Accumulate (unchanged) Target: Euro 0.75 (unchanged) 4 June 14 Price (Euro) 0.50 High / Low (52 weeks) 0.64 / 0.36 Key data Country Germany Market Segment Entry Standard Securities ID-Number 617487 ISIN DE0006174873 Symbol L10 Reuters L1OG.DE Bloomberg L1O GR Reporting Standard IFRS Fiscal Year 31/12 Market Cap (EUR million) 13.7 Number of shares (million) 27.5 Free Float 33.3% Free Float MarketCap (m) 4.6 CAGR revenues 13-16e 7.9% Multiples 2013 2014e 2015e 2016e P/S-ratio 1.0 0.9 0.0 0.0 P/E-ratio 12.1 5.3 5.1 5.4 Dynamic PE-ratio 1.5 0.7 0.6 0.7 EV/Sales 11.4 9.5 9.3 9.1 EV/EBITDA 29.2 29.5 0.0 0.0 Price/BVpS 0.9 0.7 0.6 0.6 Key data per share (Euro) 2013 2014e 2015e 2016e Earnings per Share (EpS) 0.04 0.09 0.10 0.09 Dividends per Share (DpS) 0.00 0.00 0.00 0.00 Book Value per Share (BVpS) 0.58 0.68 0.77 0.87 Financial data (EUR '000 ) 2013 2014e 2015e 2016e Sales revenues 13,292 15,980 16,350 16,720 Gross profit 10,173 12,200 12,265 12,360 EBITDA 1,195 3,381 3,574 3,609 Operating profit (EBIT) 112 2,281 2,624 2,699 Pre-tax proft (EBT) 789 2,321 2,844 3,099 Net profit 1,135 2,571 2,694 2,549 Shareholders' equity 15,977 18,548 21,242 23,791 Main shareholders ACP Fund V LCC 49.9% B&P Treuhandgesellschaft 10.2% Wehr Schiffahrts KG 3.3% Management (Dr. Torsten Teichert) 3.3% Financial calendar AGM 1H 2014 report Analyst Internet 21 August 2014 18 September 2014 Dipl.-Kfm. Stefan Scharff, CREA 49 (0) 69 400 313-80 scharff@src-research.de www.src-research.de www.aktienmarkt-deutschland.de Lloyd Fonds reports Euro 1.1m net profit for 2013 and continues its strategic shift to institutional clients while the shipping sector remains challenging - Accumulate! Last Wednesday, 28 May, the Hamburg-based shipping and real estate fund specialist released its annual report for 2013. Total revenues for fiscal 2013 remained almost unchanged (Euro -0.4m) compared to 2012 and amounted to Euro 13.3m. Cost of material, personnel costs as well as other operating expenses dropped remarkably. Cost of materials came in at about Euro -3.1m after Euro -4.6m in 2012, while personnel costs and other operating expenses both dropped by roughly 25%. Operating result for 2013 therefore swung from Euro -1.2m to Euro +0.1m. Financial result also turned positive, thanks to significantly lower interest expenses and lifted the EBT from Euro -1.3m to Euro +0.8m. Net profit after minorities amounted to Euro 1.1m, outperforming our most recent forecast of Euro 0.9m for 2013. As we already saw with the publication of the 1H results, the volume of equity placements remained very low at about Euro 16m for the full year. The ongoing decline of the placed equity volume reflects two major challenges for the closed-end fund industry during the past 4-5 years since the peak of the financial crisis: Firstly, closed-end shipping funds (once LF s core product) suffered from a hefty decline in charter rates caused by an over-supply with new ships. Secondly, regulation regarding the structuring, distribution and management of closed-end fund products tightened and was subject to numerous changes during that time. However, as a result of the tightening regulation, we see LF in an excellent position to further outperform its competitors thanks to the company s sound recurring revenue base and its innovation power (e.g. Ocean MPP project in 1H 2013). In 2013, after years of weak sentiment for shipping investments, interest from institutional investors for both equity and debt investments has started to pick up. LF already addressed this trend by setting up its own sales platform for institutional investors and has received the required approval from the German financial markets regulatory authority BaFin in 2013. With positive operating and net result thanks to rigid cost-cutting and new income sources, we still regard LF as the top pick in the challenging fund sector. As the company has outperformed our latest forecast and we see more institutional business for the next quarters, we confirm our Accumulate rating and our target price of Euro 0.75 for the Lloyd Fonds share.
