Main menu
Edison Group
  • Home
  • Equities

    Equities

    View All Equities

    Equities by Sector

    Lepidico

    MCap

    AUD29m

    Last close

    AUD0.00

    ▲ 0.00 (50.00%)

    Pharnext

    MCap

    1m

    Last close

    EUR0.10

    ▲ 0.03 (42.86%)

    MGI – Media and Games Invest

    MCap

    EUR235m

    Last close

    EUR1.50

    ▲ 0.35 (30.21%)

  • Sectors

    Sectors

  • Investment Strategy

    Investment Strategy

    View All

    Latest

  • Thematics

    Thematics

    View All Thematics

    Latest

  • Audiovisual

    Audiovisual

    View All Audiovisual

    Latest

Helma Eigenheimbau — High-margin projects starting to pay off

Helma Eigenheimbau (DB: H5E)

Last close As at 17/04/2024

57.80

▲ −0.40 (−0.69%)

Market capitalisation

231m

More on this equity

Research: Industrials

Helma Eigenheimbau — High-margin projects starting to pay off

Helma’s decision to maximise margins at the expense of top-line growth amid the present market constraints seems to be bearing fruit, as illustrated by the solid earnings momentum in H118. Residential demand in Germany remains buoyant against the backdrop of a structural housing shortage. In the longer term, Helma’s robust land bank (representing a revenue potential of c €1.2bn according to management) should allow the company to benefit from these fundamentals. Helma’s shares trade at a P/E ratio for FY19e of 8.7x, which is a 17% discount to peer average.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Industrials

Helma Eigenheimbau

High-margin projects starting to pay off

Home builders

Scale research report - Update

29 August 2018

Price

€37.7

Market cap

€151m

Share price graph

Share details

Code

H5EX

Listing

Deutsche Börse Scale

Shares in issue

4.0m

Last reported net debt at 30 June 2018

€149.6m

Business description

Helma Eigenheimbau provides development, planning, sales, finance advisory and construction services for turnkey, low rise domestic properties. It uses solid construction techniques, usually block and render. It operates mainly in cities in middle and north Germany and in Munich.

Bull

■

Growth track record.

■

Demand currently favourable.

■

Integrated services suited to customer needs.

Bear

■

Market is cyclical.

■

Development risk is always present.

■

Market bottlenecks are limiting revenue growth.

Analyst

Milosz Papst

+44 (0) 20 3077 5700

Helma’s decision to maximise margins at the expense of top-line growth amid the present market constraints seems to be bearing fruit, as illustrated by the solid earnings momentum in H118. Residential demand in Germany remains buoyant against the backdrop of a structural housing shortage. In the longer term, Helma’s robust land bank (representing a revenue potential of c €1.2bn according to management) should allow the company to benefit from these fundamentals. Helma’s shares trade at a P/E ratio for FY19e of 8.7x, which is a 17% discount to peer average.

H118 pre-tax profit up 23.5% despite lower sales

Helma posted a pre-tax profit of €7.0m in H118, which is 23.5% above H117 levels. The company was able to achieve this despite sales declining 12.2% y-o-y to €96.6m (limited by third-party capacity constraints outlined below), mostly as a result of a higher margin realised on a number of property development projects. The company’s order book continued to shrink (€154.8m vs €197.7m at end June 2017) as a result of lower new order intake at Helma Wohnungsbau and a high comparable base in the case of Helma Ferienimmobilien.

Tactical focus on margins remains unchanged

Encouraged by the solid earnings momentum in H118, management maintained its earlier guidance and still expects FY18 pre-tax profit in the range of €21.0–22.5m, implying H218 PBT growth at 4–15% y-o-y. FY19 PBT guidance also remained unchanged at €23.5–26.0m (12–16% growth y-o-y). Although Helma’s top line in H218 should be assisted by the sales start of several projects, management continues to focus on generating a high margin rather than strong revenue growth in the current market conditions. Once the supply bottlenecks are resolved, Helma will consider returning to a stronger revenue growth approach.

Valuation: Traded at a discount to revised peer group

Helma’s shares trade at a 47% and 2% discount to peers on P/E and EV/EBITDA ratios for FY18e, respectively. In FY19e the P/E discount narrows to 17%, while the shares are traded at a 21% premium on EV/EBITDA ratio. This discrepancy seems to result from Helma’s higher financial leverage vs peer average. After muted profit momentum in FY17, the market expects growth to resume in FY18, with EBITDA and EPS up 5% and 15% y-o-y, respectively.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

263.8

19.6

3.37

1.10

11.2

2.9

12/17

267.4

19.1

3.25

1.40

11.6

3.7

12/18e

270.5

21.9

3.74

1.57

10.1

4.2

12/19e

299.0

25.5

4.31

1.76

8.7

4.7

Source: Helma accounts, Bloomberg. Note: Estimates at 28 August 2018. Consensus is based on estimates of two brokers only.

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.

