Buy Target: Euro 63.00 09 April 15 Price (Euro) 39.90 52 weeks range 41.49 / 16.50 Key Data Country Austria Industry Real Estate Segment Development ISIN AT0000815402 WKN 852735 Reuters UBMV.VI Bloomberg UBS VI Internet www.ubm.at Reporting Standard IFRS Fiscal Year 31/12 Market Cap (EUR million) 239.8 Number of shares (million) 6.0 Free Float 40.7% Free Float MCap (million) 97.6 CAGR pre tax profits 13-16e 56.5% Multiples 2013 2014e 2015e 2016e MarketCap/sales 1.10 1.07 0.40 0.39 PE-ratio 18.6 11.2 5.0 4.5 Dividend yield 1.6% 3.1% 7.5% 9.1% Price-to-Book ratio 1.48 1.42 0.85 0.79 Key Data per Share (Euro) 2013 2014e 2015e 2016e Earnings per share (EPS) 2.14 3.57 8.03 8.79 Dividends per share (DPS) 0.62 1.25 3.00 3.65 Book Value per share (BVpS) 26.98 28.06 47.11 50.31 Financial Data (Euro '000) 2013 2014e 2015e 2016e Sales Revenues 217,226 223,600 601,600 612,344 Operating profit (EBIT) 29,400 36,600 80,800 85,639 Pre-tax profit (EBT) 17,844 29,333 61,040 68,412 Net profit (after minorities) 12,857 21,476 49,786 54,509 Shareholders' equity 144,445 152,758 161,867 168,642 RoE after tax 8.2% 13.0% 21.6% 18.0% Financial Calendar Annual report 2014 14 April 2015 1Q 2015 report 12 May 2015 Annual General Meeting 20 May 2015 1H 2015 report 27 August 2015 SRC Forum Financials & Real Estate 2015 10 Sept. 2015 Main Shareholders Sydicate Ortner/ Strauss 48.3% Management & Supervisionary board 11.0% Analysts E-Mail Internet Thilo Gorlt, Exec. MBA (HSG), CIIA Dipl.-Kfm. Stefan Scharff, CREA gorlt@src-research.de scharff@src-research.de www.src-research.de www.aktienmarkt-international.at More than 50% upside potential after the merger The Austrian real estate company UBM is in the act of doing the next step in its more than 140 years lasted history. Due to the projected merger of former UMB Realitäten AG with PIAG, which is being used as a spin-off vehicle to separate PORR`s non-core real estate development activities from PORR s construction business in order to create two pure play and separately listed companies. Besides that, PIAG also holds PORR`s majority stake of former UBM. Therefore, consist of the former UBM Realitäten AG and the assets from PIAG, former pooled in PORR`s subsidiary Strauss & Partner (S&P). As a consequence of the merger will act with its new strategy as a pure real estate development company. The firm`s geographical focus is on Austria, Germany and Poland besides a strong concentration to only three business segments (residential, hotel and office). Due to the new strategy, management follows an asset light approach with stronger local operating partner structures. Furthermore, the company decided to sell the bulk of its portfolio which should boost profits and may potentially unlock significant amounts of hidden reserves. A main objective of the new company s strategy is to reduce net debt as well as total assets in order to increase its equity ratio and to improve liquidity ratios. UBM Development appointed a highly experienced management board. Since the start of the disposal program in 4Q 2014 the firm already achieved Euro 72m net cash. On Tuesday, the company reported some 2014 key figures. For 2014 without consideration of the projected merger UBM reported sales revenues of Euro 224m, an operating profit (EBIT) of Euro 37m and a net profit of Euro 22m. Due to the already started asset sale the firm offered pro-forma figures that gave a clear indication of the company`s future profit potential. Prior to the release of the 2014 annual report in the next week on 14 April, we release our new research update with a forecast for the merged new UBM P & L up to the year 2018e. We derive a new fair value of the new and bigger UBM Development AG from our updated DCF model with undemanding assumptions. We come up with a fair value of Euro 63 per UBM share which should allow for a decent share price development. As announced on Tuesday, the company will pay out a Euro 1.25 dividend for 2014 which translates into a favorable 3.1% dividend yield. Furthermore, in our view, the PE ratio should significantly come down from 11.2x for 2014 to only 5.0x in the current FY 2015. We give a Buy recommendation for the new.