Strengths Lloyd Fonds is an established brand within the closed-end fund industry that received many industry awards both for the conception and the management of investment products. The group benefits from a better reputation that its direct peers. Innovation power. Lloyd Fonds has always been an innovator in its industry. The recent successful restructuring and recapitalization of six former single-ship entities into one innovative corporate structure that could be refinanced with Deutsche Bank in the midst of a very challenging sentiment for shipping finance proved the group s innovative strength. Its track-record. Since 1995 the company has initiated 106 fund products comprising an equity placement volume of more than Euro 2bn and a total investment volume in excess of Euro 5bn across several asset classes including shipping, aviation and real estate. Diversification in terms of investment products. Lloyd Fonds has been successful in the generation of fund products besides traditional closed-end funds. We expect the launch of new products within 2014. The group has successfully eliminated its contingent liabilities unlike most of its competitors in the closed-end fund industry. Both liquidity (Euro 5.7m) and equity ratio (59%) were at very comfortable levels as of 31 December 2013, significantly reducing the risk-profile. Weaknesses The placement of equity stakes in closed-end funds to retail customers has been the core business of the company in the past. Looking at the currently extremely low placement volume throughout the industry, this source of income alone will not be sufficient to generate attractive returns. As the company s recurring fees are dependent on the further development of charter rates in the global shipping market, the predictability of future recurring income remains rather low in the mid- to long-run. Nevertheless, we remain confident that charter rates will pick up again in the mid-term on the back of a continuously growing world-trade. Although this is more an issue of the whole sector than a specific problem of LF, the recent massive changes in regulation (e.g. AIFM) negatively affected the group s ability to create new products. While there is ongoing uncertainty about many details of regulation in the sector, it is extremely difficult for companies to create and market new products at the moment. 2 SRC Equity Research 2
Opportunities Via the capital increase in 2012, the company was sufficiently recapitalized and offers a much more stable capital structure to benefit from consolidation in the industry. Lloyd Fonds currently offers the highest equity ratio and profitability in its sector. High recurring income stream of about Euro 10.5m p.a., comfortably covering the group s new, reduced cost-base. Additional business will lift LF s net profit disproportionally. The company reduced its cost base to a very comfortable level. Therefore recurring revenues cover a major share of fixed costs. In 2013, LF was able to return to black numbers already. This rigid cost-cutting put LF in a very good position to be among the first to benefit from a recovery of the market. Lloyd Fonds early identified the shift of demand from retail to institutional investors. In 2013, Lloyd Fonds Consulting, a 100% subsidiary of LF, received the necessary regulatory approval from the German financial markets regulatory authority (BaFin) to place investments to institutional investors. The company is in advanced stages of development regarding special products for institutional investors. The demand for real estate investments is still extremely strong and institutional investors with an international focus also start investing into the shipping sector again. Although investors seem to prefer other structures than closed-end funds, the group is well suited to offer attractive shipping and real estate investments in various forms. As Lloyd Funds has been placing funds since 1995, it has a very large volume of funds under management that generate recurring