Hypoport SE

XETRA:HYQ

Earnings Call Transcript 2020-Q1

[Operator]

Dear ladies and gentlemen, welcome to the webcast results Q1 2020 of Hypoport SE. At our customers' request, this conference will be recorded. [Operator Instructions]And I now hand you over to Ronald Slabke, who will lead you through this conference. Please go ahead, sir.

[Ronald Slabke, Co]

Thank you. Welcome from my side as well. In these unusual times, we are presenting our first quarter numbers. As you may know already, we are looking back on a successful start of the year with the revenue and the profit increase by 30% compared to a solid first quarter last year. We speeded up our growth process in this market environment, let's say, with some challenges, and especially to the end of the last quarter, let's say, serious challenges concerning corona.Okay. Besides this, that we handled this environment pretty well, let's talk a little bit about the market because I think this is also a huge interest for everyone around the world right now.What we saw in Germany in the beginning of the year, let's say, until the end of February is that prices for real estate are still on the rise. We saw a plus of roughly 10% compared with last year in the beginning of this year. This because of increasing demand from migration and people getting older and more and more singles occupying metropolitan areas. So let's say, a path on which Germany is now for close to a decade of a, let's say, normalization that properties in Germany are priced similar to similar properties in other developed European countries. Then, let's say, in the beginning of March, situation got a little bit fuzzy. There were concerns that corona may arrive here, and we at Hypoport decided quite early to go remote with our employees to protect them and make sure that they stay healthy and that we don't get some issues within the company. Because of our decentralized structure, we were able to then go remote and work from the home office within a couple of days. And you can say in the middle of March, all 2,000 employees in Hypoport, they're working from home or were able to work from home. 95% work from home, just 5% still go to the office because they prefer this quiet environment in an empty office.For competitors, this was not so easy to go remote. So during this time, when we went remote and then starting in middle of March, we felt less pressure from competition. Especially banks had troubled to put their branches -- or close the branches and migrate their advisers in a remote environment because of lack of technical abilities. And so we could see that we pretty well outperformed the market in this crisis environment where, let's say, we continue to operate on a highly efficient level from the home office of our employees.From a market side, roughly in the middle of March, we see a sharp decline in properties offered in Germany here, down something 25% to 30%. And at the same time, as well a decline in interest of consumers to buy to acquire property. Two weeks later, in the end -- at the end of March and beginning of April, this changed already, especially the demand side. On the supply side, we are still below the precrisis environment, something 15%, 20% below. But it recovered already a little bit, the supply side. On the demand side, we are on new highs. So the interest of consumers, especially online. And this, we are able to trust about. So the online interest of consumers about housing, about acquiring an apartment or buying a home is higher than precrisis level and as well higher than last year at the same time. So our interpretation of this situation is that after a couple of weeks in the current time at home, people realize that this -- home is more than just a place for sleeping. It's a place where you may, in the near future, have to stay more often and including things like home office, changes what you need -- what type of home you need. So they are starting to look for an optimization of the present situation.And this is in an environment where we are in a recession and where the short-term outlook even for the German economy is pretty bad. So from this perspective, it looks like that these years of waiting for a good situation to -- or a better situation to buy a property because Germans were not used to this price increase and hope that it will -- price will come back in some moment. So suddenly, everyone understands that this waiting was maybe not the best thing to do. And with this sharp price increases over the last years, and now even in March, we went up 12.7% compared to last year March. With this sharp price increases, it's pretty obvious that it would have been better to buy earlier precrisis and not wait for long.So the short-term outlook is difficult. We see still significant numbers of transactions in the market, and the mortgage volume looks pretty stable. We are coming from a plus 10% in the first quarter reported by Bundesbank. So even if it drops, it's in a single-digit environment. It doesn't look like a sharp step back from the market side to be expected. Medium term, it's uncertain how this -- let's say, the struggle between supply and demand will continue. We may see a slowdown in the price increase. We may see a slowdown in transactions, especially in the third quarter. But it's pretty difficult to predict this, looking on this high demand on the consumer side right now. So it would be logic when you think about income and uncertainty, but on the same moment, especially online demand is up.Medium term, so let's say, last quarter this year and next year, we expect that the migration within the European Union will restart, and more people from the South and East of Europe will want to move to Germany because of a more solid restart of the economy here in Germany compared to the rest of Europe, especially South