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Research: Financials
Change is gathering pace at Lloyd Fonds. In line with its goal to become a leading asset manager in Germany over the medium term, it plans to launch its new business model, focused on open-end retail funds, in Q219. Growth may also be by acquisition (finances are robust) with assets under management targeted to exceed €5bn within five years (€1bn+ in 2019). Management is being further strengthened and strategic divestments are under review. Given likely c €2.5m one-off restructuring costs, current year guidance is newly lowered to a net loss of €1.5m. Continued weakness in H118 results only confirms the need to reposition.
Lloyd Fonds |
Taking shape
Fund management |
Scale research report - Update
11 October 2018 |
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Change is gathering pace at Lloyd Fonds. In line with its goal to become a leading asset manager in Germany over the medium term, it plans to launch its new business model, focused on open-end retail funds, in Q219. Growth may also be by acquisition (finances are robust) with assets under management targeted to exceed €5bn within five years (€1bn+ in 2019). Management is being further strengthened and strategic divestments are under review. Given likely c €2.5m one-off restructuring costs, current year guidance is newly lowered to a net loss of €1.5m. Continued weakness in H118 results only confirms the need to reposition.
The new business model
Lloyd Fonds’s proposed reorientation towards open-end investment products is to be based on three new product lines: a range of actively managed retail funds, digital portfolio management and individual asset management, which can draw on existing expertise in alternative real assets, particularly real estate. Market launch is expected in Q219 following the formation of a dedicated capital management company and a reworking of the Lloyd Fonds brand. The repositioning is being supported by key management changes, including a chief investment officer from April 2019, two new anchor shareholders, notably DEWB, a long-established listed private equity company, and first expansion from its Hamburg base with a branch opening in Munich. Development is being funded by June’s €3.8m capital increase.
Tough going in H118
In view of such operational change, analysis of current financial performance offers limited guidance. The half to June saw a 22% reduction in sales, reflecting asset disposals in H117, contract expiries and insolvencies. However, divisional PBT was maintained as impairment reversals and fair value remeasurement gains made up for the €1.5m tax refund which flattered the comparative. A near doubling of central costs moved overall PBT sharply into loss (€0.5m vs €0.9m profit). Owing to repositioning measures, 2018 net profit guidance is cut from just below last year’s €1.4m profit to a €1.5m loss. Finances are sound with €13m net cash at June.
Valuation: Needing to deliver
Current investor appreciation of Lloyd Fonds’s reorientation (share price has more than doubled since the arrival of the new shareholders in March) shows a long-term view, given no quick earnings fix and possibly no dividend payout.
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Historic 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 H118 results
The proposed wholesale shift in Lloyd Fonds’s activities mitigates concern about the financial performance of activities soon to be superseded. Moreover, the evident refocusing of management and an array of one-off items, both accounting and restructuring-related, make it difficult to assess underlying performance, notwithstanding appreciation of persistent market pressures.
H118’s continued profit woes (see Exhibit 1) are striking against a weak comparative, which had also markedly disappointed with a near halving of net profit despite a €1.5m boost from a tax refund related to associates. Although a downward step-change in newly-reported profit was to be expected without this exceptional item, the impact was compounded by a reduction in group sales of almost a quarter (€0.8m) as a result of lower income from trusteeship and real estate asset disposals as well as challenging shipping markets. There was no corresponding fall in costs as the predominant expense, labour, held up because of severance payments on a 30% reduced headcount. Lower depreciation was simply due to a change of accounting policy with the expense transferred to the finance result, while the reduction in material costs, driven by customised contracts was not material. Predictably, other operating costs included contradictory items, notably a net impairment reversals benefit of €0.4m and a similar level of property remeasurement gains, which together more than covered €0.6m higher admin costs (largely restructuring-led), hence a lower rise in other operating costs than might have been expected, given the scale of repositioning.
Exhibit 1: Financial performance
Year end December (€m) |
2016 |
H117 |
H217 |
2017 |
H118 |
|
Revenue |
9.5 |
3.9 |
3.6 |
7.5 |
3.1 |
|
Material costs |
(1.0) |
(0.3) |
(0.2) |
(0.5) |
(0.2) |
|
Labour costs |
(4.3) |
(2.1) |
(2.7) |
(4.8) |
(2.0) |
|
Depreciation |
(0.5) |
(0.3) |
(0.2) |
(0.5) |
(0.1) |
|
Other operating costs (net) |
(3.3) |
(1.7) |
(1.6) |
(3.3) |
(1.9) |
|
Associates |
0.4 |
1.7 |
0.4 |
2.1 |
0.4 |
|
EBIT |
0.8 |
1.3 |
(0.8) |
0.5 |
(0.8) |
|
Finance income |
2.7 |
0.1 |
1.3 |
1.4 |
0.4 |
|
Finance expenses |
(0.3) |
(0.4) |
(0.3) |
(0.7) |
(0.2) |
|
Pre-tax profit |
3.2 |
0.9 |
0.3 |
1.2 |
(0.5) |
|
Net profit |
3.2 |
1.0 |
0.4 |
1.4 |
(0.8) |
Source: Lloyd Fonds accounts
Shipping saw some improvement in charter rates but markets remain subdued with container tanker fleet oversupply. The company mitigates this by pooling 8 of its 16 container ships, thereby stabilising income and optimising utilisation, and has newly agreed a flexible debt service until 2020. Real estate was quiet in H1 although management is confident about macro factors and its own focus on affordable housing where fundamentals are appealing.
Exhibit 2: Sales and PBT by segment
Year end December (€m) |
2016 |
H117 |
H217 |
2017 |
H118 |
|
Revenue |
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Real estate |
2.2 |
0.9 |
0.6 |
1.5 |
0.5 |
|
Share |
23% |
22% |
17% |
20% |
16% |
|
Shipping |
5.6 |
2.2 |
2.2 |
4.4 |
1.9 |
|
Share |
59% |
57% |
61% |
59% |
61% |
|
Other assets |
1.7 |
0.8 |
0.8 |
1.6 |
0.7 |
|
Total |
9.5 |
3.9 |
3.6 |
7.5 |
3.1 |
|
Pre-tax profit |
||||||
Real estate |
1.9 |
(0.1) |
0.3 |
0.2 |
0.1 |
|
Shipping |
1.8 |
2.0 |
1.3 |
3.3 |
1.9 |
|
Other assets |
2.2 |
0.7 |
0.7 |
1.4 |
0.7 |
|
Central costs |
(2.8) |
(1.7) |
(2.1) |
(3.8) |
(3.2) |
|
Total |
3.2 |
0.9 |
0.3 |
1.2 |
(0.5) |
Source: Lloyd Fonds accounts
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Research: Healthcare
Newron continued to made steady progress in H118. A fuller debrief of pipeline assets including sarizotan (Rett syndrome) and Evenamide (schizophrenia) will take place at the R&D day in NYC, scheduled for 31 October. Royalty income from sales of Xadago (Parkinson’s disease, PD) rose by 54% to €2m, driven mainly by increased sales in the EU and Switzerland. However, the US sales contribution remained small (launched by partner US WorldMeds in H217). In H118 Newron reported an operating loss of €7.6m (vs a profit of €2.3m in H117 due to a €10.3m one-time milestone payment in the period), and revised cash and financial investments of €50.6m at July 2018 should enable funding to key value inflection points in 2020. We value Newron at CHF788m.