Accumulate (old: Hold) Target: Euro 22.00 (old: Euro 20.00) 12 May 11 Price (Euro) 19.40 52 weeks range 27.00 / 18.70 Key Data Country Germany Industry Financial Services Transparency Prime Standard Internet www.ovb.ag Symbol O4B ISIN DE0006286560 Securities ID-No. 628656 Reuters O4BG.DE Bloomberg O4B Reporting Standard IAS/ IFRS Fiscal Year 31/12 IPO 21/07/2006 Ø Daily Turnover in (1M) 6,341 Market Cap (EUR million) 276.5 Number of shares (million) 14.3 Free Float 3.2% Free Float MarketCap (Euro million) 8.8 CAGR pre-tax profits '10 -'13e 30.9% Multiples 2010 2011e 2012e 2013e P/E-Ratio 69.0 56.2 33.2 27.2 P/S-Ratio 1.6 1.5 1.4 1.4 Dividend Yield 2.6% 1.5% 2.6% 3.1% Key Data per Share (Euro) 2010 2011e 2012e 2013e Earnings per Share (EpS) 0.28 0.34 0.58 0.71 Dividends per Share (DpS) 0.50 0.30 0.50 0.60 Book Value per Share (BVpS) 5.82 5.67 5.95 6.13 Financial Data (Euro '000) 2010 2011e 2012e 2013e Brokerage Income 175,074 182,077 196,643 204,509 Total income 186,326 193,667 208,464 216,448 EBIT 4,790 5,763 10,445 12,349 EBIT-margin 2.7% 3.2% 5.3% 6.0% Pre-tax profit (EBT) 6,342 7,262 12,184 14,238 Net profit after minorities 4,005 4,916 8,335 10,169 Shareholders' Equity 83,002 80,792 84,852 87,397 RoE after tax 4.7% 6.0% 10.1% 11.8% Main Shareholders Deutscher Ring Beteiligungsholding GmbH 32.6% Balance Vermittlung- u. Beteiligungs AG 17.5% Iduna Vereinigte Lebensversicherung AG 31.5% Generali Dt. Lebensversicherung AG 11.5% Financial Calendar AGM 2Q 2011 3Q 2011 Analysts Internet 10 June 2011 12 August 2011 10 November 2011 André Hüsemann, CREA Stefan Scharff, CREA 49 (0)69 400 313-79 49 (0)69 400 313-80 andre.huesemann@src-research.de scharff@src-research.de www.src-research.de www.aktienmarkt-deutschland.de 1Q numbers with an improving CEE picture Cologne-based independent financial advisor for private households Holding AG published today 1Q. The firm has its footprint in 14 European countries. The group s P & L picture was fostered by a strong rebound of revenues and earnings in CEE markets as Poland, Czech Rep, Slovakia and Hungary performed very well. CEE revenues jumped by almost 50% from Euro 20.6m to Euro 30.4m and were also well above 4Q (Euro 27.3m). Keep in mind that CEE stands for > 60% of s clients and advisors. If we compare s CEE key data with the numbers two years ago the company was able to come back to old levels with the number of consultants near old 3,000 levels (2,935 after very low 2,540 in 1Q 2010 and 2,972 in 1Q 2009). The number of CEE clients which only slightly increased over the quarters in 2010 (c. +10,000 per quarter) now jumped by +30,000 in 1Q 2011. The operating margin is now much lower than two years ago (9.2% after 17.6%) as pays a higher stake of its commissions to its consultants since April last year. Nevertheless, the EBIT contribution from CEE to group s figures came in +34% to 2.8m. Germany was stable compared to last year with c. 1,300 consultants and Euro 18m sales and 1.7m EBIT. Number of clients was a bit down at 670k due to Eurenta effect (-11k compared to end 2010). We expect German sales to remain stable throughout 2Q and 3Q after they slightly decreased in 2010 but still far away from pre-crisis levels (> 20m per quarter). Looking at Western and Southern Europe (SWE) sales remained sluggish and fell to only Euro 5.9m after 9.0m in 1Q 2010 and only slightly above 4Q 2010 (Euro 5.5m). still suffers from installing new advisory teams and structures in Switzerland and France and from a bad economic framework in Greece. During the client s base remained stable at 308k compared to last year the number of advisors slightly decreased from 428 to 422. For group s results SWE still stands for an EBIT loss of Euro -0.3m as in 1Q 2010. We assume that might close one or two countries if there is no improving picture until year-end. We would welcome that. On the group s P & L revenues were up 14% with only a small hike in net profit from Euro 1.08m to Euro 1.24m as there were higher deferred non-cash taxes in foreign countries and tax rate went up to high 37% but will come down to c. 30%. Due to strong recovery in CEE business we decided for an upgrade to Accumulate and 22 TP.