UBM Development Industry: Real Estate Development Management Board of UBM Sub segment: Resi, Office, Hotels etc. CEO Mag. Karl Bier Country: Austria CFO Heribert Smolé Headquarter: Vienna Dipl. Ing. Martin Löcker (COO) Foundation: 1873 Dipl. Ing. Claus Stadler (designated COO) Employees (2013): 509 Mag. Michael Wurzinger, MRICS (COO) Supervisory Board of UBM Ing. Karl Heinz Strauss (Chairman) IR Contact DI Iris Ortner (Dep. Chairwoman) Dr. Julia Kozielski MMag. Christian Maier Dr. Bernhard Vanas (Mail: julia.kozielski@ubm.at) DI Klaus Ortner Dr. Susanne Weiss Phone: +43 (0) 50 626 3827 Dr. Ludwig Steinbauer Mag. Paul Unterluggauer Founded in 1873 as "Union-Baumaterialien-Gesellschaft" the company has now an outstanding history of more than 140 years. Keep in mind, that since 1873, the firm is also listed on the Viennese stock market and thus is the oldest Austrian real estate company. After the initial focus was on the renting of construction equipment, the firm made a significant step ahead since the early Nineties where the firm started to initiate many new development projects after a 50% increase of share capital in 1991. In 1992 Karl Bier entered the UBM Board of Directors and the firm started to develop numerous lucrative projects in Eastern Europe, in particular in Poland and Czech Republic. Between 2001 and 2010 UBM entered some opportunistic marktes like France and the Netherlands with hotels. In 2014 PORR, the Vienna-based construction and development conglomerate decided to seperate its non-core real estate development activities from its construction activities with the destination to create two pure play entities and seperately listed companies. In this spirit, PIAG is being used as a spin-off vehicle which holds PORR`s non-core realestate development activities as well as PORR`s share in UBM. In a second step UBM Realitäten AG is merged with PIAG and Strauss & Partner (S&P) to UBM Development AG, which will act in the future as a pure-play trade developer. As a consequence of the intended portfolio reduction in 2015 and 2016, the firm will focus on home markets like Austria, Germany and Poland. In addition, the company will mostly act in only three asset classses like residential, hotel and office. UBM Deveopment has the clear target to realize further synergies of the merger and is willing to optimize its balance sheet structure and in particular to reduce its net debt. In our projection revenues in 2015 will boost to about Euro 600m and operating profit will rush over Euro 80m. Due to the new strategy and the disposal of the portfolio, we strongly believe that the firm will manage this transformation process to a pure trade developer of European scale. With a good pipeline of new development projects in Germany and other countries worth Euro 1.5bn, we expect UBM Development will continue its successful story. Source: Company data, SRC Research 2 2 SRC Equity Research
SWOT Analysis Strengths Weaknesses Opportunities Threats UBM is a strong brand in the European real estate development business. The company is very flexible and has a high local knowledge of all its markets to shift the focus of activities to the most promising regional markets and asset classes (from residential to office or retail and also to hotels or complete urban district developments) where it finds the best opportunities to deliver a significant added value and may unlock high development margins. As the German residential market gained a very strong momentum in the last 3 or 4 years, UBM quickly started to boost the business with its German development subsidiary Münchner Grund AG. The firm has a good pipeline of lucrative developments in stable European economies like Austria, Germany, Poland, the Netherlands and other markets to come the next two years that will help to even further lift the group s output and profit. Due to the new strategy, UBM Development has a large portfolio of about Euro 800m, which might help for more lucrative asset sales to come to the next 12 24 months. As a consequence of the upcoming portfolio disposal in 2015 and 2016 we strongly believe that the company will manage to decrease its net debt and improve its liquidity ratios as well as its operating profit. In addition, we expect further improvement in equity ratio and lower volume of total liabilities. The price-to-book ratio is only little above 0.8 at the moment. Thus, in our view the UBM share price is relatively protected against set-backs. The good and probably rising dividend yield of 3.1% is also an argument. The firm has made a shift to a pure play trade developer with a strong focus on only three markets (Austria, Germany and Poland) as well as three segments. Due to the change of the business model and the shift from asset management the firm`s future profits could be more volatile especially at awkward market conditions. Currently the stock dispose of a relatively low trading volume and the company has a significant amount of debt. Significant upside for the share could come from a higher free float of UBM Development shares. In addition, we strongly believe that the new dividend policy with a payout ratio of 30%-50% will be very attractive for private and institutional investors. Due to the new firm`s strategy to act as a pure play developer of European scale with asset light approach, management should be able to lift synergies and may potentially unlock significant amounts of hidden reserves which should lead in higher profitability, lower net debt and a better balance sheet structure. Company already achieved Euro 72m net cash since program start in Q4/2014. The economic situation might remain shaky in some Eastern European countries, which have to struggle with only little or even no growth. A strong and abrupt decline in investors demand and/or a sharp decline in prices could lead to lower disposals until 2016. 3 3 SRC Equity Research