and East Europe. This is not difficult to predict that Germany will handle the whole crisis better. We did it already. And the firepower of our government spending is much higher than this -- Spain, Italy or East European countries are able to do. So it's pretty certain that migration will pace up again and that we will see a significant increase in migration to Germany, which the demand and the necessary construction and price increases, which will follow this. So midterm, especially next year and forward, we expect a very solid environment from the market side for our business models.So market side business models, let's go already toward the first segment. Credit Platform, Europace in the center, and the integration of especially the mortgage market in Germany here. Europace had a record quarter. So the 10% market increase, it outperformed in the mortgage business by more than 20%. So 38% plus in the mortgage transaction volume. Same goes for -- or let's say, pretty well speed as well of growth in building financial contracts, which are typically linked and serve as some kind of interest rate option to secure long-term interest rates, with a plus of 22%. And as well, personal loans is back on track for growth with a plus of 14% compared to last year.So Europace did pretty well, outperformed the market faster than the last quarters. We see here that sales structure, sales organizations that they're using Europace, are performing much better in this crisis environment where you may need to work remotely than organizations which are still working the old way. And so the relative competitiveness of partners of Europace helped to pace up the growth of Europace in all 4 segments. So independent mortgage brokers were growing with Europace massively, and we will talk about the Private Clients division in a minute. Private banks growing with Europace, especially in the structures where they use it. And savings banks and cooperative banks could grow as well if they use already GENOPACE or FINMAS.Talking about the regional cooperative and savings banks, we see a continuation of what we saw last year. With GENOPACE, we had a pretty strong 2019 already with an acceleration in the growth rate, and this continued as well in the first quarter, bringing us to 1.6 billion in transaction volume from the cooperative banking sector. And yes, let's say, if we would not have seen a small slowdown because of closed branches of cooperative banks, this could have looked even more impressive.Savings banks, with a plus of 50%. They continue their incremental growth path. We are for a longer time here already on this, roughly 40% to 60% growth speed. Now they're up to 1.8 billion in transaction volume, and all market share is now roughly 9% in the savings banks industry compared to the 8% of the cooperative banks. This process will continue. We are going to grow in both sectors in any environment given the upside. So the richer banking sector will be a pretty strong base for Hypoport and for Europace to grow.So within the total numbers of the segments, there is as well then the new acquisition of REM CAPITAL visible now. REM CAPITAL does corporate advisory services regarding subsidies, state subsidies. It's well positioned in the current environment. They are serving the German mittelstand, German powerhouse for industry. And with the current subsidies the government is pumping into this market, REM CAPITAL is pretty busy in advising its client. As a basis -- we use this as a base for our new fundingport platform, which we are going to launch within this year, and it's not affected by corona or anything else.So the numbers for the whole segments are a record, all of them, EUR 40 million in revenue, plus 32%, in line with just the gross profit, just the EBIT didn't grow so fast because there are huge investments in future partner structures, so in sales and in technology. And these investments, we keep up even when we are in a general crisis environment to use the opportunities this environment is giving us to gain market share as fast as possible in this environment.Talking about market share gain. Our Private Clients division, Dr. Klein, is operating with 200 franchisees with branches in all over Germany. The good news here is that for a long time, we advertised already using video conference systems to advise clients and to save time and further costs. And let's say, up -- under the corona crisis, this was a pretty niche product, you can say, because on the consumer side, it was not favored, and as well, the adviser preferred to have the consumer in front of him or her to be better in touch. Corona changed this. And really, within days, the whole sales organization of Dr. Klein went remote and started to use this technology, which was there, and with some additional training, even to optimize the sales approach in this environment. So we were pretty successful with this change. Dr. Klein grew even faster than the Europace platform with a plus of 39% in the first quarter. So especially here, you can see the competitive advantage of an independent sales organization, a decentralized structure plus high level of digitalization, what a speed, what a pace such an organization is having even in a challenging environment.And even in this challenging environment, we were able to recruit more advisers for the system. We adjusted the way we count advisers. I think that people are following us for a longer time, see this in the numbers, but we increased this number by another 12% to close to 530 advisers now, and this is the base for future growth. You can see in the, let's say, incremental efficiency gain, 39% plus in volume and just 12% more on people, that this was a pretty productive first quarter for everyone. But as well, new people need to be trained, need to be -- get more successful, need to get used