Financials: Higher margins outweigh top-line decline

Helma Eigenheimbau reported a 23.5% y-o-y increase in pre-tax profit to €7.0m in H118, despite recording a revenue decline of 12.2% y-o-y to €96.6m. At the same time, adjusted EBIT amounted to €7.8m, translating into an adjusted EBIT margin of 8.0% (compared to 6.0% in H117). The margin increase was driven by several projects, also within Helma Wohnungsbau. This is in line with the company’s revised approach of focusing on high-margin projects at the expense of top-line momentum amid persisting market bottlenecks that limit the company’s revenue growth. The latter is also illustrated by the continued decline in Helma’s new order intake, which equalled €106.3m in H118 and was down 8.6% y-o-y. New order inflow was again negatively affected by Helma Wohnungsbau. Moreover, Helma Ferienimmobilien (the company’s holiday property development business) is the best-performing segment in terms of revenue growth, but experienced a lower order intake against the high comparable base in H117. On the other hand, new orders at Helma Eigenheimbau were slightly up versus last year. As a result, the group’s order book at end June 2018 stood at €154.8m vs €197.7m at end June 2017. Importantly, the H118 figure does not include €93.1m of revenue attributable to projects that are already being recognised proportionally under IFRS (H117: €154.6m).

In terms of divisional sales, Helma Wohnungsbau posted a considerable decline of c 40% y-o-y to €34.0m, while Helma Eigenheimbau was broadly flat and Helma Ferienimmobilien continued its strong upward trend, with sales improving by c 60% y-o-y to €24.5m. It is worth noting that as a result of the above, the share of the holiday property development business in group sales has already reached around 25% (vs c 14% in H117). Helma reported H1 EPS of €1.23 compared with €1.00 in the prior year.

Exhibit 1: Helma Eigenheimbau H118 results highlights

€m, unless otherwise stated

H118

H117

Y-o-y change

Revenue

96.6

110.1

-12.2%

Adjusted changes in stocks of finished goods and work in progress*

22.4

12.2

83.2%

Adjusted total output*

119.0

122.3

-2.7%

Other own work capitalised

0.0

0.0

N/M

Other operating income

0.7

0.7

-7.2%

Expense for materials and third-party services

(91.3)

(97.2)

-6.0%

Personnel expense

(11.8)

(10.4)

13.4%

as % of sales

12.2%

9.5%

277bp

Other operating expenses

(7.9)

(7.9)

-0.6%

Adj. EBITDA*

8.7

7.5

15.7%

adj. EBITDA margin*

9.0%

6.8%

218bp

D&A

(1.0)

(0.9)

1.9%

Adj. EBIT*

7.8

6.6

17.6%

adj. EBIT margin*

8.0%

6.0%

204bp

Disposal of capitalised interest

(0.4)

(0.5)

-26.0%

Net financial result

(0.3)

(0.4)

-10.0%

EBT

7.0

5.7

23.5%

Income tax

(2.1)

(1.7)

26.3%

effective tax rate

30.2%

29.5%

67bp

Net profit

4.9

4.0

22.3%

Minorities

0.016

0.016

0.0%

Net profit (ex-minorities)

4.9

4.0

22.4%

Net profit margin

5.1%

3.6%

144bp

EPS (€)

1.23

1.00

23.0%

New order intake

106.3

116.3

-8.6%

Order book

154.8

197.7

-21.7%

Source: Helma Eigenheimbau, Edison Investment Research. Note: *Adjusted for disposal of capitalised interest.

Exhibit 2: Revenue by division

€m

H118

H117

y-o-y change

FY17

FY16

Y-o-y change

Helma Eigenheimbau

37.6

37.7

-0.4%

85.1

91.9

-7.4%

Helma Wohnungsbau

34.0

56.5

-39.9%

133.4

139.4

-4.4%

Helma Ferienimmobilien

24.5

15.3

59.9%

48.1

31.7

52.0%

Hausbau Finanz

0.6

0.5

13.4%

0.9

0.9

-1.6%

Total

96.6

110.1

-12.2%

267.4

263.8

1.4%

Source: Helma Eigenheimbau accounts

The company has also generated positive operating cash flow, which (before working capital changes and gains or losses on asset disposal) reached €3.1m compared with €4.8m in H117, with the decline mostly attributable to higher tax payments. Helma’s inventory build-up continues (€222m at end June 2018 vs €200m at end 2017), driven predominantly by the further expansion of the company’s land bank. However, as receivables arising from construction orders declined considerably during H118 (upon receiving a final payment associated with a project sale to an institutional client), overall cash flow reached €3.7m (vs €35.2m of net cash outflow in H117). Helma’s net debt remained broadly stable vs H117 at €149.6m, translating into an equity ratio of 30.1% (FY17: 28.0%) and a net debt to total assets ratio at 48% (FY17: 47%).

