Recommendation: BUY (BUY) Risk: HIGH (HIGH) Price Target: EUR 5.00 (5.00) 13 August 2014 Westgrund posted solid 1H key figures Next step will be the capital increase Westgrund yesterday posted financial key figures for 1H14 confirming our positive view on the company and recent developments. Sales increased by 56% yoy to EUR 9.4m (PY: EUR 6.0m) which is attributable to the expansion of the rental portfolio. EBT came in slightly lower on yoy comparison at EUR 8.3m (PY: EUR 8.5m). This is mainly referring to negative fair value changes of interest rate swaps in the amount of EUR -1.7m. Revaluation of investment properties supported results by EUR 8.7m in 1H. Adjusted for these two valuation effects, operating earnings before tax stood at EUR 1.4m (PY: EUR 0.3m). Net result (incl. valuation effects) amounted to EUR 6.7m vs. EUR 7.1m in last year s period. We will keep an eye on the development of interest swaps as some companies have been suffering from the decline in the interest rate curve recently. As at the end of 1H, Westgrund holds investment properties of EUR 325.6m (end of Dec 2013: EUR 230.7m), corresponding to around 7,000 rental units. The properties are valued at the 12.8x of net cold rent which would translate into annualised net rental income of around EUR 25.4m. However the newly acquired 13,300 units (of which 12,000 units are core and 1,300 units will be disposed) have not yet been consolidated and contributed to results. According to the management, ~70% of units will be fully consolidated from 30 Sept. onwards; the rest is planned in the course of 4Q. The inclusion of these units will clearly change the rental income base of Westgrund, which we will obviously see in the course of FY15. The next step on Westgrund s agenda will be the capital procurement. We eagerly await the planned capital increase which is assumed for late 3Q or beginning of 4Q. The management disclosed that it targets to raise up to EUR 140m gross proceeds. After the capital increase we might face a company with a market capitalisation of way above EUR 200m. The story clearly gained attractiveness and momentum. The closing of the deal would lift Westgrund to a company holding 19,000 units. A crucial point will be the issue price of the new shares and the compensation for the dilution effect. We confirm our BUY recommendation at an unchanged target price of EUR 5.00/share. Key data FY 12/31, EUR m 2010 2011 2012 2013 2014E 2015E 2016E Sales 13.3 9.7 10.8 18.2 70.4 86.0 97.7 EBIT 12.7 3.5 8.0 25.8 56.1 57.7 71.9 Net result 9.7 0.7 4.3 17.8 41.8 37.3 47.2 EPS 0.94 0.07 0.25 0.77 1.21 0.60 0.76 DPS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ROE 48.5% 2.8% 11.2% 28.5% 24.5% 13.1% 14.5% ROA 13.8% 3.6% 6.4% 13.0% 10.8% 6.5% 6.8% LTV 63.7% 58.8% 60.0% 59.0% 60.0% 65.0% 64.2% Equity ratio 26.0% 28.7% 32.5% 30.8% 33.4% 30.6% 31.5% EPRA NAV 3.06 3.02 2.96 3.57 4.52 5.16 5.98 Price / NAV 1.63 0.96 0.92 1.26 0.93 0.82 0.71 EV/EBIT 54.2 193.6 86.2 26.6 12.2 11.9 9.5 P/E 4.3 35.7 9.5 5.2 3.3 6.6 5.3 Source: WESTGRUND AG, CBS Research AG Shares outstanding (m): Ø daily trading volume (3 m., no. of shares): Absolute performance (12 months): Relative performance vs. CDAX: 1 month 3 months 6 months 12 months