to the environment. So there is a growth path in this 530 advisers in Dr. Klein already included.So with this increase in transaction volume, Dr. Klein increased revenue to new record high as well, especially on the gross revenue and even more on the profit side. You see that the challenges we had the last 1.5 years that the fast increase in numbers of banks we are dealing with to roughly 600 now diluted the margin of Dr. Klein, and that made it necessary to close new cooperation contracts with a huge number of banks. But the investments we did there really pay back, and we were able to recover from the profitability level to the base where we have been in the beginning of 2018. So this is -- what you see here is a strong increase in EBIT margin to now a new record of EUR 5 million in the quarter, which Dr. Klein or the segment contributed, is a continuation of our EBIT margin level of -- beginning of 2018, what we had achieved already there.Okay. These were our 2 traditional segments with a pretty impressive growth speed of 30% plus. Now we are coming to our youngsters. First, the Real Estate Platform, which is linked to the, let's say, housing market. And the Credit Platform with this, here, we expand our position in the value chain. We are trying to get traction on the sales side with FIO and property sales platform. We are working on positioning the valuation of properties. And this, Dr. Klein and the property management platform of FIO as well as serving professional housing companies, which are renting and serving the renting market.Just to give you a first impression how the relevance along the value chain of our subsidiaries is right now and what we achieved up until now. In the center, you see the role of Europace in the mortgage market, roughly every fourth mortgage in Germany is transacted via Europace. On the sales side, with FIO, we achieved already a market share of roughly 7%, and growing, as you can imagine. And on the valuation side, we are with Value AG at the market share of roughly 8%. While we expect Europace market share to grow far above 50%, our goal with the segment Real Estate Platform is to achieve similar market shares in the other areas of the value chain as well. So a lot of growth to deal with here and to achieve.More detailed look on the sales side of the platform -- of the Real Estate Platform. The savings banks and cooperative banks are major players in the German real estate agent market. And while we are in the savings banks industry, already close to full coverage and closing the last gaps. In the cooperative banking industry, we are just starting, and we are increasing our pace. So sales went up here, and traction is growing, especially because of synergies that we are realizing between GENOPACE and FIO here. Sales is up for FIO. Good first quarter, but it's still a lot of things to do. And let's say, our incremental margin in real estate transaction is still pretty low when we compare -- when we see what amount of value we add to the value chain here already and what we are able to add in value by integrating every little step along the sales process of that property with the mortgage platform, Europace.A high-speed in growth and a fast gain in market share, we see right now with Value AG. On one side, we were able to significantly increase the number of contracts with Europace partners so that they are able to directly use our services for business, which they are doing within Europace or part of Europace. So every segment Europace partner is already a contractual partner of Value AG now, and more of them use or try Value AG, so that the revenue of Value AG is up by 91% to EUR 5 million. To make this clear, this is still an area of massive investments from our side. Still, valuations in Germany are heavy -- workforce-heavy. You need a lot of human labor to do valuations because the regulatory requires this or the lender requires it. And there is a lot to do about the digitalization of the thought process and automating the thought process. We are investing in our own platform to do this all heavily and working on fully digitalized approach for this industry while gaining market share with human labor on the other side.We expect that valuation in Germany will look pretty different in a couple of years. And corona was -- gave us some positive impact and some negatives here as well. The negative is that people don't like so often any more visits from externals at home. So some refuse to let people inside. And to deal with this tension, the regulator allowed video inspections of properties already, and this is something we didn't expect for the next couple of years to come. So this part of the digitalization, which we wanted to go for in a couple of years, was speeded up by corona. And now we are doing already live inspections via video chat with our, obviously, consumers, and working with banks and the regulators to expand the acceptance of this way of service here. So pretty well on the growth path, even then we still have to invest a lot.So housing industry. This is the industry which will be, let's say, pretty busy by finally delivering the necessary social housing capacities that we will need to deal with the migration we saw in the last years and the migration which is going to come when Germany recovers faster than rest of Europe. Just to make this clear, this industry is not affected by corona. We have only a very small section of the rents not coming in, in this sector. So there's no default rates, which is impacting the sector. Housing, renting, social housing in Germany is often paid by the government, and so it's a quite secure business.What this industry learned is that digitalization is needed more than ever, and that they were not ready for this environment. So our offers, which we do with FIO, to digitalize their technical