MPC Münchmeyer Peterson — Shipping uncertain, real estate resilient

MPC Capital (DB: MPC)

Last close As at 22/06/2024

3.38

0.16 (4.97%)

Market capitalisation

119m

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Research: Financials

MPC Münchmeyer Peterson — Shipping uncertain, real estate resilient

MPC Capital (MPC) experienced the impact of the COVID-19 crisis, particularly in its container shipping business amid the halt in global trade. As a result of negative valuation and currency effects of €0.3bn, its assets under management (AUM) fell to €4.3bn at end June 2020 from €4.5bn at end 2019. The company also recognised an impairment on its co-investment portfolio in the container shipping business. Meanwhile, real estate (AUM of €1.9bn, in line with the shipping business) has been resilient so far, with investor demand fuelled by global monetary easing.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Financials

MPC Capital

Shipping uncertain, real estate resilient

Financial services

Scale research report - Update

3 September 2020

Price

€1.34

Market cap

€45m

Share price graph

Share details

Code

MPC

Listing

Deutsche Börse Scale

Shares in issue

33.5m

Last reported net cash at 30 June 2020

€12.6m

Business description

MPC Capital is an independent asset and investment manager for real assets in the shipping, real estate and infrastructure sectors. It initiates, structures, finances and manages real assets, targeted at institutional investors. It is a subsidiary of MPC Group (c 48% shareholding), founded in 1994 and listed in 2000. AUM at end-June 2020 was €4.3bn.

Bull

Strong demand for real asset investments.

Increasing share of higher-margin institutional investors.

Scalable operating platform.

Bear

Strong competition for assets and investors from large incumbents.

Interest rate rises and/or economic weakness may slow investment in real assets.

Regulatory risks, particularly legacy products.

Analysts

Milosz Papst

+44 (0) 20 3077 5700

MPC Capital (MPC) experienced the impact of the COVID-19 crisis, particularly in its container shipping business amid the halt in global trade. As a result of negative valuation and currency effects of €0.3bn, its assets under management (AUM) fell to €4.3bn at end June 2020 from €4.5bn at end 2019. The company also recognised an impairment on its co-investment portfolio in the container shipping business. Meanwhile, real estate (AUM of €1.9bn, in line with the shipping business) has been resilient so far, with investor demand fuelled by global monetary easing.

Management fees up due to M&A

Despite macro headwinds, MPC’s revenue increased by 23.9% y-o-y to €24.8m in H120, which we understand was mainly driven by the full consolidation of Albis Shipping & Transport. This assisted MPC’s management fees (up 12.6% y-o-y) and resulted in one-off other revenue related to Albis of €2.0m (which was, however, earnings neutral). While last year’s cost-cutting measures allowed MPC to reduce personnel expenses, more moderate income from equity investments and a €2.5m loss from associates (mostly due to an impairment on MPC Container Ships) resulted in pre-tax profit of only €1.2m (€1.8m in H119). Despite a higher share of institutional business (79% at end June 2020), MPC is yet to break even based solely on management fees.

No FY20 guidance issued

Amid the uncertain environment, management refrained from issuing new FY20 guidance after it suspended its previous forecasts in May 2020. We understand that this is at least partially related to the uncertain outlook in the global shipping industry (container shipping in particular). Although the real estate investment market has also seen some disruption in Q220 (with volumes in Germany down 15% y-o-y in Q220), demand seems solid, especially for properties with long-term lease contracts and a stable tenant base, according to JLL.

Valuation: 50% discount to book value

MPC’s market cap to AUM ratio currently stands at c 1.0%, in line with its closest peer Ernst Russ (1.0%), but below Corestate Capital and Patrizia (1.3% and 5.1%, respectively). Based on last reported equity, the company’s P/BV ratio equals 0.5x.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

42.7

(16.7)

(0.57)

0.00

N/A

N/A

12/19

46.8

0.9

(0.01)

0.00

N/A

N/A

12/20e

45.9

3.1

0.00

0.00

N/A

N/A

12/21e

49.6

6.3

0.08

0.01

16.8

0.7%

Source: MPC Capital, Refinitiv consensus at 1 September 2020. Note: 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.

H120 results: Reflecting recent M&A activity

MPC’s total revenues went up by 23.9% y-o-y in H120, primarily due to the first-time full consolidation of Albis Shipping & Transport (MPC acquired a 50% stake in Q419, and due to contractual agreements it controls the entity), which is active in commercial tanker management. This complemented MPC’s technical tanker manager Ahrenkiel Tankers, which currently has a fleet of five ships. Moreover, MPC’s top line was supported by the proportionate consolidation of Harper Petersen, a joint venture established in September 2019 by MPC and the shipping company Zeaborn to pool together their assets from container ship chartering and commercial management (MPC contributed Contchart’s business to the JV). MPC continued its efforts to join forces with other market participants after the balance sheet date, agreeing to co-operate in technical container ship management with the Singapore-based ship manager Wilhelmsen Ship Management. Wilhelmsen agreed to acquire 50% of MPC’s Ahrenkiel Steamship and, consequently, MPC will continue to operate this business under a 50:50 JV.