fees. This feature gives the group a much stronger position in the consolidation process within the industry. Therefore, when consolidation activity picks up, we see Lloyd Funds in a favorable position to grow its market share. Threats Another worsening of the financial / sovereign debt crisis that would negatively affect all capital markets, including the stock market. A strong pick-up of interest rates would put further pressure on the refinancing conditions of existing funds and may also dampen asset prices. If new regulation in the investment sector becomes even more challenging, overhead costs of the industry could rise, lowering margins. A further slump in global charter rates could cause an increasing number of insolvencies among shipping funds, which would affect Lloyd Fonds recurring management fee income. 3 SRC Equity Research 3
Outlook Real Estate In 2013, Lloyd Fonds received the German Office-Award from the Rating Agency Scope for its real estate fund Bremen Domshof, showing the excellent expertise of the group in the field of real estate investment products. In particular with regards to the volatile situation at the shipping markets, we see real estate products as a very important second pillar of LF s business model. The company will continue to issue new real estate investment products concentrating on German office-, retail-, and residential-properties within the next quarters, both for retail and for institutional investors. Looking at the recordlow interest rate environment and the attractive yields of real estate investments compared to other asset classes like bonds, investors demand remains high (see chart below that shows investment volume in German Real Estate). In the first years after the financial crisis, the demand for real estate assets in Germany was mainly driven by private investors. With the ongoing price rally of traditional assets like stocks and corporate/government bonds and extremely low interest rates, it is now mostly insurance groups, pension funds, foundations and sovereign wealth funds driving the high demand for real estate in Germany. The new sales platform for institutional sales, Lloyd Fonds Consulting GmbH, should therefore also attract new institutional money to the group s real estate products besides its shipping business, as those groups of professional investors have high demands regarding the financial and legal structuring of their investments. Lloyd Fonds with its very sound track record and expertise in this sector should benefit from this growing demand for sophisticated real estate fund products. 4 4 SRC Equity Research
Outlook Shipping In our last report as of 1 October, we hoped to witness the beginning of a significant recovery of shipping rates and, as a result, the whole industry. Looking the Baltic Dry Index (see figure below), we see that after a temporary recovery of charter rates in the shipping industry during fall 2013, the Baltic Dry Index (BDI) has slumped again to levels below 1000pts, representing a set-back to the alltime low levels seen in 1Q 2012. Baltic Dry Index (BDI) - 2009 Until Today Source: Bloomberg.com Although we see the current level of charter rates as a threat to existing shipping funds, we are clearly convinced that rates will recover in the mid- to long-term as worldwide trade continues to grow. As Lloyd Fonds recurring income from the management of existing shipping funds remained on a sufficient level to allow a positive operating result in 2013, despite the very low charter rates, we expect annual write-downs to remain in the same range of about Euro 1m to 1.5m. Looking at the global financial situation of the shipping industry, one can clearly see institutional money coming back to both debt and equity investments in shipping assets, in particular from large U.S.- based institutional investors. We regard that as a positive sign for the industry and expect Lloyd Fonds to continue with innovative management solutions for its shipping products like the successful bundling of six former shipping funds into a new corporate structure (Ocean MPP). Please see our report from 1 October 2013 for details. 5 5 SRC Equity Research
