RCM Beteiligungs — Disposal standstill in Q220

RCM Beteiligungs (DB: RCM)

Last close As at 21/11/2024

2.10

0.00 (0.00%)

Market capitalisation

28m

More on this equity

Research: Financials

RCM Beteiligungs — Disposal standstill in Q220

In H120, RCM Beteiligungs group reported €10.2m in revenues against €19.2m in H119. The decline was attributable to a lower volume of property disposals, as rental income remained broadly stable at €0.8m. The large volume drop in transaction activity is mostly due to a weak Q220 amid the COVID-19 outbreak, as well as a strong prior-year comparison, which included the €9.8m disposal of a residential and commercial complex. Lower disposal volume translated into a c 48.8% y-o-y decline in consolidated pre-tax profit to €2.1m. However, a €2.4m sale was completed in Q320, suggesting some pick-up in the real estate investment market activity.

Milosz Papst

Written by

Milosz Papst

Head of Content, Investment Trusts

Financials

RCM Beteiligungs

Disposal standstill in Q220

Real estate

Scale research report - Update

12 October 2020

Price

€2.08

Market cap

€27m

Share price graph

Share details

Code

RCMN

Listing

Deutsche Börse Scale

Shares in issue

13.1m

Last reported standalone net debt
at 30 June 2020

€6.7m

Business description

RCM Beteiligungs is a property developer, acquiring rental income-producing assets in and around Dresden and investing in refurbishment with the aim of improving the tenant mix to enhance value. RCM also invests in financial assets with a more than 10% stake in KST Beteiligungs, a financial investor, held by its subsidiary – SM Wirtschaftsberatungs.

Bull

Low pre-COVID unemployment levels in Dresden.

Focus on a defined region leads to greater understanding of opportunities.

Established business concept and strong partner network in the region.

Bear

Small company, largely dependent on development of the Dresden region.

Low interest rate environment may end.

Dependence on positive macro environment in the region and attractive sourcing potential.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Michal Mierzwiak

+44 (0)20 3077 5700

In H120, RCM Beteiligungs group reported €10.2m in revenues against €19.2m in H119. The decline was attributable to a lower volume of property disposals, as rental income remained broadly stable at €0.8m. The large volume drop in transaction activity is mostly due to a weak Q220 amid the COVID-19 outbreak, as well as a strong prior-year comparison, which included the €9.8m disposal of a residential and commercial complex. Lower disposal volume translated into a c 48.8% y-o-y decline in consolidated pre-tax profit to €2.1m. However, a €2.4m sale was completed in Q320, suggesting some pick-up in the real estate investment market activity.

Deleveraging supports equity ratio of 52%

RCM Group’s equity ratio remained at a healthy 52% (vs 53% at end March 2020 and c 50% at end 2019), assisted by a reduction in the parent company’s net debt level (€6.7m at end June 2020 vs €11.0m at end December 2019). The company is continuing its share buyback programme (targeting up to 1.31m shares in total), with c 110.5k shares repurchased ytd up to early October 2020 (representing 0.8% of its share capital). Around 900k treasury shares were cancelled in H120.

Increased parent company earnings

On a standalone basis, RCM improved its H120 figures, reporting c €5.8m revenues against €0.4m in H119. The increase was partially offset by the lack of dividend income from its subsidiaries reported over the period and €0.6m in write-downs on financial assets and securities. Nevertheless, RCM reported H120 net income of €1.1m against a €56.6k loss in H119.

Valuation: Stable dividend yield of 2.9%

During the AGM on 28 September 2020, the decision was made to pay an annual dividend amounting to €0.06 per share, which is on a par with the 2019 and 2018 distributions. It constitutes a 2.9% yield, based on RCM’s share price at close on 7 October, which is below the 4.6% yield of its closest comparable company, Noratis, in terms of business model.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

11.4

1.8

0.11

0.04

18.9

1.9

12/17

19.4

2.1

0.11

0.06

18.9

2.9

12/18

17.6

2.9

0.18

0.06

11.6

2.9

12/19

21.1

4.4

0.19*

0.06

10.9*

2.9

Source: Company accounts, Edison Investment Research. Note: *Based on 14.0m shares (not adjusted for treasury shares and buyback post reporting date).

