Analysis of Aareal Bank

Company: Aareal Bank Group

Business: A German bank specialising in property. They have two larger segments: Structured Property Financing (offers financing concepts for hotels and retail etc.) and secondly Consulting/Services (services for housing, commercial property as well as waste disposal and energy markets in terms of electronic banking and mass payment transactions).

Active: They have three regions: Europe, North America and Asia in total they are present in 25 countries.

P/E: 19.9

The P/E of Aareal Bank Group is far to high for my liking with 19.9 and the P/B is however fully acceptable with 0.8 and this gives in the end a buy according to Graham. The earnings to sales are at 9% so pretty ok but the ROE is only 4% so no good at all. The book to debt is very bad like in any bank and they are as low as a ratio of 0.05. The worst banks I have analysed were down at 0.03. In the last five years they have had a negative revenue growth of yearly -13.5%. They had very high revenue back in 2008 that have halved since then but the revenue has stayed pretty much the same. Either way the motivated P/E becomes around 8 to 10 which means that the market is overvaluing the stock today. By the look of it the company is being treated in between a bank and a property company in terms of P/E. They pay no dividends and have not done so for the last five years, which is as far as I looked back.

Conclusion: Graham says buy but I do not. The only really good thing here is the P/B with its ratio of 0.8 but besides from that all the other values (P/E, ROE, book to debt) or absence of values (dividend) is something that I do not like so a very clear no go for me!

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