MPC Münchmeyer Peterson — Shipping uncertain, real estate resilient

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).

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.

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.

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.

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.