Helma Eigenheimbau reported a record high pre-tax profit at €21.1m in FY18, up 10.6% y-o-y and in line with management expectations. Reconfirmed management guidance indicates further growth to €23.5–26.0m in FY19. This is underpinned by the strong order intake (up by 13.5% y-o-y to €278.6m at end-2018) and land bank expansion (current revenue potential at c €1.4bn vs €1.2bn at end-June 2018). We draw particular attention to the solid new orders in the higher-margin property development segment, which should facilitate Helma’s high profitability.
Helma reported a 5.3% y-o-y decrease in revenue, which amounted to €253.3m in FY18. However, thanks to improved margins (which stood at 9.0% vs 8.3% in FY17 at the adjusted EBIT level), Helma was able to increase its adjusted EBIT and reported PBT by 3.4% and 10.6% y-o-y, respectively. This is in line with Helma’s approach introduced in early 2018 to focus on margins at the expense of sales growth. However, the margin uplift (as well as the top-line decline) was largely attributable to H118. Helma’s equity ratio improved slightly to 28.6% compared to 28.0% at end-2017.
Demographic and macroeconomic conditions continue to exert upward pressure on the German residential market, increasing the gap between housing demand and new residential completions (despite the latter having improved to 245,000 in 2018 from 188,000 in 2013). This trend may not be reversed quickly, as building land is becoming more scarce and spare capacity in the construction sector has been largely exhausted. The government is taking steps to ease the situation (including subsidising residential real estate), but potential bottlenecks may persist in the near future.
Helma’s shares are trading at a 14.1% and 23.9% discount to peer group on P/E ratios for FY19e and FY20e, respectively. At the same time, they trade at a slight premium on EV/EBITDA basis, which we believe reflects Helma’s relatively high leverage vs peers. Management proposed a dividend payment of €1.30 per share from the FY18 earnings, translating into a dividend yield of c 3.6%.