Shareholders: Wecken & Cie. Quartenal Investments Ltd. Angela Lechner Free float & others Financial calendar: 9M 2014 report Authors: Felix Parmantier (Analyst) Close Brothers Seydler Research AG Manuel Martin, CEFA (Analyst) Phone: +49 (0) 69-977 84 56 0 Email: Share price (dark) vs. CDAX Source: CBS Research AG, Bloomberg, WESTGRUND AG Change 2014E 2015E 2016E new old new old new old Sales - 70.4-86.0-97.7 EBIT - 56.1-57.7-71.9 EPS - 1.21-0.60-0.76 www.westgrund.de WKN: A0HN4T Reuters: WEG1.DE Short company profile: Share data: Sector: Real Estate ISIN: DE000A0HN4T3 Bloomberg: WEG1 GY WESTGRUND AG is an opportunistic investor for residential real estate. The main focus is the extension of the existing portfolio and generating an attractive rental yield. Share price (EUR, latest closing price): 3.99 33.1 Market capitalisation (EUR m): 132.2 Enterprise value (EUR m): 686.4 Performance data: 15,056 High 52 weeks (EUR): 4.54 Low 52 weeks (EUR): 2.79 38.8% 1.6% 24.8% 17.1% 28.2% 49.7% 20.6% 10.2% 19.5% research@cbseydlerresearch.ag www.cbseydlerresearch.ag November 2014 Please notice the information on the preparation of this document, the disclaimer, the advice regarding possible conflicts of interests, and the mandatory information required by 34b WpHG (Securities Trading Law) at the end of this document. This financial analysis in accordance with 34b WpHG is exclusively intended for distribution to individuals that buy or sell financial instruments at their own account or at the account of others in connection with their trading activities, occupation, or employment.
WESTGRUND AG Profit and loss account IFRS EURm 2010 2011 2012 2013 2014E 2015E 2016E Sales 13.3 9.7 10.8 18.2 70.4 86.0 97.7 YoY grow th 30.8% -26.9% 11.1% 69.0% 286.7% 22.2% 13.7% Rental sales 9.5 9.3 10.7 18.2 29.1 86.0 97.7 Sale of properties 3.6 0.3 0.1 0.0 41.3 0.0 0.0 Change in inventories -0.1-0.2 1.0 3.4-41.3 0.0 0.0 Other operating income 0.3 0.2 0.5 0.4 1.0 1.7 2.0 IAS 40 fair value valuation 14.0 2.5 5.9 20.2 47.8 20.6 29.6 Total revenues 27.4 12.2 18.1 42.2 77.9 108.2 129.4 COGS -9.0-5.3-6.3-12.3-16.8-42.1-48.0 in % of total revenues -32.7% -43.4% -34.9% -29.2% -21.6% -38.9% -37.1% Gross income 18.4 6.9 11.8 29.9 61.1 66.1 81.4 in % of total revenues 67.3% 56.6% 65.1% 70.8% 78.4% 61.1% 62.9% Personnel expenses -1.6-1.3-1.3-1.3-2.0-4.0-4.3 in % of total revenues -5.7% -10.4% -7.4% -3.1% -2.6% -3.7% -3.3% Other operating expenses -1.6-2.0-1.7-2.5-2.9-4.2-5.1 EBITDA 15.2 3.6 8.8 26.2 56.2 57.8 72.0 in % of total revenues 55.6% 29.8% 48.4% 61.9% 72.1% 53.4% 55.7% Depreciation and amortisation -2.6-0.1-0.8-0.4-0.1-0.1-0.1 in % of total revenues -9.4% -0.6% -4.4% -0.9% -0.1% -0.1% -0.1% EBIT 12.7 3.5 8.0 25.8 56.1 57.7 71.9 in % of total revenues 46.2% 29.1% 44.0% 61.0% 72.0% 53.3% 55.6% Financial result -2.8-3.3-3.0-4.5-8.5-15.3-18.3 EBT 9.9 0.3 5.0 21.3 47.5 42.4 53.6 in % of total revenues 36.1% 2.1% 27.4% 50.4% 61.0% 39.2% 41.4% EBT excl. IAS 40 valuation -4.1-2.2-0.9 1.1-0.3 21.8 24.0 in % of total revenues -14.8% -18.4% -5.0% 2.5% -0.3% 20.2% 18.6% Taxes -0.7 0.6-0.9-3.4-5.7-5.1-6.4 as % of EBT -7.1% 234.3% -17.4% -16.0% -12.0% -12.0% -12.0% Net income including minorities 9.2 0.8 4.1 17.9 41.8 37.3 47.2 Minority interests 0.5-0.1 0.2 0.1 0.0 0.0 0.0 Net income attributable to shareholders 9.7 0.7 4.3 17.8 41.8 37.3 47.2 in % of total revenues 35.4% 6.1% 23.9% 42.2% 53.7% 34.5% 36.5% Earnings per share (EUR) 0.94 0.07 0.25 0.77 1.21 0.60 0.76 FFO I per share (EUR) neg. neg. neg. 0.03 0.05 0.31 0.34 FFO yield in % neg. neg. neg. 0.8% 1.4% 8.2% 9.1% Source: CBS Research AG, WESTGRUND AG www.cbseydlerresearch.ag Close Brothers Seydler Research AG 2
