ÖKOWORLD — Healthy performance fee and dividend income

Private: ÖKOWORLD (VVV3)

Last close As at 20/11/2024

74.60

1.20 (1.63%)

Market capitalisation

228m

More on this equity

Research: Financials

ÖKOWORLD — Healthy performance fee and dividend income

Following muted results in FY18, ÖKOWORLD (ÖWAG) reported significant top- and bottom-line expansion in FY19, driven by a €2.8m improvement in performance fee income. As total assets under management (AUM) reached €1.65bn at end 2019 (up more than €554m vs 2018), the resulting management fee improved by a further €2.1m (up 21% y-o-y). Given the equity market collapse in early 2020, the performance fee this year could fall short of the 2019 level. However, this could be at least partially offset by management fees being supported by higher AUM, as ÖWAG was able to expand these further during the slowdown, to €1.68bn at end April.

Milosz Papst

Written by

Milosz Papst

Head of Content, Investment Trusts

Financials

ÖKOWORLD

Healthy performance fee and dividend income

Diversified financials

Scale research report - Update

29 May 2020

Price

€17.0

Market cap*

€120m

*Based on 7.06m total shares issued (after deducting treasury shares). Only 3.05m non-voting preference shares are listed on the stock market.

Share price graph

Share details

Code

VVV3

Listing

Deutsche Börse Scale

Shares in issue

3.05m

Last reported net cash at end-2019

€18.7m

Business description

ÖKOWORLD Group’s business is focused on asset management, insurance brokerage and advisory services. It is one of Germany's pioneers in socially responsible investing (SRI) and ethical-ecological investment advice and was founded in 1975. It preserved its successful core investment principles and reached AUM of c €1.7bn at end-April 2020.

Bull

A strong brand with established distribution channels and constant AUM growth.

SRI investments have become mainstream with more companies following SRI rules.

Proven track record and numerous awards.

Bear

Despite its long history, still relatively low AUM.

Only preference shares available to investors.

Strong dependency on German customers.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Michal Mierzwiak

+44 (0)20 3077 5700

Following muted results in FY18, ÖKOWORLD (ÖWAG) reported significant top- and bottom-line expansion in FY19, driven by a €2.8m improvement in performance fee income. As total assets under management (AUM) reached €1.65bn at end 2019 (up more than €554m vs 2018), the resulting management fee improved by a further €2.1m (up 21% y-o-y). Given the equity market collapse in early 2020, the performance fee this year could fall short of the 2019 level. However, this could be at least partially offset by management fees being supported by higher AUM, as ÖWAG was able to expand these further during the slowdown, to €1.68bn at end April.

Financials: €4.9m dividend from ÖKOWORLD LUX

In FY19, ÖKOWORLD reported a 33.3% y-o-y increase in revenues to €20.3m, driven by higher management fees (resulting from expanding AUM) and performance fees earned, thanks to record-high unit prices. The reported figures were further assisted by €4.9m received in dividends from its fund managing subsidiary, bringing FY19 EBIT to €13.1m, against €5.3m in FY18. ÖWAG improved its net profit for the period to 10.9m from 3.4m in the previous year, helped by a lower effective tax rate (18.9% in FY19 vs 32.9% in FY18).

Funds set new high-water marks

Driven by robust performance in broad equity markets, all funds managed by ÖKOWORLD LUX reported healthy returns in FY19, led by ÖKOWORLD KLIMA with a 37.1% return. Over the year, almost all funds recorded record-high unit prices, triggering a performance fee charge. Momentum was stalled in Q120 by the February/March coronavirus-related market collapse, followed by a rebound from April. Nonetheless, with positive market sentiment towards sustainable investments across Europe, the funds were able to win new clients during the slowdown, expanding total AUM from 1.65bn to 1.68bn at 30 April 2020.

Valuation: Price to last reported AUM at 7.2%

As consensus estimates for ÖKOWORLD are unavailable, we have chosen to compare the company based on the ratio of market cap to last reported AUM, sitting at 7.2% for ÖWAG vs the average for the peer group, including European asset managers, of 3.5%. The expected dividend payment from FY19 earnings, amounting to €0.61 per share, constitutes a 3.6% dividend yield, which is 1.7pp lower than the peer group average.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

9.2

5.2

0.60

0.51

28.3

3.0

12/17

15.8

9.7

1.02

0.60

16.7

3.5

12/18

15.3

5.1

0.50

0.40

34.0

2.4

12/19

20.3

13.5

1.54

0.61

11.0

3.6

Source: ÖKOWORLD accounts

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.

Financials: Healthy fund returns and growing AUM

On the back of robust equity markets (MSCI World Index up 27.7% in 2019) and positive sentiment towards sustainable investments, FY19 was one of the best years in ÖWAG’s history. It reported a c 33% improvement in revenues to €20.3m, driven by increased income from both management and performance fees, with the latter growing by €2.8m, after reporting virtually none in FY18. Management fees, benefiting from increased AUM of €1.65bn at end December 2019, improved by 21% y-o-y to c €12m (based on our estimates). The company also highlighted good traction in its life insurance products business, with new contracts at end October 2019 doubling versus the prior year.