New company strategy will lay the basis for profit boost and better balance sheet ratios in the future The two-step process from former UBM via PIAG and S&P to UBM Development AG ( UBM Development in the following) is the result of a merger of PIAG and the fromer UMB Realitäten AG. All in all the whole transaction was made in a two-step process. In the fist step, in which PIAG was used as a spin-off vehicle to separate PORR`s non-core real estate development activities (former pooled in PORR`s subsidiary Strauss & Partner) from PORR`s construction business in order to create two pure play and seperately listed companies. In addition, PIAG also holds PORR`s majority stake in UBM. In the second step, PIAG was merged with the current UBM (UBM Realitäten AG) to. The planned spin-off received 100% approval at PORR`s EGM in October 2014. Two months later in December 2014 PIAG was spunoff and each PORR-shareholder received one PIAG share for each PORR share held. The EGM of PIAG and UBM Realitäten AG already decided on the merger of both companies to. Source: Company Data The management board of consists of five highly experienced members In January 2015 the management board which consists of five highly experienced members was formed for. Besides Karl Bier (CEO), Heribert Smolé (CFO) and Martin Löcker (COO), Claus Stadler (designated) and Michael Wurzinger (Executive Director of Asset Management & Transactions) were also appointed. Karl-Heinz Strauss is chairman of the supervisory board and Iris Ortner is deputy woman of the UBM Development supervisory board. The PIAG Spin-off was realized in December 2014 in which each PORR- shareholder received one PIAG Share for each PORR share held. UBM Realitäten AG, set to be renamed in May 2015, will publish its final figures for the financial year 2014 on 14 April 2015. 4 4 SRC Equity Research
The modified business model and the new strategy of UBM Development AG The new strategy and the adapted business model will boost profits and improve proportions of the balance sheet. Clear focus on growth markets and three asset classes The former UBM Realitäten AG held a lage portfolio and acted also as a real estate development company. As a result of the merger, UBM Development which has a highly experienced management team will make a strategic shift from asset management to a pure play trade developer. As a consequence of the new strategy and the attractive market situation in some markets and segments, UBM Development is going to sell a large stake of its portfolio in the upcoming quarters. This will lead to increased capacity of project development resources. In addition, the lean company structure of UBM Development should lead to improved profitability and due to a stronger capital market focus to a more attractive dividend policy for shareholders. Concerning the new strategy, UMB Development will focus on three growth markets (Austria, Germany and Poland) and only three asset classes (residential, office and hotel). In addition the firm follows an asset light approach which means that the company will operate in partner structures with local companies to reduce its risk. Source: Company Data, SRC Research Concerning its geographical focus, UBM Development targeting European metropolitan regions with high growth potential. Besides the top cities in Germany like Frankfurt, Berlin, Munich, Hamburg, Stuttgart, Cologne and Düsseldorf the firm tries to realize attractive projects in booming cities like Vienna, Warsaw and Krakow. The new strategy will induce significant changes in P&L and balance sheet As a result of the above mentioned strategy, we expect that the firm s balance sheet as well as the profit and loss statement (P&L) will change significantly in the following years. Due to the merger, we expect for 2015 a boost in revenues of more than 169% (yoy) to Euro 602m mainly driven by disposals of the portfolio. Operating profit (EBIT) should rush to Euro 81m as well as net profit to about Euro 50m. Besides the improvements in the P&L we also expect in 2015 dramatic changes in the balance sheet with a strong hike in total assets as well as total liabilities. 5 5 SRC Equity Research
Key figures of 31/12 IFRS (Euro '000 except for per share-data) 2011 2012 * 2013 * 2014e* 2015e Change in % `14e to `15e Sales revenues 196,370 133,975 217,226 223,600 601,600 169.1% Operating profit (EBIT) 22,128 12,143 29,400 36,600 80,800 120.8% Financial result -7,571 729-11,556-7,267-19,760 Earnings before tax (EBT) 14,557 12,872 17,844 29,333 61,040 108.1% Taxes on income -5,651 812-4,316-7,333-10,804 Tax rate 38.8% -6.3% 24.2% 25.0% 17.7% Net profit before monorities 8,906 13,684 13,528 22,000 50,236 128.3% Total non-current assets 389,176 437,813 427,654 445,240 743,200 66.9% Total current assets 203,413 195,178 203,122 194,760 252,920 29.9% Total assets 592,589 632,991 630,776 640,000 996,120 55.6% Total equity 144,785 153,680 163,719 170,742 295,000 72.8% Total liabilities 447,804 479,310 467,057 469,258 701,120 49.4% Total equity and liabilities 592,589 632,991 630,776 640,000 996,120 55.6% * Figures of UBM Realitäten AG before