Having reported a bumper first quarter, RCM Beteiligungs has predictably met H118 expectations of €2.4m PBT, which alone exceeded full-year 2017 (€2.1m). Favourable macro factors and scope for efficiencies and asset development encourage continued confidence, even if this risks being tempered by a quiet Q2 (lower profit) and the lack of elaboration on post-Q1 guidance of €3m+ 2018 PBT. Sound finances (high interest cover and an above industry average equity ratio of 45% at June 2018) should allow a resumption in property expansion after a pause in 2017 and subsequent disposals.
The quarter to March was inevitably a hard act to follow – its €2.3m PBT largely reflected completion of a c €11m development project sale (12 properties or 7,700m²), which was reported late last year but recognised substantially (80%+) in the period, as well as a transaction which concluded earlier than expected. By contrast, Q218 saw 11% y-o-y decline in revenue, driven by lower rental income (-22%) from a greatly reduced portfolio (down in area by a quarter during 2017). Quarterly PBT fell by more than two-thirds y-o-y to under €0.1m despite the impact of rationalisation being curbed by efficiencies (rental admin costs almost halved) and enhanced unit returns.
While a flying start to 2018 seemed to assure a profit “beat” by alone securing so much of management’s full-year target, subsequent consolidation and sharply lower rental income as a result of asset sales may invite caution. However, this may well be temporary as RCM appears well-placed to take advantage of investment opportunities in real estate and capital markets. There should also be increasing benefits from restructuring both its portfolio, eg fewer locations, a focus on its Dresden core and higher average unit size, and its corporate set-up, namely new profit transfer agreements.
FY17 P/E is 31x, ie at a premium, but given the strong H1 performance and positive management guidance, we are likely to see a visible reduction in the valuation in 2018. A P/BV (2017) ratio of 1.4x is undemanding as it compares with the book value of assets (RCM reports under HGB standards).