbau — Macro uncertainty after strong FY19

Helma Eigenheimbau (DB: H5E)

Last close As at 20/04/2024

57.80

−0.40 (−0.69%)

Market capitalisation

231m

More on this equity

Research: Industrials

Helma Eigenheimbau — Macro uncertainty after strong FY19

Helma Eigenheimbau closed FY19 with improved revenues and new order intake, coupled with a lower cost of materials and third-party services ratio. It maintains a satisfactory equity ratio of 28.6%, assisted by its conservative dividend policy (which is aligned with its debt covenants). While Helma is well-positioned to continue to expand in the next few years with a strong order book and attractive land bank secured on relatively cheap prices, near-term growth remains uncertain given the likely recession triggered by COVID-19. Consequently, management has withdrawn its FY20 guidance.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Industrials

Helma Eigenheimbau

Macro uncertainty after strong FY19

Real estate

Scale research report - Update

2 April 2020

Price

€30.0

Market cap

€120m

Share price graph

Share details

Code

H5EX

Listing

Deutsche Börse Scale

Shares in issue

4.0m

Last reported net debt at 31 Decr 2019

€175m

Business description

Helma Eigenheimbau provides development, planning, sales, finance advisory and construction services for turnkey, low-rise domestic properties. It uses solid construction techniques, usually block and render. It operates in the surroundings of major cities such as Berlin, Dusseldorf, Dresden, Frankfurt, Hamburg, Hanover and Leipzig, as well as selected holiday locations.

Bull

Supply shortage in the German residential market.

Strong track record.

Integrated services suited to customer needs.

Bear

Pandemic-induced macro headwinds.

Bottlenecks in the German residential market.

Limited availability of building land.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Michal Mierzwiak

+44 (0)20 3077 5700

Helma Eigenheimbau closed FY19 with improved revenues and new order intake, coupled with a lower cost of materials and third-party services ratio. It maintains a satisfactory equity ratio of 28.6%, assisted by its conservative dividend policy (which is aligned with its debt covenants). While Helma is well-positioned to continue to expand in the next few years with a strong order book and attractive land bank secured on relatively cheap prices, near-term growth remains uncertain given the likely recession triggered by COVID-19. Consequently, management has withdrawn its FY20 guidance.

FY19 results: Surge in construction services

In FY19, Helma reported a 3.9% y-o-y increase in revenues to €263.2m and record-high earnings figures. Although the property development segment remains the largest contributor to revenues (62%), construction services (Helma Eigenheimbau AG) reported the strongest improvement in both revenues and new order intake at c 15% y-o-y. Overall, net new orders at group level were €296.5m in FY19 (up 6.4% y-o-y) and Helma’s order book increased by 18.3% y-o-y. Both EBT and net income were up by c 11.5% y-o-y (partially assisted by VAT reimbursement), putting Helma’s EPS at c €4.04 (vs €3.62 in FY18).

Coronavirus weakens potential revenue position

The company holds an extensive land bank with the potential to generate c €1.5bn revenues and a strong order book position amounting to €202.7m at 31 December 2019. Management expects this to translate into annual revenue of more than €300m in the medium term. However, management underlined that in the short term, due to the disruption caused by the coronavirus outbreak, meeting its initial FY20 guidance of a more than 10% y-o-y improvement in EBT to €26m is unlikely (although it still expects significant net income this year).

Valuation: Attractive dividend yield of 6.2%

Helma’s shares are trading broadly in line with the selected peer group based on P/E multiples, but at a c 60% premium based on FY20e and FY21e EV/EBITDA due to its relatively high leverage level. Management proposed a dividend payment of €1.85 per share which, in light of the strong share price decline in recent weeks, constitutes an attractive 6.2% yield.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

253.3

21.2

3.62

1.30

8.3

4.3

12/19

263.2

23.6

4.04

1.85*

7.4

6.2

12/20e

312.1

27.6

4.87

1.72

6.2

5.7

12/21e

337.1

31.0

5.48

1.85

5.5

6.2

Source: Helma accounts, Refinitiv consensus as at 2 April 2020. Note: *Proposed dividend is subject to shareholder approval. Consensus is based on the estimates of two analysts.

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: Record-high sales and earnings

In FY19, Helma Eigenheimbau continued its successful expansion with y-o-y growth across key financial metrics translating into record-high earnings. Total revenue for the year reached €263.2m (3.9% ahead of 2018) on the back of a c 15% y-o-y increase to €98.3m in construction services (performed by parent company Helma Eigenheimbau), close to its medium-term annual target of at least €100m. The improvement was achieved despite declining volumes, as only 366 houses were invoiced in this segment in FY19 vs 377 in FY18.