merger Source: Company Data, SRC Research We expect a strong growth rates in dividends for the upcoming years. Despite the above mentioned changes, we have to keep in mind, that our estimate of the full year figures for 2014 does not represent a combination of the merged companies with the old business model. Furthermore, we expect for 2014 a dividend of Euro 1,25 per share (2013: Euro 0,62 per share) which represents an increase of the payout ratio to about 37%. Concerning the payout-ratio, UBM Development`s guidance is between 30%- 50% for the following years. Besides the strong capital market focus UBM Development made a clear commitment to a more active investor relations approach and plans a capital increase in 2015 to enable further growth as well as strengthen equity ratio and increase free float. However, in our point of view the key point of the new strategy of UBM Development is the clear focus to become a pure play developer and the projected reduction of the portfolio in order to reduce its net debt. Therefore, we believe the best is yet to come. Our assumptions for changes in balance sheet and P&L statement for the following years up to 2015 Due to the shift towards the modified business model and the new strategy we expect extensive changes in balance sheet and profit and loss statement for UBM Development. In the following table we highlighted some key figures of our assumptions in the P&L statement 2015 to 2018. P&L 31/12 IFRS (Euro '000 except for per share-data) 2014e* 2015e 2016e 2017e 2018e CAGR '14 - '17e Sales revenues 223,600 601,600 612,344 648,116 655,254 42.6% Activated work for own account 0 0 0 0 0 Result from associated companies 14,781 14,600 12,455 11,879 12,100 Other operating income 4,141 7,200 7,100 6,500 5,500 Material expenses and other services -142,784-430,200-425,785-448,252-447,545 Personnel expenses -20,981-37,500-38,874-40,008-41,455 Amortisation and depreciation on intangible assets and property, plant and equipment -2,300-8,800-8,604-8,750-8,710 Other operating expenses -39,857-66,100-72,997-75,652-78,150 Operating profit (EBIT) 36,600 80,800 85,639 93,833 96,994 36.9% * with reported figures of UBM Realitäten AG Source: Company Data, SRC Research 6 6 SRC Equity Research
Portfolio disposals should boost sales revenues and profits... As a consequence of the merger and the projected reduction of the portfolio, company s sales revenues should boost to a level of about Euro 600m in 2015. Due to the favourable market situation and the ongoing strong demand in high class real estates we expect in our model that the firm is able realize the bulk of the disposals until end 2016. But we have to keep in mind that the company will also realize sales revenues by the ongoing development business. With regards to operating profit (EBIT), we anticipate the major impact of the portfolio reduction. Due to profits in the upcoming years we believe that the firm will increase step by step its total equity and should not have any problem in the following years to boost its payout ratio from about 30% (2013) to the announced range of 40% to 50%. In respect to the current share price we see further upside potential for the stock price due to the level of the book value per share. P&L 31/12 IFRS (Euro '000 except for per share-data) 2014e* 2015e 2016e 2017e 2018e CAGR '14 - '17e Net profit before monorities 22,000 50,236 54,997 64,142 67,783 Minorities -524-450 -488-887 -1,132 Net profit after minorities 21,476 49,786 54,509 63,255 66,651 43.3% Earnings per share (EPS) 3.57 8.03 8.79 10.20 10.75 Dividends per share (DPS) 1.25 3.00 3.65 4.65 5.00 Payout ratio 35.0% 37.4% 41.5% 45.6% 46.5% Number of shares ('000) 6,010 6,200 6,200 6,200 6,200 Adjusted shareholders' equity without minorities 168,642 292,100 311,900 321,200 325,700 Book value per share (BVpS) 28.06 47.11 50.31 51.81 52.53 22.7% RoE after tax 13.0% 21.6% 18.0% 20.0% 20.6% * with reported figures of UBM Realitäten AG Source: Company Data, SRC Research help to lift total equity and book value per share and improve the composition of assets. What the company s balance sheet is concerned, we believe that we probably see even stronger effects of the new strategy. As a consequence of the portfolio disposals we assume that financial real estate assets will constantly shrink, while on the other side trade receivables as well as liquid assets should increase but in a much lower extent. Hence, total assets should decrease in the future. Furthermore, we expect a shift from non-current assets to a higher proportion of current assets that also should have a positive impact on net debt. Therefore, the company s liquidity ratios like cash ratio, quick ratio or current ratio should continuously improve in the upcoming years. As a consequence of the strong increase in operating profit and EBITDA UBM Development should be able to damp the important net-debt/ EBITDA ratio significantly. Balance sheet - 31/12 IFRS (Euro '000) 2014e* 2015e 2016e 2017e 2018e CAGR '14 - '17e Non-current assets Intangible assets 3,820 3,750 3,700 3,650 3,600 Property, plant and equipment 27,300 45,150 44,300 44,100 43,500 Financial real estate 284,300 409,300 295,200 209,550 135,900-9.7% Participations in associates 34,630 36,100 35,500 33,200 31,200 Project financing 80,910 231,400 256,700 302,700 363,400 Other financial assets 9,110 11,400 10,800 9,400 9,100 Financial assets 150 80 100 80 80 Deferred tex assets 5,020 6,020 6,800 5,800 6,600 Total non-current assets 445,240 743,200 653,100 608,480 593,380 Current assets Inventories 116,300 130,300 133,200 135,200 123,100 Trade receivables 32,420 55,870 67,400 68,200 65,400 28.1% Financial assets 3,250 6,000 5,900 5,800 3,000 Other receivables and assets 3,840 7,010 6,900 5,500 5,000 Liquid assets 38,950 53,740 82,100 89,700 96,700 32.1% Total current assets 194,760 252,920 295,500 304,400 293,200 Total assets 640,000 996,120 948,600 912,880 886,580 * with reported figures of UBM Realitäten AG Source: Company Data, SRC Research 7 7 SRC Equity Research
