Currency in EUR
Last close As at 26/05/2023
EUR27.40
▲ −2.00 (−6.80%)
Market capitalisation
EUR205m
Research: Real Estate
In response to COVID-19, UBM Development shifted its strategic focus away from hotels to residential and office real estate, with particular emphasis on ESG principles. Consequently, its €2.3bn pipeline as at end-2020 (vs €2.5bn at end-2019) included €1.25bn in residential projects (covering 3,000+ units) and €750m in ‘new type’ office investments after it re-classified all hotel projects in pre-construction stage. Hotels already under construction are scheduled for completion in FY21 but are unlikely to be sold before the market fully recovers. While UBM did not make any major project acquisitions in 2020, it continues to search for new opportunities with a €247m cash balance at end-2020. Management aims at returning to pre-COVID-19 earnings level in FY22.
UBM Development |
Reinvented business model
Real estate |
QuickView
4 May 2021 |
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Business description
Bull
Bear
Analysts
UBM Development is a client of Edison Investment Research Limited |
In response to COVID-19, UBM Development shifted its strategic focus away from hotels to residential and office real estate, with particular emphasis on ESG principles. Consequently, its €2.3bn pipeline as at end-2020 (vs €2.5bn at end-2019) included €1.25bn in residential projects (covering 3,000+ units) and €750m in ‘new type’ office investments after it re-classified all hotel projects in pre-construction stage. Hotels already under construction are scheduled for completion in FY21 but are unlikely to be sold before the market fully recovers. While UBM did not make any major project acquisitions in 2020, it continues to search for new opportunities with a €247m cash balance at end-2020. Management aims at returning to pre-COVID-19 earnings level in FY22.
Strong balance sheet despite subdued FY20 earnings
UBM’s revenue was down c 24% y-o-y to €183.3m in FY20 with muted transaction activity due to COVID-19 and a high base from high-volume projects sales in FY19. This was coupled with a 54% decline in income from hotel operations to €27.8m (affected by write-offs). This was partially offset by €62.3m net revaluation gains (€21.7m in FY19) and a c 43% fall in cost of materials and services (including construction costs and book value of properties sold), resulting in pre-tax profit falling by just c 12% y-o-y to €62.3m (net profit after minorities down 29% y-o-y to €32.8m). Both loan-to-value and equity ratios sat at a moderate 35% at end-2020.
Developing green and cutting-edge properties
UBM adopted its green. smart. and more. approach for all of its developments, reflecting its holistic and sustainable approach to green building and smart offices. It stands for sustainable, intelligent and aesthetically appealing properties. UBM’s ESG focus has been recently recognised by Institutional Shareholder Services placing UBM among the top 15% of real estate companies in Germany and Austria. UBM considers sustainable materials an essential part of green investments and aims to become the leading timber construction developer in Europe.
Valuation: Continuing record-high distributions
UBM maintained its dividend payment of €2.20 per share (50% payout ratio), which translates into a healthy 5.4% yield. We compare UBM to a peer group of European real estate developers, including Warimpex, Instone, Bonava, Taylor Wimpey and Barratt Developments. UBM trades at discounts of 19% and 5% to peers on 2021e P/E and EV/EBITDA multiples respectively, changing to 30% and 4% for 2022e.
Consensus estimates
Source: UBM accounts, Refinitiv consensus at 4 May 2021 |
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Research: Financials
ProCredit Holding (PCB) posted a c 21% EPS decline to €0.70 in FY20, but we believe it has navigated the COVID-19 crisis well, with strong 9.5% y-o-y growth in the loan book (driven mainly by investment and green loans), a 57bp cost of risk in FY20 (below its closest peers) and a solid capital base with the end-2020 CET-1 ratio at 13.3% (vs a regulatory requirement of 8.2%) and total capital ratio of 14.7% (12.6%). We believe the bank is well-positioned to continue growing its loan book by c 10% pa, in line with its target. Gradually declining loss allowances, and fee and commission income rebounding to pre-COVID-19 levels should help PCB reach its mid-term ROE target of 10%, which we model in FY23.
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