In the development segment (performed by Helma Wohnungsbau and Helma Ferienimmobilien), where both houses and land are sold together, the property price increase (the house price index increased by 5.3% y-o-y, according to Destatis) was further strengthened by the relatively low costs at which Helma has built its land bank in prior years. This was the main driver of the decline in costs of materials and third-party services by 4.3% y-o-y and the consequent improvement in the adjusted material expense ratio, which fell from 76.2% in FY18 to 75.5% in FY19.

Headline EBITDA and EBIT increased by 5.9% and 4.6% to €25.2m and €22.8m respectively, implying slightly improved margins. After adjusting for the disposal of capital interests, margins were broadly stable compared to last year. This is due to increased expansion in the lower-margin construction services business. Pre-tax profit improved by almost 11.5% y-o-y to €23.6m (in line with management guidance of €23.5–26.0m), assisted by the recognition of interest from a VAT refund for construction services (low seven-digit euro amount), which was previously paid unnecessarily by property development subsidiaries. While the reimbursement was passed on to subcontractors, the interest received by Helma assisted its results.

Exhibit 1: Income statement highlights

€000s

FY19

FY18

Change y-o-y (%)

Revenue, from:

263,243

253,276

3.9%

Helma Eigenheimbau

98,336

85,560

14.9%

Helma Wohnungsbau

123,942

122,628

1.1%

Helma Ferienimmobilien

39,751

43,971

-9.6%

Hausbau Finanz

1,214

1,117

8.7%

Change in stocks of finished goods and work in progress

9,789

25,758

-62.0%

Other operating income

2,609

1,634

59.7%

Expense for materials and third-party services

(207,776)

(217,104)

-4.3%

Personnel expense

(24,956)

(23,853

4.6%

Other operating expenses

(17,738)

(15,935)

11.3%

EBITDA

25,171

23,776

5.9%

Adjusted EBITDA*

25,878

24,883

4.0%

Depreciation/amortisation

(2,389)

(1,992)

19.9%

Operating earnings (EBIT)

22,782

21,784

4.6%

Adjusted EBIT*

23,489

22,891

2.6%

Finance expenses

(869)

(685)

26.9%

Other financial result

1681

54

N/A

Earnings before taxes (EBT)

23,594

21,153

11.5%

Income tax

(7,419)

(6,635)

11.8%

Minority interests

(31)

(31)

0.0%

Net income after minority interests

16,144

14,487

11.4%

Source: Helma accounts, Edison Investment Research. Note: *Adjusted for the disposal of capitalised interest.

IFRS net income for FY19 stood at €16.1m, which represents an EPS at €4.04, with a proposed dividend payout of €1.85. The amount was calculated in compliance with covenants of outstanding promissory notes and loans from KfW (the German state-owned development bank), which limit the payout ratio to 50% of the parent company’s net income for the year (€14.8m in FY19). The dividend payout is subject to approval at the AGM scheduled for 3 July 2020. As the company’s equity ratio remains at the healthy level of 28.6%, management has not decided to withdraw the recommendation yet. However, the AGM will take place when more data on the impact of COVID-19 is available, which may require improving the company’s capital structure by adjusting the amount paid out as a dividend.

Based on its extensive land bank and persistent high demand in the German real estate market, Helma initially targeted further EBT improvement by more than 10% to reach €26m in 2020. However, due to the coronavirus outbreak and its unpredictable impact on the company’s operating business, management has withdrawn this guidance as it is no longer deemed realistic.

Well-positioned to benefit from persistent demand

The German residential real estate market continued to expand, with building approvals up by 4% to 360.6k in FY19, according to the Federal Statistical Office (Destatis). The Central Association of the German Construction Industry (ZDB) and the Ifo Institute for Economic Research estimate that the number of completions for the year amounted to 300k, which represents a c 4.9% y-o-y increase. However, this figure is still over 12% below the annual demand estimated by the German Economic Institute of 342k. However, it is worth noting that prior to the COVID-19 outbreak, the same institute forecast that annual demand for housing would drop to 260.2k in 2021–25 and to 245.4k in 2026–30.

Thanks to the extensive land bank it has built, Helma is well shielded from the adverse impact of land price increases driven by this unmet market demand. At end-December 2019, the revenue potential from already acquired land stood at €1.03bn in the Helma Wohnungsbau segment, slightly up from €1.0bn in 2018. However, looking at the number of potential housing units, we see a y-o-y decline from 2,200 to 2,140, which seems to suggest that the higher land bank value reflects growth in property prices rather than continued extensive land acquisition activity.

