Sunday 22 December 2013

Analysis of LEG Immobilien

A German real estate company

Company: LEG Immobilien

Business: A German real estate company. They have today 94,000 objects that are rented out. Main focus is one and two person household were the margins are slightly higher.

Active: In Germany and more specifically in the North-Rhine Westphalia region.

P/E: 23.0

contrarian values of P/E, P/B, ROE as well as dividend
First off, they had their IPO in 2011 so the data is only based on two years which in the end only influences the yearly growth since that has been pretty hysterical in Germany during the last five years for real estate. Previously I have looked at Adler, Boston PPTY, Gagfah and for instance Immofinanz. All of them ended up overvalued in my opinion so already there LEG Immobilien is looking better in comparison.

So the P/E for LEG Immobilien is far too high with 23.0 but the P/B is however fully acceptable with 1.0 and it just barely misses the border for Graham. The earnings to sales are amazingly high with 18% but the ROE is awful with only 4.5%. For a real estate company the book to debt is looking ok with 0.7. In the last two years they have had a yearly growth of 3.6% so indeed better than inflation in Germany but plenty of real estate investor money has flowed in since the start of the financial crisis. The motivated P/E then becomes 12 to 15 which means that also in this case the company is overvalued by the market. They pay a tiny dividend of 1% which on the other hand only represents 23% of their earnings so it should be possible to keep at that level and even increase it.

Conclusion: It is only just outside of the Grahams criteria and I must admit that when I compare it to the other real estate companies it does indeed look pretty good but I still find it to be too expensive and I am worried about the real estate market in Germany so LEG Immobilien is today nothing for me.

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