Holding AG Holding AG Industry: Financial Services Management Board of Holding AG: Sub segment: Multi level marketing CEO Wilfried Kempchen Country: Germany CFO Oskar Heitz Headquarter: Cologne COO Mario Freis Foundation 1970 Employees: 456 Supervisory Board of Holding AG: Michael Johnigk (Chairman) Dr. Frank Grund IR Contact: Jens O. Geldmacher Jan De Meulder Brigitte Bonifer Christian Graf von Bassewitz Winfried Spies Cologne based was founded already in 1970 and is therefore one of the first multi level marketing companies being active in Germany. Today the company is among leading European companies distributing the complete range of financial products like for instance property, health and accident insurances as well as mutual funds, provision products and corporate pension products to private households. However, a strong general focus is the private pension provision theme where the lion share of commissions is earned. The demography of today s society demands additional provision besides public pension. The major target group are mainly middle class households with average to high incomes. The company has distribution agreements with more than 100 product suppliers and has a customer base of 2.8m clients across Europe. More than 4,500 independent financial advisers provide advice in terms of insurance protection, retirement provision, building wealth or real estate acquisitions. At present, is represented with its subsidiaries in 14 countries which all belong to the European Union except for Ukraine and Switzerland. To simplify reporting, countries are being classified in three regions: France, Italy, Spain, Switzerland, Austria and Greece belong to South and Western Europe (SWE). Ukraine, Croatia, Romania, Hungary, Slovakia, Czech Republic and Poland represent Central and Eastern Europe (CEE) while Germany as domestic market stand for its own. Holding AG Sales companies Central and Eastern Europe Sales companies Germany Sales companies Southern and Western Europe Service companies Czech Republic Vermögensberatung Austria Nord-Soft Epcon Czech Republic Eurenta Holding Switzerland MAC Slovakia Greece Informatikai EPCON Slovakia Eurenta Greece Poland France Hungary Italy Croatia Spain Romania Ukraine Due to an early engagement as outrider in Central and Eastern Europe already in early nineties, has a very sound and in some countries even a leading market position. Therefore the majority of advisers are active in the CEE region and generate usually the largest contribution to group's revenues and net income. However, the fourteen national markets of count a population of more than 400 million people. The company generates almost three fourths of its total revenues outside Germany and has therefore by far the most significant foreign business compared to other German competitors within the industry. Anyhow, the management continously screens further national markets to expand its reach. Source: Company Data, SRC Research 2 2 SRC Equity Research
Holding AG Strengths is a well-known brand in Germany and also in most of its foreign markets. In particular in Germany is for more than 40 years in the market and belongs to the first IFA brands in financial industry. Retirement provisions are a very important future market. The unfavourable demographic constellation in Germany and other European countries (decreasing birth-rates and steeply increasing old-agers) forces for more private old-age provision. A rising public consciousness for this problem might help to foster life insurance, pension insurance, unit-linked provision products and other provision products. The pension systems of CEE-countries are strongly based on the responsibility of each individual for its old-age pension and, thus, offer huge earnings potential for IFA companies. The good strategic positioning in Eastern Europe is a very crucial point of s equity story. The company proved a successful track record for many