Company Name: Vonovia
Entry Price: €57.9
Target Price: €70
Projected Yield: 20.90%
Projected Dividend Yield: 2.90%
Time Line: 6 months
Position Size: 4%
About Vonovia SE
Vonovia SE (VNA.EU) is one of the largest housing companies in Germany.
It provides basically three types of services:
- Housing for rent
- Value-added services, such as renovating and reselling buildings
- Housing sales
The company has 416K apartments in Germany, Sweden, Austria, France, and the Netherlands.
What's the Idea?
The idea includes earning on a stock that may rise with well structured business and the green technology trend.
Buy Vonovia SE Shares >>
Why Trade Vonovia SE?
Reason 1: Efficient Business Structure and High Growth Rate
Despite the lockdown and the global economy shrink, the housing sector was quite stable in 2020, backed by low interest rates and various stimuli launched by many governments. As one of the largest real estate companies in the EU, Vonovia could not but benefit from this.
The company has very good numbers: since 2013, it has increased its own property from 180K to 416K apartments, while the fair value went up from €33.40B in 2017 to €58.90B in 2020, with an average annual growth of over 15.20%. Vonovia's asset portfolio is being increased mainly with mergers and acquisitions, which includes buying both other companies and new property. Most assets, 86%, come from Germany, while the presence in Sweden and Austria is currently being actively increased.
Apart from the fast growth, another Vonovia's advantage is its extensive experience in real estate and business diversification. Housing rental is its leading service type, with 52% of overall earnings. In 2020, the free for rental apartment share was at 2.40%, while it did not go above 2.60% over the last four years. The organic growth for housing rental was at 3.10%.
Vonovia did also succeed in housing sales, with an average markup of 39.60% last year. Meanwhile, the current developer projects aim for 37K new apartments for rental and 9K for sales, with an estimated overall value of €3.10B and the gross margin of 20% to 25%. Last year, Vonovia released 1.44K apartments for rental and 646, for sales, and is planning to release 1.5K and 1K more, respectively, this year.
The management sees the outlook for 2021 as positive, with the organic earnings growth at 3% to 3.80%, for rental, the free apartment share at no more than 2.50%, and the portfolio fair value at 30%.
Overall, the company is sustainable despite the pandemic and may continue expanding its portfolio and increasing growth rates, especially when it comes to the Eurozone economic recovery.
Reason 2: Green Energy to Reduce CO2 Emissions
Vonovia is also planning to implement new energy systems in its apartments, that will reduce CO2 emission rate. The company partnered Fraunhofer Institutes in order to work on a three-year project to develop and test new heating and electricity production technologies with zero carbon emissions. A few real estate projects that use these techs are already being underway.
Opting for green energy is important because of the CO2 emission tax that amounts to €25 per ton in 2021 and will have increased to €55 by 2030. The German government is providing funds to householders for them to install green heating equipment, covering 45% of the costs and amounting up to €120K per housing unit. The overall stimulus amount is €32B, the program will run until 2030.
Taking part in reducing CO2 emissions may boost Vonovia's customer loyalty, add value, and increase the EBITDA.
Reason 3: Financial Performance
Last year, Vonovia's financial results were perfect, with the earnings rising by 6.30% to €4.37B, and the adjusted EBITDA, by 8.50% to €1.91B. The EBIDTA margin came at 43.70%, which is higher than the industry average. Meanwhile, the operational funds reached €1.35B, which is 10.60% more than last year, and the FFO per share came at €2.38.
The debt burden is quite moderate compared to similar companies, the debt amount being 24B. The Net Debt/EBITDA ratio is quite high, at 12.30x,; however, the loan to value (LTV) ratio is at 41.10%, and the interest cover ratio, at 4.80х, which means there are no debt issues whatsoever. Other debt numbers are as follows: the average cost of debt is at 1.40%, and the average maturity is 7.90 years. S&P set Vonovia's rating at BBB+.
As mentioned above, the outlook for 2021 by the company management is quite positive: the earnings are expected at €4.90B to €5.10B, with an average growth of 14.40%, the adjusted EBITDA should be between €1,975B and €2,025B, with an average margin of 40%, the FFO, between €1.415B and 1.465B, and the dividends, around 70% of the FFO.
The key ratios are currently as follows: forward P/S: 6.5x, P/E: 9.7x, and P/B: 1.34x.
Both P/E and P/B show this might be a good time for entering the market.
Meanwhile, a few banks and investment companies raised Vonovia's target price in March, as follows:
- JPMorgan Chase: €62
- Jefferies Financial Group: €66
- The Goldman Sachs Group: €83.70
- Deutsche Bank Aktiengesellschaft: €68
- UBS Group: €70
How to Use the Idea
- Buy the stock at €57.90.
- Allocate up to 4% of your portfolio for this trade. To build a balanced portfolio, you can use the recommendations by our analysts.
- Sell the stock when the price reaches €70 per share.
How to Buy Vonovia SE?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type VNA.EU (Vonovia ticker in the NASDAQ) in the search box, and select Vonovia in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type VNA.EU (Vonovia ticker in the NASDAQ) and select Vonovia in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
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