Peer Group Comparison Company HCI Capital MPC Capital Hesse Newman Capital Lloyd Fonds Market Cap ( m) 13.1 26.2 3.0 13.7 Revenues '13 ( m) 25.8 29.4 6.0 13.3 EBIT Margin '13 13.6% -41.4% -108.4% 0.8% Net Profit Margin '13 1.4% -81.6% -443.7% 8.5% Equity Ratio 54.5% 39.4% 25.9% 59.4% P/BookValue 65.2% 99.4% 61.9% 85.7% Sources: S&P Capital, company reports When comparing Lloyd Fonds with three of its listed German competitors, one can clearly see the outperformance of LF in terms of net profitability and balance sheet structure. However, the current market valuation at about 86% of its equity book value is about average. Taking into account the high recurring income and the completed cost-cutting program, we see Lloyd Fonds to be priced very attractively, compared to its listed peers. 6 6 SRC Equity Research
P&L Account 31/12 IFRS (Euro '000) 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e Revenues 90,096 48,093 20,024 19,307 14,366 13,671 13,292 15,980 16,350 16,720 7.9% Cost of materials -42,544-31,482-9,206-6,031-5,746-4,574-3,119-3,780-4,085-4,360 Gross profit 47,368 16,780 10,073 13,276 8,920 9,097 10,173 12,200 12,265 12,360 6.7% Gross margin 52.6% 34.9% 50.3% 68.8% 62.1% 66.5% 76.5% 76.3% 75.0% 73.9% CAGR '13 - '16e Personnel costs -12,565-14,837-8,847-8,643-8,123-6,625-4,986-5,109-5,241-5,371 Other operating result -9,555-10,377-34,609 130-4,048-6,281-4,836-4,710-4,550-4,580 Share of profit of associates 3,846 5,311-10,807 1,978 300 3,685 844 1,000 1,100 1,200 EBITDA 29,094-3,123-44,190 6,741-2,951-124 1,195 3,381 3,574 3,609 44.5% EBITDA-margin 32.3% -6.5% -220.7% 34.9% -20.5% -0.9% 9.0% 21.2% 21.9% 21.6% Depreciation and amortization -750-1,199-15,725-2,380-948 -1,037-1,083-1,100-950 -910 Operating profit (EBIT) 28,344-4,322-59,915 4,361-3,900-1,161 112 2,281 2,624 2,699 188.8% EBIT margin 31.5% -9.0% -299.2% 22.6% -27.1% -8.5% 0.8% 14.3% 16.0% 16.1% Interest income 5,131 7,123 3,471 1,520 1,902 1,540 1,627 1,220 1,420 1,620 Interest expenses -5,091-7,940-3,347-4,656-1,463-1,654-950 -1,180-1,200-1,220 Interest result 40-817 124-3,136 439-114 677 40 220 400 Earnings before tax (EBT) 28,384-5,139-59,791 1,225-3,461-1,275 789 2,321 2,844 3,099 57.8% EBT margin 31.5% -10.7% -298.6% 6.3% -24.1% -9.3% 5.9% 14.5% 17.4% 18.5% Income tax expense -8,223 552-3,771 1,454 530-1,514 346 250-150 -550 Tax rate -29.0% -10.7% 6.3% 118.7% -15.3% 118.7% 43.9% 10.8% -5.3% -17.7% Minority interest 0 0 0 0 0 0 0 0 0 0 Net profit 20,161-4,587-63,562 2,679-2,931-2,789 1,135 2,571 2,694 2,549 31.0% Return on sales 22.4% -9.5% -317.4% 13.9% -20.4% -20.4% 8.5% 16.1% 16.5% 15.2% Number of shares (million) 12.7 12.7 12.7 12.7 27.5 27.5 27.5 27.5 27.5 27.5 Earnings per Share (EPS) in Euro 1.58-0.36-5.00 0.21-0.11-0.10 0.04 0.09 0.10 0.09 31.0% Dividends per Share (DpS) in Euro 1.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Book Value per Share (BVpS) in Euro 6.77 5.21 0.14 0.63 0.67 0.56 0.58 0.68 0.77 0.87 Total assets 118,500 112,402 111,545 51,504 51,048 36,802 30,411 30,411 30,411 30,411 Shareholders' equity after dividend payout 86,200 66,280 1,843 7,974 18,390 15,265 15,977 18,548 21,242 23,791 14.2% RoE after tax 23.4% -6.0% -186.6% 54.6% -22.2% -16.6% 7.3% 14.9% 13.5% 11.3% Key ratios & figures 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e Growth rates in % Revenues N/A -46.6% -58.4% -3.6% -25.6% -4.8% -2.8% 20.2% 2.3% 2.3% EBITDA N/A -110.7% 1315.0% -115.3% -143.8% -95.8% -1063.7% 182.9% 5.7% 1.0% EBIT N/A -115.2% 1286.3% -107.3% -189.4% -70.2% -109.6% 1936.6% 15.0% 2.9% EBT N/A -118.1% 1063.5% -102.0% -382.5% -63.2% -161.9% 194.2% 22.5% 9.0% Net profit N/A -122.8% 1285.7% -104.2% -209.4% -4.8% -140.7% 126.5% 4.8% -5.4% Margins in % Gross 52.6% 34.9% 50.3% 68.8% 62.1% 66.5% 76.5% 76.3% 75.0% 73.9% EBITDA 32.3% -6.5% -220.7% 34.9% -20.5% -0.9% 9.0% 21.2% 21.9% 21.6% EBIT 31.5% -9.0% -299.2% 