years although growth and profits came down in 2009 and 1H 2010. Very good geographical diversification leads to a low dependence on single markets and high potential for counterbalance in case of recession in single markets. As 1Q 2011 shows a strong upward trend in CEE countries like Poland, Hungary and Slovakia to balance sluggish numbers from SWE region (France, Switzerland, Greece). Weaknesses Free Float is only at 3.2% meaning lower trading in -stocks at the stock-markets and a relatively low Free Float market cap of some Euro 9m. Therefore liquidity of the share is very low. Opportunities The financial services provider industry has to deal with basic changes. Regulations like MiFID or the EU Directive on Insurance Mediation aim on a better consumer protection and a higher quality standard. Smaller companies or semi-professionals will not survive with changed regulations along with higher costs. Winner of this IFAconsolidation are the large, sophisticated IFAs like. Demand for long-term pension provion solutions surges in the Eastern Europan countries after a slump in 2009 and first half of 2010. Threats Increasing challenge to find qualified financial consultants. Due to new regulations that restrict activity of financial consulting to qualified and well-trained staff, hiring of new manpower became more challenging and more cost-intensive. was able to again bring up number of consultants in 1Q 2011 by 51 to 4,651. Problems with a high churn rate in Switzerland and France which impairs results in the SWE-region. Small EBIT loss of Euro 0.3m in SWE like in the year before. 3 3 SRC Equity Research
Holding AG with strong rebound of Eastern European business in 1Q 2011 as number of consultants is back on old 3,000 levels and quarterly sales jumped to > 30m New contracts also strongly surged in 4Q 2010 and 1Q 2011 Quarterly key figures by regions Germany 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 consultants 1,234 1,301 1,335 1,323 1,304 1,329 1,345 1,282 1,294 client base ('000) 694 694 695 693 690 688 684 681 670 Sales commission per quarter (million)* 21.7 15.8 17.7 20.6 18.0 17.5 16.6 19.3 17.7 CEE-region 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010e 1Q 2011 consultants 2,972 2,918 2,729 2,697 2,540 2,801 2,778 2,890 2,935 client base ('000) 1,770 1,770 1,770 1,770 1,780 1,790 1,800 1,810 1,840 Sales commission per quarter (million)* 21.7 20.2 20.2 19.1 20.6 22.8 22.5 27.3 30.4 SWE-region 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010e 1Q 2011 Consultants 751 701 651 644 566 477 453 428 422 client base ('000) 321 323 324 308 309 311 308 306 308 Sales commission per quarter (million)* 11.6 9.7 8.8 10.2 9.0 7.3 10.9 5.5 5.9 - all 3 regions compound 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010e 1Q 2011 consultants 4,957 4,920 4,715 4,664 4,410 4,607 4,576 4,600 4,651 client base ('000) 2,785 2,787 2,789 2,771 2,779 2,789 2,792 2,797 2,818 Total sales commission (million)* 55.0 45.7 46.7 49.9 47.6 47.6 50.0 52.1 54.0 * with revenues from secondary contracts New contracts per quarter 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 All 3 regions compound 110,973 114,838 110,103 120,251 126,164 thereof Germany 25,292 25,757 23,741 26,262 24,912 thereof CEE 71,850 77,227 75,215 84,572 91,294 thereof SWE 13,831 11,854 11,147 9,417 9,958 Source: SRC Research and company data 4 SRC Equity Research 4