Management fees increased by 12.6% y-o-y to €20.0m in H120 (of which €10.3m was in Q120) and represented an annualised 0.9% fee on MPC’s average assets under management in H120 (broadly in line with FY19 and approaching the targeted >100bp). At the same time, transaction fees went up by 31.7% y-o-y to €2.4m (mostly generated in the real estate segment), albeit from a low base in H119 (€1.8m). Other revenue of €2.4m in H120 consists primarily of a €2.0m one-off impact from payments in the shipping segment related to the consolidation of Albis Shipping & Transport, with corresponding ship operating expenses for the same amount booked under cost of materials for purchased services.

While it is difficult to fully assess the impact of the pandemic on MPC’s business based on H120 figures due to the above-mentioned consolidation effects, we understand that headwinds were particularly visible in MPC’s container business as a consequence of disruptions to global trade. MPC booked an impairment on its co-investment portfolio in the container shipping business (MPC Container Ships), which was the main factor behind the negative result from associates of €2.5m in H120. It also recognised value adjustments to its shipping AUM as discussed below. Conversely, its tanker operations remained strong (presumably assisted by the high demand for floating storage). We note that the direct impact of changes in charter rates triggered by COVID-19 on MPC’s top line is limited to fees from commercial ship management that are tied to charter rates. At the same time, investor sentiment towards real estate (in particular in Germany) remains solid as discussed below.

Despite the consolidation of Albis (with 20 employees), group personnel expenses decreased by 11% y-o-y to €12.9m on the back of strategic business streamlining implemented last year. At end June 2020, MPC had 278 employees compared to 292 at end-June 2019. Its H120 results were assisted by income from asset disposals of €3.3m (vs €2.2m in H119) booked under other operating income. This was related mainly to the sale of a residential project in Hamburg with 160 residential units and 13,000sqm of leasable space in January 2020 (acquired at the start of 2019), as well as the disposal of parts of the BMG portfolio (consisting of equity investments in limited partners and associated business interests acquired opportunistically at the end of 2018).

Consequently, MPC’s operating profit reached €1.2m in H120 vs a loss of €4.2m in H119. These figures contain certain one-off items, such as write-downs/reversal of write-downs on receivables and reversal of provisions, but we believe that on a net basis they had a relatively minor impact. Having said that, we note that despite growing share of the higher-margin institutional business (79% of AUM at end June 2020 vs 61% at end June 2019), MPC has not yet reached the point where its management fees cover its operating expenses.

The company’s pre-tax profit stood at c €1.2m (H119: €1.8m). On one hand, this was supported by €1.7m income from investments, which was generated on equity investments in limited partnerships (we assume this relates to the BMG portfolio) and the return achieved on project companies (no further details were disclosed by MPC in this respect). In H119, MPC booked €5.4m on the back of partial disposal of the above-mentioned BMG portfolio and the sale of a Dutch office portfolio (see our previous update note). After accounting for income tax of €1.1m and minorities of €0.6m, the net loss attributable to shareholders of the parent stood at €0.5m (vs a €0.1m loss in H119).

Exhibit 1: H120 results highlights

€000s unless otherwise stated

H120

H119

y-o-y change

Management services

20,012

17,778

12.6%

Transaction services

2,374

1,802

31.7%

Other

2,372

396

499.0%

Total revenue

24,758

19,977

23.9%

Other operating income

4,442

3,929

13.1%

Cost of materials/purchased services

(2,770)

(658)

321.0%

Personnel expenses

(12,915)

(14,519)

-11.0%

Depreciation & amortisation

(1,210)

(1,079)

12.1%

Other operating expenses

(11,112)

(11,831)

-6.1%

Operating profit

1,193

(4,180)

N/M

Income from equity investments

1,739

5,399

-67.8%

Other interest & similar income

1,243

1,254

-0.9%

Write-downs on financial assets

(170)

(374)

-54.5%

Interest & similar expenses

(266)

(285)

-6.7%

Share of profit of associates

(2,521)

0

N/M

Pre-tax profit

1,218

1,814

-32.9%

Taxes on income

(1,056)

(587)

79.9%

Result after tax

162

1,228

-86.8%

Other taxes

(25)

(30)

-16.7%

Consolidated net profit

137

1,198

-88.6%

Minority interest adjustment

(633)

(1,289)

-50.9%

Net profit attributable to shareholders of the parent

(496)

(91)

N/M

Source: MPC Capital

MPC’s balance sheet remains robust, with its equity ratio up to 76.3% at end June 2020 vs 70.9% at end 2019 as a result of a reduction in liabilities, including in particular the repayment of loans for project financing in the real estate segment. While this has also somewhat reduced MPC’s cash level vs end 2019, its liquidity position was assisted by proceeds from the disposals in the TRANSIT and BMG portfolios and, as a result, MPC’s net cash position at end June 2020 was €12.6m vs €11.5m at end 2019.