WESTGRUND AG Balance Sheet IFRS EURm 2010 2011 2012 2013 2014E 2015E 2016E Assets Noncurrent assets 90.9 92.5 137.8 231.9 731.8 956.5 1,088.1 as % of total assets 93.2% 92.4% 92.1% 93.7% 92.1% 96.6% 97.9% Intangible assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Investment properties 88.5 89.3 135.5 230.7 730.5 955.2 1,086.9 Fixed assets Other noncurrent assets Deferred taxes Financial assets 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 1.0 0.3 0.8 0.8 0.8 0.8 0.0 0.0 0.0 0.1 0.1 0.1 0.1 1.6 1.8 1.8 0.0 0.0 0.0 0.0 Current assets 6.7 7.6 11.8 14.2 62.4 33.5 22.9 as % of total assets 6.8% 7.6% 7.9% 5.8% 7.9% 3.4% 2.1% Inventories 4.8 4.4 4.8 8.7 8.8 9.0 9.2 Accounts receivables and other current assets 0.6 0.7 1.6 1.5 1.5 1.6 1.6 Cash and cash equivalents 1.2 2.5 5.4 4.0 52.0 22.9 12.1 Assets classified as held for sale 0.0 0.0 0.0 1.3 0.0 0.0 0.0 Total Assets 97.6 100.1 149.6 247.4 794.2 989.9 1,111.0 Total equity and liabilities Total equity 25.4 28.7 48.7 76.1 265.4 302.7 349.9 as % of total equity and liabilities 26.0% 28.7% 32.5% 30.8% 33.4% 30.6% 31.5% Capital stock 10.4 11.4 18.7 24.1 62.1 62.1 62.1 Capital reserve 11.4 12.8 8.2 12.3 121.7 121.7 121.7 Retained earnings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Reserves for treasury stocks 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net earnings 3.3 4.1 21.6 39.4 81.2 118.5 165.7 Minorities 0.3 0.4 0.2 0.3 0.3 0.3 0.3 Noncurrent liabilities 22.7 24.6 92.3 113.1 409.5 534.4 591.5 as % of total equity and liabilities 23.3% 24.6% 61.6% 45.7% 51.6% 54.0% 53.2% Deferred tax liabilities 6.4 5.8 6.6 9.9 15.7 18.1 21.7 Pension provisions 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Financial liabilities 9.0 12.9 79.6 97.4 388.0 510.5 564.0 Derivatives 0.9 1.2 1.3 1.0 1.0 1.0 1.0 Liabilities from finance leases 6.3 4.6 4.7 4.7 4.7 4.7 4.7 Other liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Current liabilities 49.4 46.8 8.7 57.3 119.3 152.9 169.6 as % of total equity and liabilities 50.6% 46.8% 5.8% 23.2% 15.0% 15.4% 15.3% Financial liabilities 43.7 38.6 3.2 38.7 98.2 128.8 142.2 Received prepayments 2.6 2.5 3.1 7.4 8.9 10.7 12.8 Liabilities from finance leases 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Trade accounts payables 0.0 0.0 0.7 1.0 1.0 1.0 1.0 Actual tax liabilities 1.7 1.3 0.0 0.0 0.0 0.0 0.0 Other liabilities 0.1 0.1 1.6 10.2 11.2 12.3 13.6 Other provisions 1.3 4.3 0.0 0.0 0.0 0.0 0.0 Liabilities of assets held as sale 0.0 0.0 0.0 0.9 0.0 0.0 0.0 Total equity and liabilities 97.6 100.1 149.6 247.4 794.2 989.9 1,111.0 Source: CBS Research AG, WESTGRUND AG www.cbseydlerresearch.ag Close Brothers Seydler Research AG 3
