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Research: Financials
There is a new mood of optimism at Lloyd Fonds. After last year’s missed profit forecasts and strategic disagreement, current ambitious restructuring of its business activities and senior management has been welcomed by investors, as evident in the recent successful €4m equity issue. By repositioning towards open-end liquid investment products, Lloyd Fonds seeks to reduce reliance in particular on its core shipping market, which remains very challenging. Pending implementation of these changes (further details due at the imminent AGM), 2018 guidance is for net profit slightly below the depressed level of 2017 (€1.4m).
Lloyd Fonds |
On the front foot
Fund management |
Scale research report - Update
30 July 2018 |
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There is a new mood of optimism at Lloyd Fonds. After last year’s missed profit forecasts and strategic disagreement, current ambitious restructuring of its business activities and senior management has been welcomed by investors, as evident in the recent successful €4m equity issue. By repositioning towards open-end liquid investment products, Lloyd Fonds seeks to reduce reliance in particular on its core shipping market, which remains very challenging. Pending implementation of these changes (further details due at the imminent AGM), 2018 guidance is for net profit slightly below the depressed level of 2017 (€1.4m).
Change is in the air
Lloyd Fonds’ proposed refocusing away from alternative real assets to open-end and liquid investment products such as equity funds is being supported by a key management change and its two new anchor shareholders, notably DEWB, a long-established listed private equity company. It is being funded by a recent capital increase (€3.8m from a private placement of 0.9m shares at €4.20) and subject to shareholder approval, by reinvestment of the 2017 surplus rather than payment of a dividend. Management’s “comprehensive package of reorientation measures” is to be presented at the AGM on 16 August.
Continued profit woes in H217
While September’s H217 net profit guidance of €1.0m was missed largely as a result of “mid to high six-digit” costs associated with the departure of the CEO, the outturn of €0.4m, as detailed on page 2, nonetheless barely met already greatly lowered trading expectations. Management attributes this weakness to delays and changes in planned projects in shipping and real estate, including the new affordable housing. Net financial income was also subdued, as in H1 (down 50% y-o-y) but finances remained robust with net cash of €8.4m (€10.1m at end-2016). For 2018, guidance is for net profit almost on a par with last year (€1.4m); however, this is, by management’s admission, subject to its repositioning measures.
Valuation: Assuming the best
Current investor appreciation of Lloyd Fonds’ reorientation (share price up over 50% since the arrival of the new shareholders) shows a long-term view, given no quick earnings fix (a likely high 2018e P/E) and possibly no dividend payout. The company needs now to deliver on these raised expectations.
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Historical financials
Source: Lloyd Fonds 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 2017 results
After a doubling of net profit in 2016 and management expectation of maintained buoyancy, the company’s financial performance last year proved all the more disappointing. A near halving of net profit in H117, despite a one-off boost from a tax refund related to associates, coupled with the prospect of continued weakness in shipping markets and delays and changes in planned projects across the board prompted a reduction in full-year net profit guidance from €3.2m to €2.0m, ie H217 €1.0m (€1.4m y-o-y). However, even this was not met mainly as a result of costs associated with the premature exit of the CEO in December following strategic disagreement. Disclosure of a settlement of “mid to high six-digits” suggests that the underlying trading was otherwise at pains to reach this lowered forecast.
Exhibit 1: Financial performance
Year-end December (€m), HGB |
H116 |
H216 |
FY16 |
H117 |
H217 |
FY17 |
Revenue |
5.8 |
3.7 |
9.5 |
3.9 |
3.6 |
7.5 |
Material costs |
(0.7) |
(0.3) |
(1.0) |
(0.3) |
(0.2) |
(0.5) |
Labour costs |
(2.0) |
(2.3) |
(4.3) |
(2.1) |
(2.7) |
(4.8) |
Depreciation/impairment |
(0.2) |
(0.3) |
(0.5) |
(0.3) |
(0.2) |
(0.5) |
Other operating costs (net) |
(1.3) |
(2.0) |
(3.3) |
(1.7) |
(1.6) |
(3.3) |
Associates |
0.1 |
0.3 |
0.4 |
1.7 |
0.4 |
2.1 |
EBIT |
1.7 |
(0.9) |
0.8 |
1.3 |
(0.8) |
0.5 |
Finance income |
0.7 |
2.0 |
2.7 |
0.1 |
1.3 |
1.4 |
Finance expenses |
(0.3) |
Neg. |
(0.3) |
(0.4) |
(0.3) |
(0.7) |
Pre-tax profit |
2.1 |
1.1 |
3.2 |
0.9 |
0.3 |
1.2 |
Net profit |
1.8 |
1.4 |
3.2 |
1.0 |
0.4 |
1.4 |
Source: Lloyd Fonds accounts
In terms of divisional performance, shipping continued to suffer from subdued markets, notably as a result of container tanker fleet oversupply depressing charter rates. The company mitigates this by pooling 10 of its 16 container ships, thereby stabilising income and optimising utilisation. The full-year profit was flattered by the aforementioned very significant tax refund included in associates (Exhibit 1). Real estate was again quiet in H2 (the first half of 2016 was exceptionally active), although management is confident about macro factors (solid economic data, low interest rates and sustained demand) and its own focus on German affordable housing where fundamentals are especially appealing (€3m+ acquisition in H117).
Exhibit 2: Sales and PBT by segment
Year-end December (€m), HGB |
H116 |
H216 |
FY16 |
H117 |
H217 |
FY17 |
Revenue |
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Real estate |
2.0 |
0.2 |
2.2 |
0.9 |
0.6 |
1.5 |
Share |
34% |
5% |
23% |
22% |
17% |
20% |
Shipping |
3.0 |
2.6 |
5.6 |
2.2 |
2.2 |
4.4 |
Share |
52% |
70% |
59% |
57% |
61% |
59% |
Other assets |
0.8 |
0.9 |
1.7 |
0.8 |
0.8 |
1.6 |
Total |
5.8 |
3.7 |
9.5 |
3.9 |
3.6 |
7.5 |
Pre-tax profit |
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Real estate |
1.0 |
0.9 |
1.9 |
(0.1) |
0.3 |
0.2 |
Shipping |
0.9 |
0.9 |
1.8 |
2.0 |
1.3 |
3.3 |
Other assets |
0.9 |
1.3 |
2.2 |
0.7 |
0.7 |
1.4 |
Central costs |
(0.7) |
(2.1) |
(2.8) |
(1.7) |
(2.1) |
(3.8) |
Total |
2.1 |
1.1 |
3.2 |
0.9 |
0.3 |
1.2 |
Source: Lloyd Fonds accounts
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 295 Madison Avenue, 18th Floor 10017, New York US |
Sydney +61 (0)2 8249 8342 Level 12, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
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Research: Real Estate
The Q119 NAV total return was 2.5%, with a high level of occupancy maintained and successful progress made with lease events. Picton’s portfolio has a strong bias towards industrial and regional office property markets, which remain robust with widespread rental growth. In addition, Picton’s portfolio continues to offer significant reversionary potential. Shareholders have approved conversion to REIT status, which is expected to take effect from 1 October 2018 and should enhance future profitability, with no material impact on investment and portfolio strategy.