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.

H120 Financials: Q2 transaction market weakness

In H120, RCM Beteiligungs group reported a significant y-o-y decrease in the volume of real estate transactions to €8.4m (all booked in Q120) from c €18.4m recorded in H119. We believe this was likely due to the pandemic outbreak, which affected the broad German real estate investment market (see market outlook section below), as no disposal income was generated by RCM in Q220.

Having said that, the company announced in July that it had already completed a €2.4m disposal in Q320, which suggests that transaction opportunities may have returned in the market. We also note that, following higher disposal activity in recent years, RCM’s management plans to focus more on new project acquisitions (both residential and commercial) in the near term, in particular in the greater Dresden area. This includes €2.3m invested in January 2020 in a production, warehouse and office complex with usable space of c 5,700sqm, which currently generates rental income of around €250k pa. Additionally, before end June 2020, RCM completed the acquisition of a 4,400sqm commercial property located in Dresden. H120 rental income was on a par with the H119 figure of €0.8m (with €0.38m booked in Q120). However, management has not provided an update on the impact of the pandemic on rent collection rates in Q220 which, according to earlier management comments, in April alone remained high at c 97%.

Group interest and dividend income reached €447k in H120 (vs €477k in H119) and was ahead of interest expense of €355k (vs €387k in H119). On the other hand, results include the impact of risk provisions to the amount of €834k (of which €751k was booked in Q120) related to the impact of the recent capital markets downturn on RCM’s securities portfolio. Consequently, consolidated pre-tax profit fell to €2.1m over the first six months of 2020 from €4.1m in H119.

Exhibit 1: Financial highlights

H120

H119

change y-o-y

RCM Group results (in €m)

Total revenue, of which:

10.2

19.2

-46.9%

Rental revenue

0.8

0.8

0.0%

Property disposal

8.4

18.4

-54.3%

Pre-tax profit

2.1

4.1

-48.8%

RCM Beteiligungs standalone figures (in €‘000s)

Total revenue, of which

5,798.3

419.5

NM

Rental revenue

246.3

391.2

-37.0%

Property disposal

5,552.0

0.0

NM

Other revenue

0.0

28.3

NM

Change in inventories of property available for sale

(2,814.1)

0.0

NM

Total performance

2,984.2

419.5

NM

Other operating income

165.1

207.2

-20.3%

Costs of goods and services

(180.0)

(57.3)

213.9%

Personnel expenses

(165.2)

(241.2)

-31.5%

Depreciation and amortization

(16.1)

(10.2)

58.7%

Other operating expense

(737.7)

(621.3)

18.7%

Income from associates

0.0

105.1

NM

Income from other securities and loans

388.6

384.9

1.0%

Other interest and similar income

5.4

30.2

-82.1%

Write-downs on financial assets and securities

(607.2)

0.0

NM

Interest and similar expenses

(207.3)

(256.3)

-19.1%

Pre-tax profit

1,629.7

(39.5)

NM

Income taxes

(521.9)

(16.3)

NM

Other taxes

(0.4)

(0.8)

-49.9%

Net income

1,107.4

(56.6)

NM

Source: RCM Beteiligungs accounts

As RCM Beteiligungs (the parent company of the group) reports under German accounting standards (HGB), it is not obliged to present consolidated accounts and management reports, which makes detailed top-down analysis of the group’s financial statement less meaningful. Nevertheless, we note that on a standalone basis, RCM recorded c €5.6m in revenue from property disposals in H120 vs none in the H119. However, it is worth noting that RCM (both as a single entity and a group) is relatively small (market cap amounting to €27m at 2 October 2020), and therefore a single transaction may have a significant overall impact on its reported results. The operational improvement of RCM Beteiligungs in H120 was partially offset by €0.6m in write-downs on financial assets and securities (zero in H119). Furthermore, due to the fact that there were delays in holding AGMs at subsidiary company level, RCM did not report any income from associates in H120, which should be delayed to the second half of the year. The company expects an improved dividend from SM Wirtschaftsberatungs in H220, amounting to €0.26 per share (c €0.7m) vs €0.20 in H119. Consequently, RCM’s standalone pre-tax profit reached €1.6m in the first six months of 2020 (against a slight loss in the corresponding period of 2019), while net income improved to €1.1m from a €56.6k loss in H119.

