GBC AG: UmweltBank AG | Rating: BUY
Original-Research: UmweltBank AG - from GBC AG
Classification of GBC AG to UmweltBank AG
Company Name: UmweltBank AG
ISIN: DE0005570808
Reason for the research: Research Note
Recommendation: BUY
Target price: 9.60 EUR
Target price on sight of: 31.12.2024
Last rating change:
Analyst: Cosmin Filker, Marcel Goldmann
Transformation year 2023 in line with expectations; further investments in
digitalisation and customer growth expected; return to profitability after
another transformation year 2024; price target: € 9.60; rating: BUY
UmweltBank AG published its preliminary figures for the past financial year
2023 on 18 March 2024. As expected, the past financial year was
characterised by both a decline in earnings and an increase in total costs.
On the income side, net interest result in particular declined to € 41.10
million (previous year: € 58.79 million). At the same time, the financial
result fell significantly to € 7.17 million (previous year: € 24.83
million).
The main reason for the decline in net interest result, which we had
anticipated in our previous forecasts, but had assumed a smaller decline,
was once again likely the increase in interest expenses. The general rise
in interest rates has led to greater adjustments to the conditions for
customer deposits. These react more strongly to interest rate adjustments
due to the lower duration. In addition, the increase in interest expenses
is due to changes in the conditions for TLTRO funds, i.e. the low-interest
refinancing funds provided by the ECB.
The declining earnings trend described above is offset by a significant
increase in personnel and administrative expenses. Personnel expenses rose
visibly by almost 30% to € 25.62 million (previous year: € 19.88 million).
The main drivers of this development were new hires in areas relevant to
regulatory requirements and the general rise in salary levels. As at the
balance sheet date of 31 December 2023, UmweltBank AG had reached a new
high in the number of employees with 354 (31 December 2022: 332). In
addition, the successfully implemented change to the core banking system
led to an increase in administrative expenses of around € 10 million to €
31.51 million (previous year: € 21.57 million), as announced.
The preliminary earnings before taxes of € 1.12 million (previous year: €
39.21 million) resulting from the development described above are in line
with the company's guidance published in August 2023, which had forecast
earnings before taxes of around € 1 million. Based on this, we had forecast
EBT of € 0.97 million in our most recently published research study.
At the beginning of March 2024, UmweltBank's management informed the
capital market about their strategic realignment. At the same time, the
company announced a pre-tax result of between € -15 million and € -20
million as part of their initial guidance for the current 2024 financial
year. At the investor and press conference held on 18 March 2024, the new
CEO Dietmar von Blücher presented the background to this guidance and
strategic realignment.
Our earnings and profit estimates are based on the company's guidance,
which was adjusted in March 2024. For the coming financial years,
UmweltBank AG presented a graphic guidance for earnings before taxes as
part of the investor presentation, which we are also following. For the
current financial year, we expect a slight increase in net interest income,
which is based on slight improvements in terms and conditions with an
almost unchanged volume of outstanding environmental loans. In the
following two financial years, 2025 and 2026, net interest income should
gain momentum again. This is based on improved conditions on the lending
side and the assumption that interest costs will stabilise at the level of
customer deposits. We also anticipate a strong increase in customer
deposits, which can be invested profitably as part of the treasury
activities. The financial result, which includes a small amount of
profitable sales of investments, should increase slightly according to our
estimates. Net commission and trading income should also benefit from the
rise in customer deposits and also increase slightly.
In contrast, investments in digital processes and the expansion of customer
deposits are likely to lead to significant cost increases, which we
estimate will result in a negative EBT of € -15.90 million. We anticipate a
return to profitability for the two subsequent estimation periods. Both the
increase in total revenue that we expect and - following the completion of
their digital transformation - the anticipated decline in total costs
should contribute to this.
For the valuation of UmweltBank AG, we have used a residual income model,
whereby the difference between the return on equity and the cost of equity
is used to determine the surplus return of the estimation periods. The sum
of the discounted residual earnings results in a value of € 342.47 million
(previously: € 488.93 million). With 35.66 million shares outstanding, this
results in a fair value per share of € 9.60 (previously: € 13.80).
The sharp reduction in the fair value is primarily due to the lower
forecasts for the 2024 and 2025 financial years, which also form a low
basis for our initial forecasts for the 2026 financial year. In addition,
the increase in the WACC to 5.35% (previously: 4.97%) resulting from the
increase in the risk-free interest rate also has a price-target-reducing
effect. Following the sharp fall in the UmweltBank share price, the upside
potential remains high despite the reduction in the price target and we
continue to assign a BUY rating.
You can download the research here:
http://www.more-ir.de/d/29257.pdf
Contact for questions
GBC AG
Halderstraße 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Date (time) completion of the study: 26.03.24 (1:25 pm)
Date (time) first publication: 26.03.24 (2:30 pm)
-------------------transmitted by EQS Group AG.-------------------
The issuer is solely responsible for the content of this research. The result of this research does not constitute investment advice or an invitation to conclude certain stock exchange transactions.
