A halving of the cash dividend. What's next?

Vonovia has adopted the mid-way of halving its cash dividend, thus saving €700m of cash. Further measures are under way to preserve the balance sheet. The share price is trading below its 2013 IPO level restated for inflation.

Joint efforts by communities are required

In FY 23, lfl top-line growth is expected to be above that of FY 22. FFO should be slightly down, nevertheless. By asking for joint efforts by communities, Vonovia admitted that the property sector can’t solve large issues alone.

Stable NAV per share sequentially

By announcing that it could make disposals to deleverage its balance sheet by €13bn vs. the c.€100bn GAV, Vonovia has effectively flagged a further reduction in debt.

In a much more defensive mood in Q1 22

In FY 22, Vonovia will sell c.€0.9bn of newbuilt apartments rather than renting them. This will help to lighten its balance sheet but it questions Vonovia’s own expectations, in our view.

€8bn cash capital increase on track

Guidance was broadly unchanged. Capital increase is scheduled for the end of November 2021. Vonovia will raise c.€8bn. Details of it are unavailable yet.

Waiving the minimum acceptance threshold: a defensive move

Having secured 40% of the target’s shares, Vonovia wasn’t comfortable with the 50% threshold. The latter was removed last night. The company will extend the acceptance period.

Disposals pushed both EBITDA higher, but nice organic figures too

Top-line guidance was stable. EBITDA guidance was raised thanks to increasing disposals awaited in FY 21 (2,800 units vs. an initial guidance of 2,500). Whereas rents were up 3% lfl, values were up c.14% at an annual pace (H1 21).

Merging with Deutsche Wohnen

An unexpected friendly takeover bid will lead to the creation of the indisputable residential landlord in Europe. Vonovia will pay twice the price offered in 2015-16. The tender offer should close in August 2021.

Slowing yield compression in the biggest cities

Q1 21 was strictly in line with the H2 20 set of figures with lfl growth standing at 3.0%. It was 4.0% in H1 19. We stick to our negative stance. Vonovia pointed to the “very challenging picture” in Berlin. A new “Mietspiegel” will emerge soon there: indexation will therefore be low in FY 21.

Once again: positive revaluation outlook in FY 21

Vonovia reached the lower side of its lfl growth guidance in FY 20. It was nevertheless bullish when considering the FY 21 outlook. Q4 20 was hurt by a “one-off” in the city of Berlin but rents did not slow outside Berlin.

Good Q3 20 overall. But slowing lfl growth.

Vonovia released a decent set of Q3 20 figures with a further good performance expected for H2 20 as far as book values are concerned. The make-up of its guidance has changed a bit due to the lower contribution from lfl growth. Nothing really material to date and the big picture doesn’t change. Both the figures and the company’s safe haven status look secure until February 2021. The consequences of the second lockdown on German housing and consumer confidence will however need to be revisited du

A lower than c. 3% cost of equity...really?

The €1bn capital increase will replace the €1bn hybrid capital. We believe that, like other companies, Vonovia is seizing the opportunity of its record high share price. This move underlines just how expensive the shares can be considered to be. By Vonovia too?

Buoyant German housing values in H1 20

Values were up 11% in H1 20 at an annual growth pace (i.e. 5.3% for just H1 20 vs. December 2019). The range was 3% in the city of Berlin to 19% in other areas (Southern Ruhr, Kiel, Bremen). i.e. the cheapest destinations (<€1,600 per sqm in December 2019).

Robust short-term outlook, Reduce confirmed

Vonovia reduced its FY 20 guidance slightly in Q1 20, due to the Coronavirus. Nevertheless, we believe that reducing macro-inflation in 2020-22 should end up percolating into Vonovia’s performance. We question the sustainability of lfl growth in 2021-25, which is the heart of further massive revaluations. The latter only can justify a growing share price in the future. German Residential will stay the perfect safe-haven it is in FY 20. What about 2021-22?

Lfl growth peaked in 2018

Up to now, we had anticipated a cycle coming progressively to its end in 2022-23 for Residential in Germany. Coronavirus is now revealed as a catalyst, provoking a crisis earlier than we expected previously. We now believe that the NAV will progressively stabilise or decrease as from 2020. However, we hope that Vonovia will stay the “relative” safe-haven it is vs. peers. The tragic consequences of growing unemployment in the future, coupled with deflation, could weigh on the topline’s consensus.

Uncertain outlook comes as no surprise

We take a positive view of Legal & General’s FY 22 results. Despite the tough environment, the Group managed to outperform expectations – something which was hardly a given for such a large asset manager. With L&G being widely exposed to the UK economy, it might be a call one does not want to make but the firm’s business remains one of spreads – as long as a default does not occur. We remain positive but concede that L&G embeds more risk than we had assumed.

Ambitious winds of change

M&G’s FY 22 results were strong. It was also the opportunity for new CEO Andrea Rossi to depict clearly his strategy for the upcoming months. While the impetus is clear and the objectives are ambitious, we rather believe in a structural improvement of the business (driven by the higher rates environment) than a commercial one.

Hybridan Small Cap Feast - 06 Mar 23

6 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objective

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14 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

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