Net debt and liquidity ratios will improve significantly. As mentioned above, one of the main targets of the new company s strategy is to improve net debt and the proportions of the balance sheet. While we already talked about our assumptions on the asset side, improved earnings will also influence total equity in a positive direction and lift up equity ratio. Secondly, we assume that UBM Development will use the bulk of the realized cash from disposals to reduce its liabilities to become a more attractive investment for shareholders. As a result of reduced liabilities and slightly increased current assts net debt should shrink in the following years and due to the lower total assets equity ratio will get up. Equity and liabilities 2014e* 2015e 2016e 2017e 2018e CAGR '14 - '17e Shareholders' equity Share capital 18,000 24,000 24,000 24,000 24,000 Capital reserves 44,642 65,500 65,500 65,500 65,500 Foreign currency translation reserve 0 2,100 2,200 2,100 2,200 Other reserves 106,000 194,700 215,300 220,400 223,900 Retained profit 0 5,800 4,900 9,200 10,100 Interests of parent company shareholders 168,642 292,100 311,900 321,200 325,700 Non-controlling interests 2,100 2,900 3,100 3,100 3,000 Total equity 170,742 295,000 315,000 324,300 328,700 23.8% Long-term liabilities Provisions 10,400 14,300 12,520 10,600 8,500 Bonds 96,500 185,100 185,100 185,100 185,100 Financial liabilities 113,300 242,320 239,400 230,400 230,100 Other financial commitments 4,300 6,300 6,200 4,200 4,100 Deferred tax liabilities 5,403 10,100 9,300 9,000 8,800 Total long-term liabilities 229,903 458,120 452,520 439,300 436,600 Current liabilities Provisions 80 80 80 80 80 Bonds 100,000 50,000 0 0 0 Financial liabilities 88,055 95,800 95,100 82,700 77,600-2.1% Trade payables 28,120 49,200 43,700 36,700 27,100 Other financial commitments 19,600 41,320 35,800 23,500 10,100 Other liabilities 2,100 4,100 4,000 3,900 4,100 Tax liabilities 1,400 2,500 2,400 2,400 2,300 Total current liabilities 239,355 243,000 181,080 149,280 121,280 Total liabilities 469,258 701,120 633,600 588,580 557,880 Total equity and liabilities 640,000 996,120 948,600 912,880 886,580 0 0 0 0 0 Equity ratio 26.7% 29.6% 33.2% 35.5% 37.1% Liability ratio 73.3% 70.4% 66.8% 64.5% 62.9% net debt 274,498 448,200 338,100 284,180 264,680 1.2% Net debt/ EBITDA 7.1 5.0 3.6 2.8 2.5 Net debt/ EBIT 7.5 5.5 3.9 3.0 2.7 First degree liquidity (Cash Ratio) 16.3% 22.1% 45.3% 60.1% 79.7% Second degree liquidity (Quick Ratio) 32.8% 50.5% 89.6% 113.3% 140.3% Third degree liquidity (Current Ratio) 81.4% 104.1% 163.2% 203.9% 241.8% ROI 3.4% 5.0% 5.7% 6.9% 7.5% * with reported figures of UBM Realitäten AG Source: Company Data, SRC Research All in all, we strongly believe that UBM Development had choosen the right strategy and business modell to benefit from the actual market situation. 8 8 SRC Equity Research
Discounted Cashflow Model for (Entity WACC Method) Assumptions: Equity ratio long-term 35% Beta factor 1.35 CoE Cost of Equity 9.4% Risk-free return 1.0% CoL Cost of Liability 5.5% Market risk premium 6.2% Weighted Average Cost of Capital (WACC) 6.9% Years until first pay-out 0.67 Growth in Terminal Value 0.6% Euro '000 2014e 2015e 2016e 2017e 2018e Terminal Value Revenues 223,600 601,600 612,344 648,116 655,254 658,858 Sales revenues growth 2.9% 169.1% 1.8% 5.8% 1.1% 0.6% Operating cash-profit after staff and material expenses and other expenses 38,900 89,600 94,243 102,583 105,704 106,285 Tax rate on operating cash profit -18.9% -12.1% -14.2% -15.4% -15.8% -18.0% Net operating profit after tax (NOPAT) 31,567 78,796 80,828 86,798 88,966 87,154 Finance result -7,267-19,760-17,227-13,906-12,473-12,580 Free cash flow 24,300 59,036 63,601 72,892 76,493 74,574 Present value of free cash flows 23,249 52,860 53,295 57,162 56,138 812,414 0 PV of terminal value 812,414 PV of detailed period 242,704 Sum of free cash flows / Enterprise Value 1,055,118 + market value of assets that are not necessary for operating business 0 + cash / cash equivalents 38,950 - interest bearing liabilities / long-term provisions 714,300 Market value of equity 379,768 Enterprise value breakdown PV of detailed period PV of terminal value Number of shares '000 6,010 Fair market value per share in Euro 63.19 Development of value drivers 2014e 2015e 2016e 2017e 2018e Terminal Value Sales growth 2.9% 169.1% 1.8% 5.8% 1.1% 0.6% Growth in free cash flow N/A 142.9% 7.7% 14.6% 4.9% -2.5% Sensitivity analysis (per share) No. of shares Tax rate on operating cash profit 63.19 5,810 5,910 6,010 6,110 6,210 63.19-17.0% -18.0% -18.0% -19.0% -20.0% 0.2% 57.47 56.50 55.56 54.65 53.77 5.9% 101.02 98.61 98.61 96.19 93.78 0.3% 58.55 57.56 56.60 55.67 54.78 6.4% 81.50 79.35 79.35 77.20 75.05 0.6% 65.36 64.26 63.19 62.16 61.15 6.9% 65.12 63.19 63.19 61.26 59.34 0.9% 72.86 71.63 70.44 69.29 68.17 7.4% 51.17 49.43 49.43 47.70 45.96 1.0% 76.90 75.60 74.34 73.12 71.95 7.9% 39.17 37.59 37.59 36.01 34.44 Growth in Terminal Value WACC Growth in Terminal Value WACC 63.19 5.9% 6.4% 6.9% 7.4% 7.9% 0.2% 87.47 70.20 55.56 43.00 32.10 0.3% 88.98 71.44 56.60 43.88 32.85 0.6% 98.61 79.35 63.19 49.43 37.59 0.9% 109.39 88.12 70.44 55.50 42.73 1.0% 115.28 92.88 74.34 58.75 45.47 Current share price (Euro) 39.90 Up/Downside 58.4% Source: SRC Research 9 9 SRC Equity Research