WESTGRUND AG Cash flow statement IFRS EURm 2010 2011 2012 2013 2014E 2015E 2016E Earnings before taxes (EBT) 9.88 0.25 4.95 21.27 47.53 42.41 53.62 Financial expenses Financial income Depreciation and amortisation IAS 40 fair value valuation Change in fixed assets Share in the result of associated companies Stock option programme (personnel expenses) Change in provisions Change in other assets Change in minorities Change in other liabilities Change in inventories and trade receivables Change in trade payables and other liabilities Change in deferred tax liabilities Change in deferred tax receivables Interest paid / received Taxes paid / received 2.83 3.48 3.00 4.87 8.53 15.32 18.29-0.05-0.03-0.05-0.03 0.00 0.00 0.00 2.58 0.08 0.79 0.37 0.10 0.10 0.10-13.95-2.49-5.85-20.21-47.79-20.56-29.60 0.02 0.00 0.00-0.03 0.00 0.00 0.00 0.01-0.15 0.07 0.13 0.00 0.00 0.00 0.10 0.06 0.10 0.12 0.00 0.00 0.00 0.00-0.01 0.00-0.03 0.00 0.00 0.00 0.00 0.00-1.12-3.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00-0.03 4.77 1.02 1.12 1.24 3.99-0.33 0.00 0.00-0.17-0.17-0.18 0.65 2.54 0.00 0.00 1.48 1.78 2.14 0.00 0.00 0.00 0.00 5.74 2.47 3.55 0.00 0.00 0.00 0.00 0.00 0.00 0.00-2.59-3.23-2.69-5.58-8.53-15.32-18.29 0.08-0.12 0.00-0.03-5.70-5.09-6.43 Cash flow from operating activities 3.54 0.05-0.91 2.06 2.23 22.08 24.45 Receipts for dividends Change in fixed assets Expenses for acquisition & modernisation of inv. prop. Expenses for acquisitions of subsidiaries Change in other assets Expenses for investments for financial assets Interest paid 0.02 0.01 0.01 0.01 0.00 0.00 0.00-0.01-0.02 0.00 0.43 0.24-0.13-0.13 0.00 0.00-40.51-62.78-452.09-204.12-102.06-0.24 0.00-0.07 1.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00-0.03 0.07 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cash flow from investing activities -0.23-0.01-40.60-61.26-451.85-204.25-102.19 Net borrowings/retirements of financial debt -4.04-1.17 28.64 52.51 350.16 153.09 66.94 Income from the sale of treasury shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Expenses for acquisition of treasury shares 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cash outflow from retirement of financial debt -0.01 0.00 0.00 0.00 0.00 0.00 0.00 Income from capital increase (minus transaction exp.) 1.48 2.39 15.81 5.77 147.44 0.00 0.00 Change in other loans 0.00 0.01 0.00 0.00 0.00 0.00 0.00 Cash flow from financing activities -2.57 1.22 44.44 58.28 497.60 153.09 66.94 Total change in cash and cash equivalents 0.73 1.26 2.94-1.42 47.98-29.08-10.80 Cash and cash equivalents at the start of the period 0.51 1.24 2.51 5.45 4.03 52.01 22.93 Cash and cash equivalents at the end of the period 1.24 2.51 5.45 4.03 52.01 22.93 12.13 Source: CBS Research AG, WESTGRUND AG www.cbseydlerresearch.ag Close Brothers Seydler Research AG 4
Research Schillerstrasse 27-29 60313 Frankfurt am Main Phone: +49 (0)69 977 8456-0 Roger Peeters +49 (0)69-977 8456-12 Member of the Board Roger.Peeters@cbseydlerresearch.ag Martin Decot +49 (0)69-977 8456-13 Igor Kim +49 (0)69-977 8456-15 (Equities) Martin.Decot@cbseydlerresearch.ag (Equities) Igor.Kim@cbseydlerresearch.ag Gennadij Kremer +49 (0)69-977 8456-23 Daniel Kukalj +49 (0)69-977 8456-21 (Corporate Credit) Gennadij.Kremer@cbseydlerresearch.ag (Equities) Daniel.Kukalj@cbseydlerresearch.ag Carsten Kunold +49 (0)69-977 8456-28 