The higher AUM base resulted in higher provisions paid to distributors, driving an increase in costs of services from €4.3m in FY18 to €5.4m in FY19. The almost 46% y-o-y rise in personnel expenses partially results from a higher headcount (38 employees at 31 December 2019 vs 34 a year earlier), but also some reorganisation activity last year together with performance bonuses paid to staff. Other operating expenses, including marketing, IT, rents etc, remained broadly stable at c €2.4m.

In FY19, ÖWAG received nearly €4.9m in a dividend payment from its fund management subsidiary, ÖKOWORLD LUX, which brought EBIT to €13.1m (vs €5.3m in FY18) and almost doubled its margin (64.5% against 34.6%). Together with the profitable sale of fund units held by the company, which yielded €0.6m in FY19 (zero in FY18) and relatively low income tax (18.9% effective tax rate vs 32.9% in the previous year), ÖWAG improved its net profit for the period to €10.9m from €3.4m in FY18.

Exhibit 1: Financial highlights

€000s

FY19

FY18

y-o-y

Revenues

20,297

15,222

33.3%

Other operating income

359

100

258.1%

Costs of services

(5,419)

(4,321)

25.4%

Personnel expenses

(4,434)

(3,040)

45.9%

Other operating expenses

(2,392)

(2,357)

1.5%

D&A

(179)

(334)

-46.3%

Income from related companies

4,860

0

N/M 

EBIT

13,092

5,270

148.4%

EBIT margin

64.5%

34.6%

29.9pp

Income from other investments

573

0

N/M 

Other interest and similar income

1

2

-49.9%

Interest and similar expenses

(216)

(214)

1.3%

EBT

13,450

5,059

165.8%

EBT margin

66.3%

33.2%

33.0pp

Income tax

(2,548)

(1,664)

53.2%

Effective tax rate

18.9%

32.9%

-13.9pp

Net profit for the period

10,902

3,396

221.0%

Net income margin

53.7%

22.3%

31.4pp

Source: ÖKOWORLD accounts. Note: We include income from related companies in operating earnings, as ÖKOWORLD LUX is a key part of company’s core business activity.

With revenue structure linked to the volume and performance of managed assets, ÖWAG’s results are highly dependent on equity market developments, which in early 2020 suffered from uncertainties related to the coronavirus outbreak. Between 19 February and 23 March, the MSCI World Index plummeted from 2,431.2 points to just 1,602.1 points (a 34.1% decline), reaching the lowest level since 2016. The subsequent rebound brought the index back to around 2,000 points in May 2020. However, it remains to be seen whether this is just a correction or a sustainable trend reversal. The slowdown resulting from the lockdown of economies worldwide is still in its initial phase, with the extent and durability still unknown. In such a volatile environment, it is difficult to predict ÖWAG’s performance in the forthcoming months, and therefore management has provided no guidance regarding FY20 results.

Robust fund performance in FY19

Following weaker performance of funds managed by ÖKOWORLD LUX in 2018, when all posted negative returns ranging from -5% to -22%, FY19 brought a significant rebound, fuelled by positive developments in broad equity markets. ÖWAG’s end-year AUM exceeded €1.65bn, while the weighted average annual return reached 27% in 2019. Over the year, all funds except for Growing Markets 2.0 (which was recovering from its weakest performance in FY18) posted new high-water marks, enabling ÖWAG to charge a performance fee. While these levels were further exceeded in early 2020 (with new record-high values set for all five funds at 20 February 2020), unit prices declined rapidly afterwards. Having said that, in April 2020 the funds started to rebound, posting positive monthly returns, which reached a double-digit percentage level for three of them (ÖKOVISION CLASSIC, Growing Markets 2.0 and Klima, see Exhibit 2). The funds also benefited from positive market sentiment towards sustainable investments. According to the German Investment Funds Association (BVI), in Q120 German sustainable funds recorded inflows of c €3.4bn, while other retail funds registered outflows amounting to €17.3bn. This trend is visible across Europe, as sustainable funds attracted €30bn overall in early 2020, while investors withdrew €165bn from other retail funds, according to Morningstar.

Exhibit 2: Funds performance since 1 January 2019 (rebased)

Source: Refinitiv

The ÖKOWORLD ÖKOVISION CLASSIC fund remains the largest in the company’s portfolio, with total volume exceeding €1.2bn at end-December 2019, constituting c 74% of ÖWAG’s AUM. The annual return in FY19 reached 25.9% against a negative 8.3% return in the previous year. Over the first four months of 2020, the fund was able to marginally increase its volume by c €21k, even though it posted a 2.73% loss ytd. In April 2020 alone, the return stood at 10.9%, bringing the unit price at 30 April to €192.5 – c 9% below the historical peak. Approximately 32.8% of the fund’s assets (excluding cash) are denominated in US$, with a further 20.6% in euros and 6.3% in SEK. It is worth noting that cash holdings constitute c 14.5% of the fund’s overall volume.