Holding AG P&L Account for Holding AG 31/12 IFRS ('000 Euro) 2006 2007 2008 2009 2010 2011e 2012e 2013e CAGR '10 - '13e Brokerage Income* 186,982 221,785 236,351 180,110 175,074 182,077 196,643 204,509 5.3% Other operating income 11,615 12,564 16,297 14,388 11,252 11,590 11,821 11,940 Total income 198,597 234,349 252,648 194,498 186,326 193,667 208,464 216,448 5.1% Brokerage expenses -112,431-134,383-142,533-108,346-112,542-118,350-126,835-131,908 Gross profit 74,552 87,402 93,818 71,764 62,532 63,727 69,808 72,601 Gross margin 39.9% 39.4% 39.7% 39.8% 35.7% 35.0% 35.5% 35.5% Personnel expenses -18,259-21,512-24,618-25,160-24,773-25,127-25,760-25,768 Other operating expenses -39,968-45,197-52,818-47,548-41,100-40,967-41,688-42,333 EBITDA 27,940 33,257 31,349 12,406 6,653 7,935 12,852 16,439 EBITDA-margin 14.9% 15.0% 13.3% 6.9% 3.8% 4.4% 6.5% 8.0% Depreciation and amortisation -3,816-4,303-3,838-3,816-3,121-3,459-3,736-4,090 Operating profit (EBIT) 24,123 28,955 28,841 9,628 4,790 5,763 10,445 12,349 37.1% EBIT margin 12.9% 13.1% 12.2% 5.3% 2.7% 3.2% 5.3% 6.0% Financial result 1,552 2,914 1,909 1,644 1,552 1,500 1,740 1,890 Earnings before taxes (EBT) 25,675 31,868 30,750 11,272 6,342 7,262 12,184 14,238 30.9% EBT margin 13.7% 14.4% 13.0% 6.3% 3.6% 4.0% 6.2% 7.0% Taxes on income -9,344-11,706-6,316-2,561-2,365-2,396-3,899-4,129 Tax rate 36.4% 36.7% 20.5% 22.7% 37.3% 33.0% 32.0% 29.0% Consolidated net income for the year 16,332 20,162 24,434 8,711 3,977 4,866 8,285 10,109 Minority interests -22 50-75 53 28 50 50 60 Net profit after minorities 16,309 20,212 24,359 8,764 4,005 4,916 8,335 10,169 36.4% Return on sales 8.7% 9.1% 10.3% 4.9% 2.3% 2.7% 4.2% 5.0% Number of shares 13,531 14,251 14,251 14,251 14,251 14,251 14,251 14,251 Earnings per Share (EPS) 1.21 1.42 1.71 0.61 0.28 0.34 0.58 0.71 Dividends per Share (DpS) 0.90 1.15 1.35 0.50 0.50 0.30 0.50 0.60 Book Value per Share (BVpS) 6.06 6.27 6.76 6.04 5.82 5.67 5.95 6.13 Total assets 138,864 155,454 162,931 148,839 144,895 141,370 145,611 149,979 Shareholders' Equity 82,049 89,400 96,357 86,123 83,002 80,792 84,852 87,397 1.7% * without secondary contracts Key ratios & figures 2006 2007 2008 2009 2010 2011e 2012e 2013e Growth rates in % Revenues 25.0% 18.0% 31.9% -23.0% -4.2% 3.9% 7.6% 3.8% EBITDA n.s. 19.0% 24.9% 39.3% -46.4% 19.3% 62.0% 27.9% EBIT 33.8% 20.0% 29.3% -66.6% -50.2% 20.3% 81.2% 18.2% EBT 33.5% 24.1% 24.7% -63.3% -43.7% 14.5% 67.8% 16.9% Net profit 24.2% 23.9% 26.9% -64.0% -54.3% 22.7% 69.6% 22.0% Margins in % Gross 39.9% 39.4% 39.7% 39.8% 35.7% 35.0% 35.5% 35.5% EBITDA 14.9% 15.0% 13.3% 6.9% 3.8% 4.4% 6.5% 8.0% EBIT 12.9% 13.1% 12.2% 5.3% 2.7% 3.2% 5.3% 6.0% EBT 13.7% 14.4% 13.0% 6.3% 3.6% 4.0% 6.2% 7.0% Expense ratios in % Personnel costs quote 9.8% 9.7% 10.4% 14.0% 14.2% 13.8% 13.1% 12.6% Cost of material to sales 60.1% 60.6% 60.3% 60.2% 64.3% 65.0% 64.5% 64.5% Depreciation to sales 2.0% 1.9% 1.6% 2.1% 1.8% 1.9% 1.9% 2.0% Tax rate 36.4% 36.7% 20.5% 22.7% 37.3% 33.0% 32.0% 29.0% Profitability in % Net profit to sales ratio 8.7% 9.1% 10.3% 4.9% 2.3% 2.7% 4.2% 5.0% Return on equity (RoE) after tax 24.4% 23.6% 26.2% 9.6% 4.7% 6.0% 10.1% 11.8% Return on assets (RoA) 11.9% 13.1% 15.1% 6.0% 2.9% 3.5% 5.7% 6.8% Return on investment (RoI) 11.7% 13.0% 15.0% 5.9% 2.8% 3.5% 5.7% 6.8% Valuation P/E-ratio 16.07 13.62 11.32 31.55 69.03 56.24 33.17 27.19 P/E-ratio (historical share price by year-end) 21.13 14.39 15.75 55.30 96.08 56.24 33.17 27.19 Price/ BVpS 3.20 3.09 2.87 3.21 3.33 3.42 3.26 3.16 Dividend yield in % 4.6% 5.9% 7.0% 2.6% 2.6% 1.5% 2.6% 3.1% EV/ Sales 1.85 1.32 1.63 2.69 2.20 1.52 1.41 1.35 EV/ EBITDA 12.38 8.80 12.29 39.09 57.91 34.90 21.55 16.85 5 5 SRC Equity Research
Holding AG 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 / 400 313-79 E-Mail: Feedback@src-research.de Internet: www.src-research.de Rating Chronicle Date rating former share price former target Holding AG 31 March 2011 Hold 19.00 20.00 Holding AG 24 February 2011 Hold 20.65 20.00 Holding AG 08 November 2010 Hold 20.96 20.00 Holding AG 16 August 2010 Hold 24.76 26.00 Holding AG 12 May 2010 Hold 24.80 26.00 Holding AG 01 April 2010 Accumulate 28.20 30.00 Holding AG 02 February 2010 Accumulate 26.30 30.00 Please note: share price mentioned in this report is from closing of 11 May 2011. mandated SRC Research for mentoring the share. Disclaimer 2011: 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 themselfes 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. 6 6 SRC Equity Research