Manuel Martin +49 (0)69-977 8456-16 (Equities) Carsten.Kunold@cbseydlerresearch.ag (Equities) Manuel.Martin@cbseydlerresearch.ag Felix Parmantier +49 (0)69-977 8456-22 Roland Pfänder +49 (0)69-977 8456-26 (Equities) Felix.Parmantier@cbseydlerresearch.ag (Equities) Roland.Pfaender@cbseydlerresearch.ag Dr. Oliver Pucker +49 (0)69-977 8456-27 Michele Sassano +49 (0)69-977 8456-17 (Equities) Oliver.Pucker@cbseydlerresearch.ag (Support) Michele.Sassano@cbseydlerresearch.ag Nicolas Pütz +49 (0)69-977 8456-24 Marcus Silbe +49 (0)69-977 8456-14 (Support) Nicolas.Puetz@cbseydlerresearch.ag (Equities) Marcus.Silbe@cbseydlerresearch.ag Simone Steymann +49 (0)69-977 8456-25 Veysel Taze +49 (0)69-977 8456-18 (Support) Simone.Steymann@cbseydlerresearch.ag (Equities) Veysel.Taze@cbseydlerresearch.ag Ivo Višić +49 (0)69-977 8456-19 Sergey Weinberg +49 (0)69-977 8456-20 (Equities) Ivo.Visic@cbseydlerresearch.ag (Corporate Credit) Sergey.Weinberg@cbseydlerresearch.ag Institutional Sales Schillerstrasse 27 29 60313 Frankfurt am Main Phone: +49 (0)69 9 20 54-400 Karl Filbert +49 (0)69-9 20 54-104 Klaus Korzilius +49 (0)69-9 20 54-114 (Head of Sales) Karl.Filbert@cbseydler.com (Benelux, Scandinavia) Klaus.Korzilius@cbseydler.com Sebastian Holl +49 (0)69-9 20 54-119 (Head of Sales Trading) Sebastian.Holl@cbseydler.com Bruno de Lencquesaing +49 (0)69-9 20 54-116 Dr. James Jackson +49 (0)69-9 20 54-113 (Benelux, France) Bruno.deLencquesaing@cbseydler.com (UK, Ireland) James.Jackson@cbseydler.com Claudia Jurewecz +49 (0)69-9 20 54-106 Markus Laifle +49 (0)69-9 20 54-120 (Germany, Austria, Switzerland) Claudia.Jurewecz@cbseydler.com (Sales Execution) Markus.Laifle@cbseydler.com Angela Leser +49 (0)69-9 20 54-111 Enikö-Sofia Matyas +49 (0)69-9 20 54-115 (Germany, Austria, Switzerland) Angela.Leser@cbseydler.com (Germany, France) Enikoe-Sofia.Matyas@cbseydler.com Carsten Pfersdorf +49 (0)69-9 20 54-168 Carsten Schlegel +49 (0)69-9 20 54-137 (Sales Execution) Carsten.Pfersdorf@cbseydler.com (Sales Trading) Carsten.Schlegel@cbseydler.com Christopher Seedorf +49 (0)69-9 20 54-110 Bas-Jan Walhof +49 (0)69-9 20 54-105 (Switzerland) Christopher.Seedorf@cbseydler.com (Benelux, Scandinavia) Bas-Jan.Walhof@cbseydler.com www.cbseydlerresearch.ag Close Brothers Seydler Research AG 5
Disclaimer and statement according to 34b German Securities Trading Act ( Wertpapierhandelsgesetz ) in combination with the provisions on financial analysis ( Finanzanalyseverordnung FinAnV) This report has been prepared independently of the company analysed by Close Brothers Seydler Research AG and/ or its cooperation partners and the analyst(s) mentioned on the front page (hereafter all are jointly and/or individually called the author ). None of Close Brothers Seydler Research AG, Close Brothers Seydler Bank AG or its cooperation partners, the Company or its shareholders has independently verified any of the information given in this document. Section 34b of the German Securities Trading Act in combination with the FinAnV requires an enterprise preparing a security analysis to point out possible conflicts of interest with respect to the company that is the subject of the analysis. Close Brothers Seydler Research AG is a majority owned subsidiary