DCF model shows significant undervaluation Free cash flow potential of Euro 24m to 74m for the coming years Fair value of Euro 63.19 per share in our DCF Conservative assumptions leave room for further upside in stock valuation High cash income (3.1% dividend yield) for 2014 despite relatively moderate payout ratio In our Discounted Cash Flow (DCF) valuation of the UBM Development share, we estimated the long-term operating cash flow strength of the company by adjusting our forecasted EBIT-figures for non-cash effects like amortization and deducted both taxes as well as the net financing costs. We came up with a sustainable cash flow potential of between Euro 24m to Euro 74m for the coming years which is mainly driven by the new strategy and the disposal of the portfolio in the upcoming six to eight quarters. Discounted and adjusted by cash and outstanding liabilities, we computed a fair equity value of Euro 380m, implying a fair value of Euro 63.19 per share. Our model assumptions were rather conservative: with a risk free interest rate of 1.0% and average cost of liabilities of 5.5% we calculated a weighted average cost of capital (WACC) of 6.9%. However, due to the modified business model towards a pure play trade developer we think a Beta of 1.35 is more appropriate and reflects the slightly higher risks of that business model for the future. As UBM Development has a shareholder structure with a free float of about 41%, we expect sufficient liquidity in the stock. Our DCF with undemanding assumptions results in a conservative target price of Euro 65 per share. This target would still imply a large upside of about 63% at current price of approx. Euro 40 per UBM Development share. Taking into account that book value per share for 2015e is at c. Euro 47, this target price does not seem to be too ambitious. Moreover, the current market valuation of UBM does not reflect its upcoming earnings power in our view. At an EPS (2014) of Euro 3.57, the share is trading at 11.2 times its net profit. Based on our EPS (2015e) assumption of Euro 8.03, the share is trading at 5.0 times of its net profit. In addition, a current dividend yield of 3.1% (2014) at a moderate payout ratio of about 37% provides an attractive mix of capital appreciation and cash income for investors. For the new we give a Buy recommendation and a target price of Euro 63.00. 10 10 SRC Equity Research
Movers and shakers Chief Executive Officer: Mag. Karl Bier Karl Bier was born in March 1955. After earning a degree in law and an additional education in law of taxation he became a Managing Director at several project development companies. Finally, in 1992 he entered the UBM Board of Directors and became the driving force behind the company s expansion and internalization in the last twenty years. In 1990 the iron curtain fell in the middle of Europe and many Austrian companies, in particular UBM, realized the new opportunities by bringing project business to the emerging countries of Eastern Europe in the Nineties and early 2000 years. In 1992, UBM opened the first branch office abroad, in the Czech capital Prague, and planed and built the andel City urban development project with about 25,000 sqm in the years 1994 to 2007 in several phases (20 houses, 2 hotels and 1 boarding house and office space). Poland and Hungary followed soon in Eastern Europe, in the years 1993 and 1994. In Western Europe, Germany, is the first step of UBM in 1999, followed soon by France in 2001. Later on, there were several more market entries in Western Europe (Switzerland, Netherlands) as well as in Eastern Europe and South-Eastern Europe (e.g. Romania, Bulgaria, Russia). As Chairman of the Board, Karl Bier is responsible for the setup, strategy and expansion of the business in the home market Austria and in the most important foreign markets Germany, Poland, Czech Republic and Hungary. In his responsibility for the core markets, Mr. Bier is also the Chairman of the Supervisory board of the important German subsidiary (94% stake) Münchner Grund Bauträger AG, which is located in the Bavarian capital Munich. Chief Financial Officer: Heribert Smolé Heribert Smolé was born in February 1955.In 1973, he joined the PORR group and became department manager of the commercial shareholding management in 1985. Since 1990, he has been active as an authorised joint signatory of the UBM and gradually took over the position of the commercial manager or of the commercial chairman in different societies of the PORR group. Since 1997, he has been a member of the board of the UBM and is especially responsible for financing and accounting, project financing, risk management, controlling, investor relations and for several property companies in Austria. Chief Technical Officer: Dipl.-Ing. Martin Löcker Martin Löcker was born in March 1976. He studied industrial engineering and construction at Austrian Technical University in Graz. Afterwards, he studied real estate economics at the Munich-based European Business School. In 2001, he entered the PORR group or rather the UBM where he was responsible for projects in Austria, France and Germany. In 2007, he became commissioner of the UBM AG and of the Münchner Grund Immobilien Bauträger AG. He is also the manager of different project companies in Austria and abroad. In March 2009, he became a member of the Board of Directors and is now responsible for project calculation, technical reporting and controlling as well as the technical quality management. He is also responsible as for UBM Netherlands, UBM Bulgaria, UBM Romania, UBM Switzerland, UBM France, UBM Hungary and for several project companies in Austria and abroad. 11 11 SRC Equity Research
