Appeninn - CHANGE OF PLANS?

Appeninn – Instant Earnings Comment

Recommendation:  Under revision (prev: Accumulate)

Target price (12M): Under revision (prev: HUF 743)

Change of plans?

 

• Financial performance: This is the first half year when investors could see the full and clean effect of the acquisition occurred last year (no timing effect). Gross Rental Income increased by 73% to EUR 4.6 million while EBITDA climbed even more by 220% to EUR 3 million. EBITDA was also boosted by ca. EUR 0.7 million other non-recurring income during the first half of the year which is not strictly related to the underlying business, therefore our clean EBITDA came to EUR 2.3 million, implying an improving 50% EBITDA margin (vs.35% in FY 2018). The reason of the huge jump in EBITDA is due to the low basis in last year as cost and expenses related to the expansion (personnel and administrative) had occured before the revenues from the acquisition was recognised.

 

• NAV (Net Asset Value) grew by ca. EUR 11 million to EUR 70 million mainly because of the badwill (EUR 8 million) stemming from the acquisition of PRO-MOT kft (lands & management rights in Balaton). Since the acquisition of PRO-MOT kft was financed predominantly by debt, debt level climbed by ca. EUR 20 million, but LTV (Loan-to-Value debt ratio) did not deteriorate accordingly (52% vs. 50% in 2018 eoy) given the above mentioned badwill (EUR 8 million). After the acquisition NAVPS increased by 19% to ca. 500 HUF per share from 420 HUF per share in the end of 2018. However, we would like to highlight that, Appeninn booked the land and plot in Balaton as yielding asset though we are sceptical that it generates meaningful return , thus if we exclude this land we would arrive to a NAVPS of ca. 420 HUF per share.

 

Source: Appeninn H1 report, Concorde

 

• Strategic outlook: In its strategic outlook released in last May, Appeninn set out a grandiose growth plan that assumed a capital injection in order to fuel the expansion. So far this has not occurred, although it was originally planned in 2018. Since then, one of the strategic shareholders announced its intention to sell its stake with the reason to find segment with better “growth rates” when Appeninn’s growth plan implied quadruple of GAV (Gross Asset Value) and of EBITDA in four years. For us this reason sounds unjustified. Additionally, only after a few months of the strategic outlook, Appeninn acquired PRO-MOT kft that owns lands (37 ha), and management right for further 10 ha in Balatonvilágos, a corporate action that may not be in line with the strategic outlook. These two signs may convene the message that Appeninn’s original investment story might have changed, or the company should seek other ways to grow.

 

• We based our earnings forecast on the outlook declared by Appeninn’s former management, and the company has taken a different path since. As a result, we put our recommendation and target price under revision until we get further clarification of the real estate firm’s strategic direction and incorporate them to our model.

 

• Valuation: Appeninn is trading c.10% below its NAVPS (500 HUF per share, calculated wtith EURHUF exchange rate of 334) in line with its regional peers (Ca Immo, S Immo, GTC), using the P/NAVPS valuation metric.

 

 

 

Gellert Gaál
Senior Equity Analyst

CONCORDE SECURITIES LTD.

Hill Side
55-61 Alkotás street, H-1123 Budapest.
Phone:
|
MEMBER OF THE CONCORDE GROUP

 

This message and its attachments contain confidential information, and their disclosure is restricted by law and the relevant regulations. If you are not the intended recipient, it may be forbidden and illegal to disclose, copy, distribute or use the information in this message. If you are not the intended recipient, please notify the sender immediately and delete this message and its attachments. If you are a client of Concorde Securities Ltd., the standpoints and suggestions described in the message should be interpreted in accordance with the relevant parts of the agreement in effect between us.