AUM down due to valuation and FX effects

MPC’s AUM declined to €4.3bn at end June 2020 from €4.5bn at end 2019 (with AUM in shipping down by €0.3bn to €1.9bn during H120), as the valuation of investments in the container shipping area were particularly affected by the COVID-19 crisis, including a significant fall in charter rates and an increase in the number of unused ships as a consequence of collapsing global trade (this has also affected MPC’s co-investment, as discussed above). Bulker and tanker markets have so far experienced a milder impact, also benefiting from strong demand in Q120. Consequently, MPC recognised negative valuation and currency effects of €0.3bn in H120. Asset additions amounted to €0.3bn (vs MPC’s target of €0.5–1.0bn pa), while disposals stood at €0.2bn.

AUM in real estate was up to €1.9bn from €1.7bn at end-2019, assisted by new acquisitions conducted by Cairn Real Estate (MPC’s main subsidiary, which is responsible for the real estate business in the Netherlands) for the logistics portfolio of the Real Estate Growth Fund, as well as the office portfolio in the ITC Fund. Furthermore, Cairn invested (through a JV with Angelo Gordon and the project developer NEOO) in a property in Rotterdam to redevelop it into a mixed-use project. AUM in the infrastructure segment remained stable at €0.3bn and AUM for discontinued products went down to €0.2bn at end June 2020 from €0.3bn at end 2019.

Outlook in the shipping industry remains uncertain

Management guidance for FY20 remains suspended due to COVID-19 and the associated macro uncertainties. MPC withdrew its full-year forecasts in May 2020, which assumed a marginal decline in sales and an improvement in pre-tax profit in 2020. Forecasts by the World Trade Organization (WTO) published in April assumed a significant y-o-y contraction in trade volumes in 2020, down c 13% y-o-y in an optimistic scenario and down 32% y-o-y in a pessimistic scenario. However, the WTO highlighted in its June 2020 update that the latter scenario is rather unlikely, as initial estimates for H120 suggest a gradual recovery in global trade during Q220. Having said that, the WTO warns that there are several risk factors to a strong rebound in 2021, including a second COVID-19 wave, weaker than expected economic growth and/or widespread trade restrictions.

The outlook for the global shipping sector for the next 12–18 months remains subdued, as reaffirmed by Moody’s in July 2020. The ratings agency expects aggregate EBITDA of rated shipping companies to fall c 16–18% y-o-y in 2020, compared to its previous forecasts from March 2020 of a 6–10% drop. Moody’s highlights that supply is likely to exceed demand in the dry bulker and container shipping segments, with the latter representing the majority of MPC’s portfolio. Conversely, the ratings agency believes that the outlook for the tanker market is stable, assisted by high demand for floating storage pushing up tanker rates.

While investment volumes in the German real estate market declined by c 15% y-o-y to €14.65bn in Q220 (based on JLL data), the market has so far remained quite resilient to the COVID-19 crisis, with investor interest remaining strong (particularly in the core segments), fuelled by monetary easing and declining government bond yields. Properties in the living segment (residential, student accommodation, micro apartments etc) were especially sought after in the investment market as investors seem to perceive them as a safe haven. This is reflected in the segment’s share of 35% of total real estate investment in H120, according to JLL. Similar trends are visible in the Netherlands, with transaction volumes down in Q220 but several deals being resumed post lockdown.

Valuation

As no consensus data are available for MPC’s closest peer Ernst Russ, we have not included it in the peer group, which comprises local real asset managers. Current Refinitiv consensus implies marginal net profit (€0.05m) and an EBITDA loss of €1.8m in FY20e, which means that MPC’s multiples are not meaningful. The company is trading at a c 30% premium on P/E in FY21e, but a 6% discount in FY22e. At the same time, it is trading at a discount on EV/EBITDA for FY21e of c 10%, which widens to 61% in FY22e.

With MPC’s earnings being highly dependent on AUM size, it is also worth looking at the market cap to AUM ratio, which currently sits at c 1.0%, in line with Ernst Russ (1.0%), but below the figures for Corestate Capital and Patrizia (1.3% and 5.1%, respectively). Based on last reported equity, the company’s P/BV ratio stands at 0.5x.

Exhibit 2: Peer group comparison

Market cap

P/E (x)

EV/EBITDA (x)

(€m)

2020e

2021e

2022e

2020e

2021e

2022e

Corestate Capital

366.2

5.8

3.5

3.0

7.7

6.1

5.8

Patrizia

2,246.6

33.9

27.9

25.0

16.8

14.7

13.5

VIB Vermogen

761.2

11.6

10.3

10.4

19.1

17.7

16.5

TLG Immobilien

1,918.6

12.6

10.2

11.8

23.2

21.6

22.0

Average

-

16.0

13.0

12.6

16.7

15.0

14.5

MPC Capital

44.9

N/M

16.9

11.8

N/M

13.5

5.6

Premium/(discount)

-

N/M

30.3%

(6.1%)

N/M

(10.4%)

(61.5%)

Source: Refinitiv consensus at 1 September 2020. Note: EPS consensus for MPC Capital is based on the estimates of two analysts and EBITDA consensus is based on one analyst estimate.

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