Original-Research: UmweltBank AG (von GBC AG): BUY

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 Report (Anno) Recommendation: BUY
Target price: 9,60 EUR
Target price on sight of: 31.12.2024
Last rating change:
Analyst: Cosmin Filker, Marcel Goldmann

- Return to profitability expected after transformation year 2024 - Realignment bears fruit
- Interest margin expected to bottom out  
With the publication of their 2023 Annual Report, UmweltBank AG has confirmed the preliminary figures published in March. As previously announced, new lending business declined and was down from the previous year at € 459 million (previous year: € 623 million). One reason for this was the increase in the capital surcharge to 3.7% (31.12.22: 1.5%), which prevented a higher level of new lending.  
In addition to lower growth momentum in loans, further decline in the interest margin also led to an expected fall in net interest income to € 41.11 million (previous year: € 58.79 million). As the deposit business has a shorter duration, it reacts more strongly to interest rate increases, which led to higher interest expenses. In addition, interest expenses for funds borrowed from the ECB and KfW, which also represent an important refinancing block for UmweltBank AG, also increased. Parallel to the decline in net interest income, the financial result fell significantly to € 7.17 million (previous year: € 24.83 million). This represents a normalisation, after the previous year's figure was strongly positively influenced by the sale of an investment in a wind farm company amounting to around € 20 million.
 
The sharp decline in income was accompanied by an equally sharp rise in costs in the 2023 financial year, which led to a significant decline in EBT to € 1.10 million (previous year: € 39.21 million). The main reason for the increase in costs was the change in the core banking system, which was associated with extraordinary expenses of € 10.14 million. In addition, UmweltBank AG recorded a significant increase in personnel costs.  
The current 2024 financial year is to be regarded as a year of transformation. This is due to the fact that further investments in technology and the organisational structure are planned. In addition, the focus will be on expanding private customer deposits, which will be accompanied by increased marketing expenditure. The company will also continue to push ahead with digitalisation in the current financial year and invest more in this area. The investments and subsequent costs in connection with the migration of the core banking system totalling € 4 million are expected to lead to earnings before taxes of € -15 million and € -20 million respectively.
 
The higher costs are offset by a turnaround in the interest and financial result. UmweltBank AG has focussed on expanding its deposit business with private customers, which is already bearing fruit. In the first three months of 2024, around 8,000 new customers and customer deposits totalling around € 250 million were acquired. Their aim is to reach the 500,000 customer mark by 2028. Increasing customer deposits should enable an expansion of the lending business on the one hand and, in particular, generate interest income from the investment of customer funds (ECB; bonds) on the asset side.
 
In future, their lending business will focus on corporate customers. New business of € 250 million is expected for the current financial year. New lending business is to be increased by releasing capital tied up in equity investments. In addition, the capital surcharge should return to normal levels once the regulatory requirements have been met, which will also enable an increase in new lending business. The gross volume of new business is expected to increase to over € 1.0 billion by 2028. Net interest income from the lending business should also improve in line with the expected increase in the interest margin. The expiry of low-interest loans and the expected stable interest rate trend should contribute to this.
 
The financial result should increase in the coming financial years, not least due to the continuous reduction in the investment business. Two wind farm investments and one property investment were already sold at a profit in the first quarter of 2024. Further disposals are planned on an opportunistic basis. Net commission and trading income should also benefit from rising customer deposits and also increase slightly.  
Following a significant increase in total costs in the 2024 financial year, a rapid return to profitability is expected from the coming 2025 financial year. We expect EBT of € 5.75 million for the coming 2025 financial year (2024: € -15.90 million) and EBT of € 20.49 million for the 2026 financial year.
 
We have valued UmweltBank AG using a residual income method and determined a fair value of €9.60 per share. Based on the current share price of € 6.44, we continue to assign a BUY rating.  

You can download the research here:
http://www.more-ir.de/d/30099.pdf

Contact for questions
GBC AG
Halderstraße 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Date and time of completion of the study: 26.06.2024 (08:45 am) Date and time of the first dissemination of the study: 26.06.2024 (10:00 am)

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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.