Meanwhile, land bank revenue potential in the holiday properties segment increased from €0.37bn on 1,165 units in 2018 to €0.46bn with 1,335 dwellings at end-December 2019, with a further €95m added through the acquisition of the Sorpesee Resort project in February 2020. The segment saw new orders increasing by 10% y-o-y in FY19. While revenue in this segment decreased by 9.6% year-on-year in FY19, it was mainly attributable to the weaker H119, when total sales amounted to just €11.6m (vs €24.5m in H118). This compares with c 44.5% y-o-y growth in H219, in line with the pick-up in activity expected by management.

Exhibit 2: Revenue and new order intake across business segments

€000s

Revenue

New order intake

Segment

FY19

FY18

y-o-y

FY19

FY18

y-o-y

Helma Eigenheimbau

98,336

85,560

14.9%

121,737

105,771

15.1%

Helma Wohnungsbau

123,942

122,628

1.1%

131,332

133,509

-1.6%

Helma Ferienimmobilien

39,751

43,971

-9.6%

43,417

39,296

10.5%

Hausbau Finanz

1,214

1,117

8.7%

-

-

Total

263,243

253,276

3.9%

296,486

278,576

6.4%

Source: Helma Eigenheimbau accounts

In the fact of a limited supply of large land plots located in attractive areas, Helma’s customers reverted to self-acquisition of smaller properties and contracting out construction services to the company. This resulted in a c 15% improvement in both revenues and new orders in the Eigenheimbau segment in 2019 vs 2018. The new order intake of €121.7m should support FY20 revenues in the segment (with respect to the mid-term target of €100m), given that over the last five years, annual revenues in the construction business in a given year amounted to no less than c 83% of new orders in the preceding year. However, this is subject to risks arising from the impact of COVID-19.

Valuation

Our valuation of Helma is based on a peer group including two domestic, residential real estate developers (Instone and Consus) and three European ones (Bonava, Taylor Wimpey and Barratt Developments). However, it is worth noting that both British peers have a net cash position, which results in lower EV/EBITDA multiples. Consequently, Helma trades at a 54% and 68% premium to the group average for 2020e and 2021e, respectively. Based on the P/E multiples, which do not account for Helma’s relatively high leverage level and that of its domestic peers, the company’s shares trade broadly in line with the selected peer group.

The recent downturn in global equity markets has assisted Helma’s dividend yield, with the €1.30 per share paid on 10 July 2019 and 1.85 per share proposed by management to be paid in 2020 translating into yields of c 4.3% and 6.2%, respectively. However, it should be noted that the €1.85 payment is still subject to AGM approval and may be revised (either by management or shareholders) in the face of the coronavirus outbreak to preserve a higher cash position and assist long-term business sustainability. For instance, the management of Taylor Wimpey has already decided to cancel its 2019 final dividend of 3.80p per share, as well as a special dividend of 10.99p per share.

Exhibit 3: Peer group comparison

Market cap

EV/EBITDA (x)

P/E (x)

(m)

2020e

2021e

2020e

2021e

Bonava

SEK 4,440

7.0

6.1

4.6

4.0

Instone Real Estate

€ 521

9.6

5.8

9.7

5.1

Consus Real Estate

€ 679

8.0

6.6

6.8

4.7

Taylor Wimpey

£ 3,625

3.8

3.6

5.7

5.4

Barratt Developments

£ 4206

3.8

3.6

5.7

5.6

Peer group average

6.4

5.1

6.5

5.0

Helma Eigenheimbau

€ 120

9.6

8.5

6.2

5.5

Premium/(discount) to peer group

49%

65%

(5%)

10%

Source: Refinitiv consensus as at 2 April 2020, Note: Consensus is based on the estimates of two analysts.

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.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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 research department of Edison 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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

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

More on Helma Eigenheimbau

View All

Latest from the Industrials sector

View All Industrials content

Research: TMT

Expert System — Focused on international growth

Expert generated sales growth of 10% in FY19, slightly below guidance, and reported EBITDA at the midpoint of guidance. The company made good progress in shifting to subscription licensing (76% of licences sold) and reported its first sales via channel partners, which made up c 10% of sales. Reflecting the potential for COVID-19 to delay projects and new business, we have revised down our FY20 forecasts and assume an acceleration in revenue growth in FY21.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free