Guidance reaffirmed with continued solid demand

On the back of strong earnings progression in H118, Helma’s management confirmed its earlier FY18 pre-tax profit guidance in the range of €21.0–22.5m. This implies an H218 PBT at €14.0–15.5m and earnings growth of c 4–15% y-o-y. This is in line with Helma’s normal seasonal pattern, as the company generates the majority of its revenues and earnings in the second half of the year. In H218, this should be assisted by project timing. Furthermore, management expects a significant growth in new order intake across the group in H218 versus H118. It has also reaffirmed its FY19 PBT guidance of €23.5–26.0m, implying c 12–16% growth y-o-y. This is despite the continued bottlenecks related to constrained capacities of approval authorities and a shortage of available qualified architects, specialist planners and general and subcontractors in Germany. These are reflected in the 5.3% y-o-y decline in construction permits for new residential dwellings in 2017. The demand/supply imbalance puts upward pressure on overall investment costs, including a visible increase in land prices. In this context, the company plans to pursue the strategy of focusing on high-margin projects to drive earnings momentum.

Helma’s long-term growth should be driven by the considerable shortage in residential dwellings in Germany, resulting from a number of demographic factors on the demand side, to which the supply side has so far been slow to respond. This is largely a function of total construction costs in euros per sqm being ahead of apartment prices for many years in Germany. Although residential building permits grew steadily between 2008 and 2016 from c 150,000 to c 320,000, the Cologne Institute for Economic Research estimates that 385,000 homes would have to be built every year on average through 2020 to meet the demand for new properties. This compares with c 88,000 homes being built annually in top locations currently. The tight demand/supply balance is especially visible in main metropolitan regions with the continued migration to conurbation areas and low unemployment levels. Moreover, growth at Helma Eigenheimbau should be also supported by its emphasis on energy efficiency and its position as one of the leading providers of solar energy-saving homes. This is particularly important given the current trend towards sustainable housing.

Helma is well positioned to benefit from these trends based on its extensive land bank, which has a revenue potential of €1,179m according to management; of this, €859m is attributable to Helma Wohnungsbau and €320m to Helma Ferienimmobilien. Most of this potential may be realised within the next five years. Despite the overall increase in land prices, Helma’s management confirmed the company continues to secure attractive land plots thanks to its extensive contact network and solid sourcing team. On top of this, management expects Helma Eigenheimbau to contribute at least €100m a year to group sales (without the need to use own land plots). Helma Wohnungsbau’s funding base was recently expanded through the issue of a promissory note (guaranteed by Helma Eigenheimbau) divided into two fixed-interest tranches: a five-year tranche of €14.5m with a coupon of 2.477% per year and a seven-year tranche of €3.5m (coupon rate at 3.051% per year).

Valuation

For the purpose of Helma’s comparable valuation, we have included two domestic residential developers (Instone and Consus), as well as three European peers (Bonava, Taylor Wimpey and Barratt Development). In comparison to our previous report, we have added Instone Real Estate, which listed this year, and Consus Real Estate following its recent business transformation. This allowed us to remove US peers (Toll Brothers, DR Horton and Pulte Group) and use a purely European peer group. We have shown the dividend yield comparison, but the average is distorted by very high rates of yield in the UK (compared with market levels). The company’s recent AGM approved a dividend payment of €1.40 per share from the FY17 earnings, translating into a dividend yield of around 3.7%.

The data suggest Helma’s valuation is below the peer group on P/E ratios for FY18e and FY19e, as well as slightly below on EV/EBITDA for FY18e (although this changes into a premium in FY19e). In the latter case, Helma’s relatively high leverage results in a higher relative valuation.

Exhibit 3: Peer group comparison

 

Market cap

PE (x)

EV/EBITDA (x)

Dividend yield (%)

 

(€m)

2018e

2019e

2018e

2019e

2018e

2019e

Bonava shares

146

10.5

11.6

10.9

11.8

4.4

4.4

Instone Real Estate

877

43.5

13.6

23.5

10.0

0.0

0.0

Consus Real Estate

863

24.4

11.4

12.6

8.4

0.0

0.0

Taylor Wimpey

6,176

7.9

7.8

6.3

6.1

9.0

10.3

Barratt Development

6,157

8.2

7.8

6.3

6.0

8.1

8.1

Peer group average

-

18.9

10.4

11.9

8.5

4.3

4.6

Helma

151

10.1

8.7

11.7

10.2

4.2

4.7

Premium/(discount) to peer group

(47%)

(17%)

(2%)

21%

4

(2)

Source: Bloomberg, priced at 28 August 2018. Note: EPS and EBITDA figures for Barratt Development are calendarised.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors.

Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Helma Eigenheimbau

View All

Industrials

Helma Eigenheimbau — Business expansion regains momentum

Industrials

Helma Eigenheimbau — Promising new order intake

Industrials

Helma Eigenheimbau — Extensive pipeline key to overcoming the crisis

Industrials

Helma Eigenheimbau — Macro uncertainty after strong FY19

Latest from the Industrials sector

View All Industrials content

Industrials

Jersey Electricity — Decarbonisation fuelling growth

Industrials

Carr’s Group — An enhanced value-creation strategy

Industrials

ABO Energy — Global growth generates record net profit

Industrials

Severfield — Multiple positives should excite investors

Research: Industrials

Nabaltec — Record revenues despite US shutdown

Nabaltec posted record revenues in H118 despite the US facility being out of operation. A shift to high-margin products partly offset the negative impact of the factory closure. Commissioning of the expanded facility commenced in August, with production ramping up the rest of the year.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free