Umweltbank AG (DE:UBKG) lending activity in H118 illustrates the considerable demand for green construction financing amid high residential demand in Germany. Moreover, the impact of recent regulatory changes in the renewable energy segment so far seems to be less pronounced than initially expected. A successful placement of the junior green bond, which is currently underway, would equip the bank with a capital base allowing it to leverage these favourable trends and further grow its loan portfolio. UBK shares continue to trade at a P/BV of 1.2x in 2018e, which looks low relative to the bank’s ROE (which we forecast at 11.8% in FY18).
H118 results assisted by sustainable building loans
UBK’s new lending volume reached €311m in H118, doubling from €154m in H117, with the key driver being solid expansion of the green construction portfolio. As a result, UBK’s loan including commitments increased by a healthy 6.2% ytd and allowed the bank to report a slight 1.0% y-o-y increase in pre-tax profit to €18.4m. Execution of strategic initiatives led to a headcount increase and investments in IT systems, which (on top of higher banking tax and deposit insurance charges) translated into a G&A expense rise of 14.0% y-o-y and a cost income ratio of 33.5% (vs 29.1% in H117).
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