BUWOG still offers attractive entry level – Buy confirmed

On the basis of BUWOG’s strong guidance (Recurring FFO increase +51% 2015/16-2018/19E) and the stable market outlook for its development business in Hamburg, Vienna and Berlin, we reiterate our Buy rating and Top Picks list inclusion.

Strong operational growth outlook: The company provided an outlook indicating a recurring FFO (asset management, development income and unit sales business) growth of “at least” 51% between 2015/16-2018/19E from EUR 99mn to EUR 150mn. The major recurring FFO driver will be the development business, which will reach a whole new level as the FFO contribution will more than triple from EUR 12mn (2015/16) to EUR 39mn (2018/19E) based on the current launched development projects in Vienna, Berlin and Hamburg (total development pipeline EUR 2.5bn).

EUR 300mn convertible for CoD reduction and acquisitions: a) Through the issuance of the EUR 300mn convertible bond BUWOG already reduced its average CoD to ~1.9% (FY15/16 2.19%), which will lead to stronger financing savings. The company will further reduce its CoD with the financial power from the EUR 300mn convertible bond issuance (EUR ~40mn). b) BUWOG highlighted a strong deal pipeline for land and portfolios, and EUR 200mn are likely to be invested this year.

M&A still in the cards. Takeover fantasy regarding BUWOG remains intact because large cap peers such as Deutsche Wohnen or Vonovia could make a move to get access to the high-quality portfolio and the profitable development business including the landbanks. Nonetheless, we believe that a takeover bid would have to offer a significant premium to its NAV due to the portfolio quality and equity value of the development business.

Attractive valuation. BUWOG offers an attractive total shareholder value return (NAVps growth incl. dividends) 2015/16-2018/19E of 9.1%, which is above peer levels. Although the company is currently trading above our NAVps 2016/17E of EUR 22.19, we still do not see the value of the development pipeline reflected, which has an equity value per share of EUR ~4.00.