Healthy equity ratio of 52%

In H120, the company reported only a slight decline in the consolidated equity ratio, from 53% at end March 2020 to 52% at 30 June. However, it is worth noting that this figure does not reflect the recent dividend payout, amounting to €0.06 per share, made on 1 October 2020. The total distribution amounted to c €0.8m, while cash and cash equivalents at 30 June 2020 were €3.1m vs just €1.2m at end 2019.

As RCM reported its H120 financial statements on a standalone basis only, we are unable to track the development of consolidated net debt, which at end 2019 stood at €19.5m. At parent company level, net debt fell to €6.7m at end June 2020 from €11.0m at end December 2019. At the same time, we note that c 72% of total bank liabilities (amounting to €9.9m at 30 June 2020) mature within the next 12 months.

RCM continues its minor share buyback programme, which targets up to 1.31m shares in total, with another 110.5k shares repurchased ytd, constituting c 0.8% of the company’s share capital. The company recently cancelled 900k treasury shares.

Market outlook: Depressed investment volume

While investment volumes in the German real estate market declined by c 15% y-o-y to €14.7bn in Q220 (based on JLL data), the market has so far remained relatively resilient in the fact of the COVID-19 crisis, with investor interest remaining strong (particularly in the core segments), fuelled by monetary easing and declining government bond yields. Properties in the living segment (residential, student accommodation, micro apartments etc) were especially sought after in the investment market as investors seem to perceive them as a safe haven. This is reflected in the segment’s 35% share of total real estate investment in H120, according to JLL, compared to 24% in 2019.

In contrast, office real estate’s share of overall investment volume declined from c 40% in FY19 to 22% in H120, according to JLL. During the first six months of 2020, c 1.28m sqm of office space was either let to tenants or sold to owner-occupiers in the seven largest German cities, which constitutes a c 36% y-o-y drop. It is worth noting that Q220 saw the weakest second quarter take-up since 2009. We also note that the overall impact of the pandemic on the sector could be delayed due to the stimulus package launched by the government, which helped preserve jobs and avoid terminating lease agreements. According to JLL, the aggregate vacancy rate in the office segment at end June 2020 remained very low, at c 3.2%, helping rental prices stay on a par with pre-coronavirus levels. In contrast, demand for office space could be reduced due to the increasing popularity of the working from home business model.

According to German Property Partners (GPP), the investment market started to rebound in Q320, with commercial property trading volumes in the seven largest German cities reaching €6.5bn over this three-month period (of which 60% is attributable to office properties), exceeding the Q220 total by c €1.8bn (although still down 19% y-o-y). As the broad economic outlook remains uncertain, core properties constitute a significant part of the overall investment volume. GPP forecasts a total commercial property transaction volume for 2020 of €27.6bn (well below the five-year average of €33.1bn), which suggests €8.5bn in Q420, constituting a c 30% q-o-q improvement against Q320.

Valuation

With RCM’s business model positioned between that of an asset holder and a developer, we had used Noratis (which has a similar operating model) as a comparator for valuation purposes, as it is somewhat difficult to build a peer group of listed companies. However, due to the limited reporting requirements of German Accounting Standards and limited group-level disclosure provided by the company, there is insufficient information to perform an earnings multiple valuation comparison on a consolidated level for H120 figures. Nevertheless, we note that RCM paid an annual dividend of €0.06 per share, which constitutes a 2.9% yield, well below Noratis’s 4.6%.

General disclaimer and copyright

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. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on RCM Beteiligungs

View All

Latest from the Financials sector

View All Financials content

Research: TMT

YouGov — Data-led progress

Full year results were in line with the July trading update, a little ahead of our published estimates, with revenues up 12% and adjusted operating profit up 18%. Data Products (one-third of group revenue) performed particularly well, with underlying revenues up 21% and operating margin up 70bp to 35.0%. A strong balance sheet (net cash of £35.3m) supports stepped-up investment in both technology and in panel, underpinning the ambitious targets set out for the three remaining years of management’s five-year plan. The valuation remains at the high end of the range of peers.

Continue Reading

Subscribe to Edison

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

Sign up for free