Original-Research: UmweltBank AG - from GBC AG

Classification of GBC AG to UmweltBank AG

Company Name: UmweltBank AG
ISIN: DE0005570808

Reason for the research: Research Note
Recommendation: BUY
Target price: 9.60 EUR
Target price on sight of: 31.12.2024
Last rating change:
Analyst: Cosmin Filker, Marcel Goldmann

Transformation year 2023 in line with expectations; further investments in digitalisation and customer growth expected; return to profitability after another transformation year 2024; price target: € 9.60; rating: BUY  
UmweltBank AG published its preliminary figures for the past financial year 2023 on 18 March 2024. As expected, the past financial year was characterised by both a decline in earnings and an increase in total costs. On the income side, net interest result in particular declined to € 41.10 million (previous year: € 58.79 million). At the same time, the financial result fell significantly to € 7.17 million (previous year: € 24.83 million).
 
The main reason for the decline in net interest result, which we had anticipated in our previous forecasts, but had assumed a smaller decline, was once again likely the increase in interest expenses. The general rise in interest rates has led to greater adjustments to the conditions for customer deposits. These react more strongly to interest rate adjustments due to the lower duration. In addition, the increase in interest expenses is due to changes in the conditions for TLTRO funds, i.e. the low-interest refinancing funds provided by the ECB.
 
The declining earnings trend described above is offset by a significant increase in personnel and administrative expenses. Personnel expenses rose visibly by almost 30% to € 25.62 million (previous year: € 19.88 million). The main drivers of this development were new hires in areas relevant to regulatory requirements and the general rise in salary levels. As at the balance sheet date of 31 December 2023, UmweltBank AG had reached a new high in the number of employees with 354 (31 December 2022: 332). In addition, the successfully implemented change to the core banking system led to an increase in administrative expenses of around € 10 million to € 31.51 million (previous year: € 21.57 million), as announced.  
The preliminary earnings before taxes of € 1.12 million (previous year: € 39.21 million) resulting from the development described above are in line with the company's guidance published in August 2023, which had forecast earnings before taxes of around € 1 million. Based on this, we had forecast EBT of € 0.97 million in our most recently published research study.  
At the beginning of March 2024, UmweltBank's management informed the capital market about their strategic realignment. At the same time, the company announced a pre-tax result of between € -15 million and € -20 million as part of their initial guidance for the current 2024 financial year. At the investor and press conference held on 18 March 2024, the new CEO Dietmar von Blücher presented the background to this guidance and strategic realignment.
 
Our earnings and profit estimates are based on the company's guidance, which was adjusted in March 2024. For the coming financial years, UmweltBank AG presented a graphic guidance for earnings before taxes as part of the investor presentation, which we are also following. For the current financial year, we expect a slight increase in net interest income, which is based on slight improvements in terms and conditions with an almost unchanged volume of outstanding environmental loans. In the following two financial years, 2025 and 2026, net interest income should gain momentum again. This is based on improved conditions on the lending side and the assumption that interest costs will stabilise at the level of customer deposits. We also anticipate a strong increase in customer deposits, which can be invested profitably as part of the treasury activities. The financial result, which includes a small amount of profitable sales of investments, should increase slightly according to our estimates. Net commission and trading income should also benefit from the rise in customer deposits and also increase slightly.  
In contrast, investments in digital processes and the expansion of customer deposits are likely to lead to significant cost increases, which we estimate will result in a negative EBT of € -15.90 million. We anticipate a return to profitability for the two subsequent estimation periods. Both the increase in total revenue that we expect and - following the completion of their digital transformation - the anticipated decline in total costs should contribute to this.
 
For the valuation of UmweltBank AG, we have used a residual income model, whereby the difference between the return on equity and the cost of equity is used to determine the surplus return of the estimation periods. The sum of the discounted residual earnings results in a value of € 342.47 million (previously: € 488.93 million). With 35.66 million shares outstanding, this results in a fair value per share of € 9.60 (previously: € 13.80).  
The sharp reduction in the fair value is primarily due to the lower forecasts for the 2024 and 2025 financial years, which also form a low basis for our initial forecasts for the 2026 financial year. In addition, the increase in the WACC to 5.35% (previously: 4.97%) resulting from the increase in the risk-free interest rate also has a price-target-reducing effect. Following the sharp fall in the UmweltBank share price, the upside potential remains high despite the reduction in the price target and we continue to assign a BUY rating.
 

You can download the research here:
http://www.more-ir.de/d/29257.pdf

Contact for questions
GBC AG
Halderstraße 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG und Art. 20 MAR Beim oben analysierten Unternehmen ist folgender möglicher Interessenkonflikt gegeben: (1,4,5a,6a,7,11); Einen Katalog möglicher Interessenkonflikte finden Sie unter: https://www.gbc-ag.de/de/Offenlegung
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Date (time) completion of the study: 26.03.24 (1:25 pm) Date (time) first publication: 26.03.24 (2:30 pm)

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The issuer is solely responsible for the content of this research. The result of this research does not constitute investment advice or an invitation to conclude certain stock exchange transactions.