Wednesday 21 August 2013

Analysis of Adler Real Estate AG

A German real estate company

Company: Adler Real Estate AG

Business: This German real estate company is focused on developing a strong and profitable real estate portfolio via acquisition and management of residential properties. They are also actively creating added value by developing existing residential properties through improvements, structural alterations and renovations, as well as developing residential construction sites and new residential properties for its own account or together with partners.

Active: Only in Germany

P/E: 75.0

This was the final real estate company for this time unless some requests turn up but I doubt it since there seem to have been a very low interest for this type of stocks. I can fully understand that especially since the P/Es are in most cases very insane. One thing that I have found very interesting is that all the real estate companies I have seen have been country based. That must be very stupid of them since usually when you have a property bubble you have that in the entire country due to interest rates, ease of credit etc. which can be completely different in another country. Just look at Europe! The real estate bubble in Spain and Ireland exploded but nothing happened in several other countries including for instance Italy. If the real estate companies would have been spread out in more countries they would have brought in protection and stability via diversification.

containing values of P/E, P/B, ROE as well as dividend

 The P/E of Adler is out of proportion with 75 but the P/B is not looking so bad with 1.1. Either way according to Graham it is a very clear no buy. The earnings to sales is 7% and the ROE is as low as 1.5%. The book to debt does however look very nice with 1.5. For the last five years they have had a yearly growth of -9.1% which is a lot! This means that the motivated P/E would be max 8 so this stock is pretty much overvalued by a factor of 10. They of course do not pay any dividends either.

Conclusion: This company looks bad and I see no reason to keep these overvalued stocks and it goes without saying that one should not buy the stocks.

If this analysis is outdated then you can request a new one.


Anonymous said...

Hindsight trading says that it was quite a wrong recommendation. Would be interesting to analyze for which reasons.

Fredrik von Oberhausen said...

The analysis is based on the annual report from 2012, which was a seriously bad year, and looking back also 2011 was a bad year for Adler.

In year 2013 they apparently decided to explode their balance sheet. Took on a lot of credit and bought real estate that they have then kept writing up to show a nice "revenue". Cash flow based they are not looking that convincing. Additionally they keep pushing out shares probably with the argument of needed for expansion when it most likely is needed for them to be able to pay out the salaries. Always a liquidity problem if your "revenue" is based on writing up your properties.

Like it exploded it can just as well implode. The company is not looking healthier today than what it was in 2013.

To me this is a good example of no correlation between company and share price development.