The best performing (37.1% return) in FY19 and currently the second largest fund (AUM of €150.6m at end-2019) is ÖKOWORLD KLIMA. We note that this fund’s AUM at 30 June 2019 amounted to just €58.8m, which implies that it had the highest rate of attracting new AUM of all the funds in H219. The successful investment strategy continued in early 2020, and it is the only fund that posted a minor positive return of c 1% in the first four months of the year, driven by a 12.0% rise in April alone. The fund’s AUM further expanded to c €174.1m at end-April 2020. The investment scope includes shares in companies operating in energy and resource-saving businesses (25.5% of AUM at 30 April 2020), adjustment to climate changes (22.5%) and those helping to limit greenhouse gas emission (12.8%). The share of investments denominated in US$ sits at 46%, with a further 10.2% exposure to euros and 12.3% of overall assets held in cash.

The third largest fund in FY19, with AUM at end December 2019 of €131.5m, is ÖkoWorld Growing Markets 2.0, which reported a healthy 27.6% return in FY19, against a negative 21.2% a year earlier. The fund is fully invested, with cash holdings constituting c 0.4% of total assets. The higher risk profile of the fund is illustrated by the negative ytd return of 9.3% in FY20, but also in the level of redemptions, which we believe also contributed to the AUM decline to just €100.0m at end April 2020.

The only other fund whose AUM decreased between end December 2019 and April 2020 is the youngest and smallest fund in the portfolio, ÖkoWorld Water for Life, with total assets at 30 April 2020 amounting to €28.7m against €29.8m at 31 December 2019. The 3.7% decline is attributable to negative performance over the period, with the fund posting a -12.3% return (against a healthy 31.9% return reported in FY19), rather than redemptions. The only mixed fund in the company’s portfolio, Ökoworld Rock'n'Roll, reported a 22.7% return in FY19 and a negative 3.7% ytd in FY20.

Exhibit 3: Summary of fund statistics

Ytd Performance*

FY19 performance

FY18 performance

AUM (€m)
31 Dec 2019

% of AUM

AUM (€m)
30 Apr 2020

% of AUM

ÖKOWORLD ÖKOVISION CLASSIC

-2.7%

25.9%

-8.3%

1,218.1

74%

1,239.5

74%

ÖkoWorld Growing Markets 2.0

-9.3%

27.6%

-21.2%

131.5

8%

100.0

6%

Ökoworld Rock'n'Roll

-3.7%

22.7%

-5.1%

120.8

7%

133.3

8%

ÖKOWORLD KLIMA

1.0%

37.1%

-9.2%

150.6

9%

174.1

10%

ÖkoWorld Water for Life

-12.3%

31.9%

-13.4%

29.8

2%

28.7

2%

Source: ÖKOWORLD accounts. Note: *As at 30 April 2020.

Valuation

For valuation purposes, we compare ÖKOWORLD with a group of European asset managers in the equities space. However, we note that consensus estimates for ÖWAG are unavailable, and we have therefore analysed the last reported data and provide consensus figures for its peers for a broader context. Based on last reported figures, ÖWAG’s market cap to AUM ratio sits at 7.2%, which is 3.7pp ahead of the peer group average. Management recommended a dividend payment of €0.61 per share, which constitutes a 3.6% dividend yield – 1.7pp below the group average. At the same time, we note that ÖWAG trades at a c 20% discount to peers based on FY19 EV/EBITDA and P/E multiples.

Exhibit 4: Peer group valuation

Market cap

P/AUM (%)
(last reported)

EV/EBITDA (x)

P/E (x)

Dividend yield (%)

2019

2020e

2019

2020e

2019

2020e

Ashmore Group

£2,867

4.6

11.2

9.9

16.4

16.4

4.1

4.2

Azimut Holding

€2,078

3.9

5.9

10.0

5.6

11.7

8.2

6.9

Jupiter Fund Management

£1,104

3.2

4.5

6.5

8.2

12.9

7.3

7.2

Man Group

£2,097

2.5

6.6

8.9

8.4

12.7

5.5

4.6

Impax Asset Management

£504

3.2

21.7

24.4

32.2

32.9

1.5

1.7

Peer group average

3.5

10.0

11.9

14.1

17.3

5.3

4.9

ÖKOWORLD

€120

7.2

7.6

N/A

11.0

N/A

3.65

N/A

Premium/(discount) to peers

3.7pp

(24%)

(22%)

(1.7pp)

Source: ÖKOWORLD accounts, Refinitiv data as at 27 May 2020

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

1,185 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 Private: ÖKOWORLD

View All

Latest from the Financials sector

View All Financials content

Research: Industrials

PIERER Mobility — On the road out of lockdown

PIERER Mobility has announced that it is seeing encouraging strength in several major markets as it emerges from the constrained environment of lockdowns. It is seeing share gains in the US motorcycle market, as well as strong demand for e-bike demand across its main European market. It has returned to full production following the production halt in Austria and is increasing staff numbers to meet the stronger demand. We maintain our forecast for now given continuing uncertainty, but the news of improving demand seems encouraging for the path to financial recovery.

Continue Reading

Subscribe to Edison

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

Sign up for free