Ahead of H1 results on 15 August, Q1 showed the success of RCM Beteiligungs’ strategic focus on certain well-defined projects. Quarterly PBT of €2.3m, which alone exceeded full-year 2017 thanks to a c €11m development sale, all but guarantees guidance of more than €3m PBT in 2018. Driven by favourable macro factors and scope for efficiencies, asset development and appreciation, RCM’s positive outlook is reflected in confirmation of a 50% dividend hike for last year. Solid finances (almost 5x 2017 interest cover and an above industry-average equity ratio of 40%+ at March 2018) provide ample scope for reinvestment after Q1 disposals.
RCM built on a good start to the year (H117 PBT up 11%) with a strong second half (PBT up 16% to €1.4m against €1.2m in H216). The period saw sustained buoyancy, boosted by the initial consolidation of a project company, which made a notable c 4,000m² disposal. Further to its goal of growing recurrent revenues, despite asset sales rental income was almost maintained thanks to enhanced rent per square metre (4% for the year). This was complemented by another significant reduction in rental admin costs (down 20% like-for-like in 2017). Reluctance to pay up in the face of sharp property price rises (no additions in 2017) explains the reduction in the year-end portfolio from c 50,000m² to c 38,000m².
A flying start to 2018 may offer room for surprise as much of management’s fullyear PBT guidance has already been secured in Q1 (€2.3m of €3m+). This bumper outturn 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. 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 Q1 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).