Yesterday, UBM released a weak set of Q1 results, showing a significant slowdown in business activity following the continuous standstill on the real estate transaction market. In fact, the total transaction volume of € 5.9bn was the lowest in any first quarter since 2010. As this was already visible, it was hence no surprise that sales decreased by 41% yoy to € 17.9m, even though our estimates of € 24.1m were still above that. As UBM was not involved in any transactions in Q1, sales were mainly driven by the progress of construction on previously sold real estate projects which are recognized to revenue over time based on construction progress.  

Q1 EBITDA declined by 51% yoy to € 4.8m (eNuW: € 4.4m) which can be attributed to the same effects that led to the sales decline as well as operating leverage causing the overproportioned profitability decline. Nevertheless, UBM managed to achieve positive net income of € 0.9m despite the weak Q1.

While the release is clearly not a beauty and headwinds is likely to remain throughout H1, there are no reasons to get worried, in our view. Here is why:

(1) Even after repaying the outstanding € 53m of its 2018 hybrid bond, UBM continues to provide healthy balance sheet metrics with an equity ratio of € 31.6% and a LTV of 41.3%. On top, the cash position of € 250m provides enough cushion for the maturities coming up in the next 24 months. Moreover, the company is currently working on the issuance of a new green bond (eNuW: high double-digit €m, 6-7% coupon).

(2) The € 2.1bn development pipeline provides sound visibility on future revenues, as it can be seen as a pro rata value over the next four years. Conservatively estimating a developer margin of 10%, this should leave UBM with an average profit of € 53m over the upcoming 4-year span.

(3) With its focus on timber construction, UBM is clearly on the cutting edge. In fact, the company has 265k sqm of timber projects in the pipeline, which looks set to become a major competitive edge in the carbon intensive real estate sector, as investors are under pressure to improve their ESG ratings.

We hence retain our confidence in the mid-term prospects of the company and reiterate BUY with an unchanged PT of € 35.00 based on DDM.