of Close Brothers Seydler Bank AG (hereafter CBS ). However, Close Brothers Seydler Research AG (hereafter CBSR ) provides its research work independent from CBS. CBS is offering a wide range of Services not only including investment banking services and liquidity providing services (designated sponsoring). CBS or CBSR may possess relations to the covered companies as follows (additional information and disclosures will be made available upon request): a. CBS holds more than 5% interest in the capital stock of the company that is subject of the analysis. b. CBS was a participant in the management of a (co)consortium in a selling agent function for the issuance of financial instruments, which themselves or their issuer is the subject of this financial analysis within the last twelve months. c. CBS has provided investment banking and/or consulting services during the last 12 months for the company analysed for which compensation has been or will be paid for. d. CBS acts as designated sponsor for the company's securities on the basis of an existing designated sponsorship contract. The services include the provision of bid and ask offers. Due to the designated sponsoring service agreement CBS may regularly possess shares of the company and receives a compensation and/ or provision for its services. e. The designated sponsor service agreement includes a contractually agreed provision for research services. f. CBSR and the analysed company have a contractual agreement about the preparation of research reports. CBSR receives a compensation in return. g. CBS has a significant financial interest in relation to the company that is subject of this analysis. In this report, the following conflicts of interests are given at the time, when the report has been published: d, f CBS and/or its employees or clients may take positions in, and may make purchases and/ or sales as principal or agent in the securities or related financial instruments discussed in this analysis. CBS may provide investment banking, consulting, and/ or other services to and/ or serve as directors of the companies referred to in this analysis. No part of the authors compensation was, is or will be directly or indirectly related to the recommendations or views expressed. Recommendation System: CBSR uses a 3-level absolute share rating system. The ratings pertain to a time horizon of up to 12 months: BUY: The expected performance of the share price is above +10%. HOLD: The expected performance of the share price is between 0% and +10%. SELL: The expected performance of the share price is below 0%. This rating system is only a guideline. Therefore, deviations from this system may apply. Recommendation history over the last 12 months for the company analysed in this report: Date Recommendation Price at change date Price target 13 August 2014 BUY EUR 3.99 EUR 5.00 06 August 2014 BUY EUR 3.76 EUR 5.00 16 January 2014 BUY EUR 3.48 EUR 4.50 20 December 2013 BUY EUR 3.50 EUR 4.50 02 December 2013 BUY EUR 3.29 EUR 4.50 26 September 2013 BUY EUR 3.36 EUR 4.50 (adj. for bonus shares) 05 September 2013 BUY EUR 3.51 EUR 5.00 www.cbseydlerresearch.ag Close Brothers Seydler Research AG 6
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