COO Claus Stadler (designated) Claus Stadler is chartered engenieer and became Member of the board of Straus & Partner Development GmbH, a subsidiary of PORR AG in march 2012. Before he was was appointed as Director of ÖBB Immobilienmanagement GmbH. The native Austrian citizen was former Head of the Architecture Department of PORR Immoprojekt GmbH. Claus Stadler has a profound industry experience of more than 24 years. At UBM Development he is responsible for develpoment business in Austria and Southeastern Europe as well as for IT and Quality Management. Mag. Michael Wurzinger, MRICS Mag. Michael Wurzinger studied business economics at University of Graz and Innsbruck. He holds a master degree and is member of the Royal Institution of Charted Surveyors (RICS). In January 2011 he was appointed as head of management board of PORR Solutions Immobilien- und Infrastrukturobjekte GmbH, a PORR`s subsidiary for project development. As a former member of the board of Immofinanz AG and long-lasting director of Constantia Privatbank AG Michael Wurzinger has an extensive experience in project development and reorganisation. Michael Wurzinger possess more than 21 years in industry experience. At UBM Development he is responsible for Asset Management, Transactions, Marketing and Legal Management. 12 12 SRC Equity Research
P&L 31/12 IFRS (Euro '000 except for per share-data) 2011** 2012* 2013* 2014e* 2015e 2016e 2017e 2018e CAGR '13 - '16e Sales revenues 196,370 133,975 217,226 223,600 601,600 612,344 648,116 655,254 41.3% Activated work for own account 0 0 310 0 0 0 0 0 Result from associated companies -1,005 4,557 12,764 14,781 14,600 12,455 11,879 12,100 Other operating income 7,631 7,792 2,269 4,141 7,200 7,100 6,500 5,500 Material expenses and other services -133,914-83,826-145,539-142,784-430,200-425,785-448,252-447,545 Personnel expenses -16,031-17,875-20,385-20,981-37,500-38,874-40,008-41,455 Amortisation and depreciation on intangible assets and property, plant and equipment -1,726-2,366-2,453-2,300-8,800-8,604-8,750-8,710 Other operating expenses -29,198-30,113-34,792-39,857-66,100-72,997-75,652-78,150 Operating profit (EBIT) 22,128 12,143 29,400 36,600 80,800 85,639 93,833 96,994 42.8% Financial income 10,073 18,581 6,395 7,077 5,020 5,453 5,674 5,977 Financial expenditure -17,643-17,853-17,952-14,344-24,780-22,680-19,580-18,450 Financial result -7,571 729-11,556-7,267-19,760-17,227-13,906-12,473 Earnings before tax (EBT) 14,557 12,872 17,844 29,333 61,040 68,412 79,927 84,521 56.5% Taxes on income -5,651 812-4,316-7,333-10,804-13,415-15,785-16,738 Tax rate 38.8% -6.3% 24.2% 25.0% 17.7% 19.6% 19.7% 19.8% Net profit before monorities 8,906 13,684 13,528 22,000 50,236 54,997 64,142 67,783 Minorities 995-796 -671-524 -450-488 -887-1,132 Net profit after minorities 9,901 12,888 12,857 21,476 49,786 54,509 63,255 66,651 61.8% Earnings per share (EPS) 1.65 2.15 2.14 3.57 8.03 8.79 10.20 10.75 Dividends per share (DPS) 0.55 0.55 0.62 1.25 3.00 3.65 4.65 5.00 Payout ratio 33.3% 25.6% 28.9% 35.0% 37.4% 41.5% 45.6% 46.5% Number of shares ('000) 6,000 6,000 6,000 6,010 6,200 6,200 6,200 6,200 Adjusted shareholders' equity without minorities 144,445 152,758 161,867 168,642 292,100 311,900 321,200 325,700 Book value per share (BVpS) 24.07 25.46 26.98 28.06 47.11 50.31 51.81 52.53 RoE after tax 7.0% 8.7% 8.2% 13.0% 21.6% 18.0% 20.0% 20.6% * Figures of UBM Realitäten AG (before merger) Key ratios & figures 2011** 2012* 2013* 2014e* 2015e 2016e 2017e 2018e Growth rates in % Sales revenues 71.4% -31.8% 62.1% 2.9% 169.1% 1.8% 5.8% 1.1% EBIT -10.5% -45.1% 142.1% 24.5% 120.8% 6.0% 9.6% 3.4% EBT 1.4% -11.6% 38.6% 64.4% 108.1% 12.1% 16.8% 5.7% Net profit after minorities 7.6% 30.2% -0.2% 67.0% 131.8% 9.5% 16.0% 5.4% Margins in % Operating profit (EBIT) 11.3% 9.1% 13.5% 16.4% 13.4% 14.0% 14.5% 14.8% Pre-tax profit (EBT) 7.4% 9.6% 8.2% 13.1% 10.1% 11.2% 12.3% 12.9% Net Profit (after minorities) 5.0% 9.6% 5.9% 9.6% 8.3% 8.9% 9.8% 10.2% Expense ratios in % Personnel costs to sales 8.2% 13.3% 9.4% 9.4% 6.2% 6.3% 6.2% 6.3% Cost of material to sales 68.2% 62.6% 67.0% 63.9% 71.5% 69.5% 69.2% 68.3% Depreciation to sales 0.9% 1.8% 1.1% 1.0% 1.5% 1.4% 1.4% 1.3% Profitability in % Return on equity (RoE) after tax 7.0% 8.7% 8.2% 13.0% 21.6% 18.0% 20.0% 20.6% Return on assets (RoA) 1.7% 2.0% 2.0% 3.4% 5.0% 5.7% 6.9% 7.5% Valuation P/E-ratio 24.2 18.6 18.6 11.2 5.0 4.5 3.9 3.7 Price/ BV ps 1.66 1.57 1.48 1.42 0.85 0.79 0.77 0.76 Dividend yield in % 1.4% 1.4% 1.6% 3.1% 7.5% 9.1% 11.7% 12.5% ** 2011 earnings per share, dividends per share and book value per share adjusted for the split 2:1 in 2012 (number of shares doubled from 3.0m to 6.0m) * reported figures of UBM Realitäten AG 13 SRC Equity Research 13