22.6% -27.1% -8.5% 0.8% 14.3% 16.0% 16.1% EBT 31.5% -10.7% -298.6% 6.3% -24.1% -9.3% 5.9% 14.5% 17.4% 18.5% Expense ratios in % Personnel costs quota 13.9% 30.9% 44.2% 44.8% 56.5% 48.5% 37.5% 32.0% 32.1% 32.1% Cost of sales to sales 47.2% 65.5% 46.0% 31.2% 40.0% 33.5% 23.5% 23.7% 25.0% 26.1% Depreciation to sales 0.8% 2.5% 78.5% 12.3% 6.6% 7.6% 8.1% 6.9% 5.8% 5.4% Tax rate -29.0% -10.7% 6.3% 118.7% -15.3% 118.7% 43.9% 10.8% -5.3% -17.7% Profitability in % Return on Sales 22.4% -9.5% -317.4% 13.9% -20.4% -20.4% 8.5% 16.1% 16.5% 15.2% Return on Equity (RoE) after tax 23.4% -6.0% -186.6% 54.6% -22.2% -16.6% 7.3% 14.9% 13.5% 11.3% Return on Assets (RoA) 18.1% -5.7% -56.2% 11.8% 2.1% 1.9% 13.6% 18.3% 18.7% 18.2% Return on Investment (RoI) 17.0% -4.1% -57.0% 5.2% -5.7% -7.6% 3.7% 8.5% 8.9% 8.4% Valuation P/E-ratio (linked to current share price) 0.32 neg. neg. 2.37-4.69-4.92 12.10 5.34 5.10 5.39 P/E-ratio (historical by year end) 10.11 neg. neg. 8.64 neg. neg. - - - - Price/BVpS 0.07 0.10 3.45 0.80 0.75 0.90 0.86 0.74 0.65 0.58 Dividend yield in % 8.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% P/S-ratio 0.2 0.3 0.7 0.7 1.0 1.0 1.0 0.9 0.8 0.8 MarketCap/EBITDA 0.5 neg. neg. 2.0-4.7-110.8 11.5 4.1 3.8 3.8 EV/Sales 1.7 3.2 7.6 7.9 10.6 11.1 11.4 9.5 9.3 9.1 EV/EBITDA 5.2 neg. neg. 3.8-10.5-281.8 29.2 29.5 0.0 0.0 Data per share Share price by year end 16.01 4.01 1.74 1.82 1.01 0.54 - - - - Number of shares in m 12.7 12.7 12.7 12.7 27.5 27.5 27.5 27.5 27.5 27.5 EpS 1.58-0.36-5.00 0.21-0.11-0.10 0.04 0.09 0.10 0.09 DpS 1.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 BVpS 6.77 5.21 0.14 0.63 0.67 0.56 0.58 0.68 0.77 0.87 7 SRC Equity Research 7
SRC Research The Specialist for Financial and Real Estate Stocks SRC - Scharff Research und Consulting GmbH Klingerstrasse 23 D-60313 Frankfurt Germany Fon: +49 (0) 69 / 400 313-80 E-Mail: scharff@src-research.de Internet: www.src-research.de Rating Chronicle Date Rating Former Price Former Target Lloyd Fonds 01 October 2013 Accumulate 0.43 0.75 Lloyd Fonds 14 March 2013 Hold 0.43 0.65 Please note: The share price mentioned in this report is from closing of 3 June 2013. mandated SRC Research for covering the share. Disclaimer 2014: This equity research report is published by: SRC-Scharff Research und Consulting GmbH (short name: SRC Research), Klingerstr. 23, D-60313 Frankfurt, Germany. All rights reserved. Although we feel sure that all information in this SRC report stem from carefully selected sources with a high credibility, we cannot give any guarantee for accuracy, trueness and completeness. All opinions quoted in this report give the current judgement of the author that not necessarily is the same opinion as SRC-Scharff Research und Consulting GmbH or another staff member. All in this report made opinions and judgements might be changed without a pre-announcement. Within the scope of German regulative framework author and SRC- Scharff Research und Consulting GmbH do not assume any liability for using this document or its content. This report is just for information purposes and not a request or an invitation or a recommendation to buy or sell any stock that is mentioned here. Private clients should search for personal advice at their bank or investment house and should keep in mind that prices and dividends of equities might rise and fall and that nobody can give a guarantee of the future development of equities. The author of this report and the SRC-Scharff Research und Consulting GmbH commit themselves on a unsolicited basis to have no long- or short-positions in equities or derivatives related to equities mentioned in this report. Reproduction, distribution and publishing of this report and its content as a whole or in parts is only allowed with an approval of SRC management board in written form. With acceptance of this document you agree with all regulations mentioned here and all general terms and conditions you will find at anytime at our website www.src-research.de. 8 8 SRC Equity Research