Balance sheet - 31/12 IFRS (Euro '000) 2011 2012* 2013* 2014e 2015e 2016e 2017e 2018e Non-current assets Intangible assets 2,697 2,702 2,690 3,820 3,750 3,700 3,650 3,600 Property, plant and equipment 36,925 58,411 25,722 27,300 45,150 44,300 44,100 43,500 Financial real estate 249,502 274,341 279,429 284,300 409,300 295,200 209,550 135,900 Participations in associates 20,053 24,665 35,292 34,630 36,100 35,500 33,200 31,200 Project financing 58,946 55,603 69,045 80,910 231,400 256,700 302,700 363,400 Other financial assets 17,291 17,191 9,089 9,110 11,400 10,800 9,400 9,100 Financial assets 0 0 5 150 80 100 80 80 Deferred tex assets 3,762 4,901 6,384 5,020 6,020 6,800 5,800 6,600 Total non-current assets 389,176 437,813 427,654 445,240 743,200 653,100 608,480 593,380 Current assets Inventories 101,839 119,737 117,359 116,300 130,300 133,200 135,200 123,100 Trade receivables 22,484 13,620 19,228 32,420 55,870 67,400 68,200 65,400 Financial assets 8,600 3,216 3,224 3,250 6,000 5,900 5,800 3,000 Other receivables and assets 3,457 5,169 3,417 3,840 7,010 6,900 5,500 5,000 Liquid assets 67,034 53,435 59,893 38,950 53,740 82,100 89,700 96,700 Total current assets 203,413 195,178 203,122 194,760 252,920 295,500 304,400 293,200 Total assets 592,589 632,991 630,776 640,000 996,120 948,600 912,880 886,580 Equity and liabilities 2011 2012* 2013* 2014e 2015e 2016e 2017e 2018e Shareholders' equity Share capital 5,451 18,000 18,000 18,000 24,000 24,000 24,000 24,000 Capital reserves 45,186 44,642 44,642 44,642 65,500 65,500 65,500 65,500 Foreign currency translation reserve 2,439 1,615 1,973 0 2,100 2,200 2,100 2,200 Other reserves 88,058 85,181 93,488 106,000 194,700 215,300 220,400 223,900 Retained profit 3,312 3,320 3,764 0 5,800 4,900 9,200 10,100 Interests of parent company shareholders 144,445 152,758 161,867 168,642 292,100 311,900 321,200 325,700 Non-controlling interests 339 922 1,852 2,100 2,900 3,100 3,100 3,000 Total equity 144,785 153,680 163,719 170,742 295,000 315,000 324,300 328,700 Long-term liabilities Provisions 8,669 7,189 12,502 10,400 14,300 12,520 10,600 8,500 Bonds 163,445 175,112 190,285 96,500 185,100 185,100 185,100 185,100 Financial liabilities 121,545 183,604 134,082 113,300 242,320 239,400 230,400 230,100 Other financial commitments 13,385 12,658 4,333 4,300 6,300 6,200 4,200 4,100 Deferred tax liabilities 8,974 7,954 7,268 5,403 10,100 9,300 9,000 8,800 Total long-term liabilities 316,018 386,516 348,471 229,903 458,120 452,520 439,300 436,600 Current liabilities Provisions 837 36 36 80 80 80 80 80 Bonds 28,294 0 0 100,000 50,000 0 0 0 Financial liabilities 41,842 28,057 57,457 88,055 95,800 95,100 82,700 77,600 Trade payables 37,788 38,464 29,449 28,120 49,200 43,700 36,700 27,100 Other financial commitments 13,458 18,555 20,382 19,600 41,320 35,800 23,500 10,100 Other liabilities 4,771 4,608 2,730 2,100 4,100 4,000 3,900 4,100 Tax liabilities 4,797 3,073 8,533 1,400 2,500 2,400 2,400 2,300 Total current liabilities 131,786 92,794 118,587 239,355 243,000 181,080 149,280 121,280 Total liabilities 447,804 479,310 467,057 469,258 701,120 633,600 588,580 557,880 Total equity and liabilities 592,589 632,991 630,776 640,000 996,120 948,600 912,880 886,580 Equity ratio 24.4% 24.3% 26.0% 26.7% 29.6% 33.2% 35.5% 37.1% Liability ratio 73.3% 70.4% 66.8% 64.5% 62.9% net debt 244,391 284,133 263,936 274,498 448,200 338,100 284,180 264,680 Net debt/ EBITDA 10.2 19.6 8.3 7.1 5.0 3.6 2.8 2.5 Net debt/ EBIT 11.0 23.4 9.0 7.5 5.5 3.9 3.0 2.7 First degree liquidity (Cash Ratio) 16.3% 22.1% 45.3% 60.1% 79.7% Second degree liquidity (Quick Ratio) 32.8% 50.5% 89.6% 113.3% 140.3% Third degree liquidity (Current Ratio) 81.4% 104.1% 163.2% 203.9% 241.8% ROI 3.4% 5.0% 5.7% 6.9% 7.5% Source: Company data, SRC estimates * reported figures of UBM Realitäten AG (IFRS) 14 14 SRC Equity Research
SRC Research - The Specialist for Financial and Real Estate Stocks - SRC - Scharff Research und Consulting GmbH Klingerstr. 23 D-60313 Frankfurt Germany Fon: +49 (0)69/ 400 313-79 Mail: gorlt@src-research.de Internet: www.src-research.de Rating Chronicle Date Rating Former Price Former Target UBM AG 02 September 2014 Hold 23.40 24.00 UBM AG 18 July 2014 Hold 23.70 24.00 UBM AG 29 April 2014 Buy 17.00 24.00 Please note: The UBM share price mentioned in this report is from 08 April 2015. UBM Development AG mandated SRC Research for covering the UBM share. Disclaimer 2015: This equity research report is published by: SRC-Scharff Research und Consulting GmbH, Klingerstr. 23, D-60313 Frankfurt, Germany (short name: SRC Research). All rights reserved. Although we feel sure that all information in this SRC report originates from carefully selected sources with 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 which is not necessarily the same opinion as SRC- Scharff Research und Consulting GmbH or another staff member. All the opinions and assessment made in this report may be changed without prior notice. Within the scope of German regulative framework the author and SRC-Scharff Research und Consulting GmbH do not assume any liability for this document or its content being used. This report is solely for information purposes and does not constitute a request or an invitation or a recommendation to buy or sell any stock that is mentioned here. Private clients should obtain personal advice at their bank or investment house and should keep in mind that prices and dividends of equities can 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 having no long or short-positions in equities or derivatives related to equities mentioned in this report. Reproduction, distribution or publishing this report and its content as a whole or in parts is only allowed with approval of SRC management 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. 15 15 SRC Equity Research