infrastructure and migrate in the cloud is more demanded now. And on the same side because they are not affected from the changing environment, they stay pretty on track with their project. So they are modernizing and building homes, just not in the pace needed. And let's say, a small slowdown in this corona environment because of, say, delays coming from public sector or the building in the industry.Because of the low interest environment and as well as some volatility we saw in the first quarter, the transaction volume is up to a solid start in the year, EUR 0.5 billion in new mortgages transacted already via this platform. So a good contribution to the overall revenue and the overall results of this segment. This segment was the fastest growing in the first quarter, 50% plus, a new record of EUR 40.5 million. And on the EBIT side, you can see that we are investing heavily. And not to stress it too much, but let's say, this is a huge growth opportunity for us. And even when we are in a crisis environment and where we are postponing some investments in this area, we see a huge opportunity and we keep investing and ramping up our workforce and our market position as much as possible in 2020 as well.So we are at our fourth segment, the Insurance Platform. With Smart InsurTech, we try to establish a Europace-like central infrastructure for the insurance market. We get a lot of positive feedback from the whole market. We signed up some new clients. We convinced clients, which use only one module for us to sign up for more modules. And right now, we are even in a pretty well process of convincing them to migrate from a license-based model to a fee-based transaction -- fee-based model. The challenge with this is that when you change from onetime revenues or stable license fees to a transaction-based model, that you need to do some compromises to convince the clients, and the long-lasting IT projects for migrating partners module by module to our infrastructure takes a pretty long time and is quite intensive as well in labor. And so unfortunately, we saw in the first quarter only a stable revenue because we exchanged, well, a onetime project revenue to recurring revenue. And so for you, it's the growth rate and the increase in [Foreign Language] sorry, I'm missing [ English ] right now. The relevance -- the increase in relevance is -- in the sector is not visible for you on the quarterly numbers here right now.Keep the pace here. We convinced a relevant medium-sized German insurance company to migrate their independent sales force here on the platform, and we have talked with every relevant player. In addition, to speed up the process, we did 2 strategic investments in the first quarter of 2020. We acquired close to 50% of AMEXPool and ePension. EPension is an operator for corporate-linked pension offerings and a platform to handle them between insurer, employee and company. This platform is a pretty good addition to our insurance platform and as well a good acquisition from the part of whom you are serving, how many clients and insurers you are reaching.AMEXPool, on the other side, is focused on insuring small businesses or serving real estate agents who are insuring small businesses to be exact. This small business insurance sector was as well underdeveloped in the Smart InsurTech -- in our own broker pool, Qualitypool. And with the investment in AMEXPool, we are on the way to integrate these offerings and enabling the insurance brokers of Qualitypool and AMEXPool to use the additional services of each other. So there's a lot of sales synergy possible. And with the migration of the technical infrastructure of AMEXPool, we are as well sending a strong signal in the market that Smart InsurTech is growing, Hypoport is serious in this market, and we are going to establish this single sector-wide infrastructure for transacting insurances between brokers and insurance companies. So expect here that in the next quarters, we will see a positive development on the revenue side. We expect a double-digit growth rate here for this. So it was a slow start in 2020 for the insurance platform.So -- there we are with the overall figures. You know it already. 20% plus in all major KPIs for the first quarter. So solid start. In 2020, we are more -- in the first quarter of 2020, we were more successful than in the full year 2013. So you see that our growth path is intact. We are growing even in a crisis environment like corona. This is based on heavy investments we did last year of roughly EUR 35 million in future projects and resources for key account managers and developers across the whole group. And we continue this, and we are, let's say, not accelerating, but we are keeping the pace even in this environment because we see the huge amount of opportunities around us, and we see the competitive advantage, a full digitalization of these 3 industries here.So coming to our guidance. We still expect for this year revenue to go up to EUR 400 million to EUR 440 million. With this EUR 100 million in the first quarter, we are well on track for this guidance, and we still expect an EBIT of EUR 35 million to EUR 40 million. With the EUR 10 million, we are well on track for this. We are not magicians. It can be that the second or the third quarter will bring some changes in some moment, that the recession will really bring some slowdown. On the other side, there can be as well a fast recovery of the market and even a higher demand and a faster increase of prices if consumers take the housing environment for themselves more serious now than in the past year in Germany. And as you know, we have a quite undeveloped homeownership rate here in Germany with something around 48% to 50%. So there's a lot of growth potential when people understand how important the 4 walls are for them in the future.So with this, I'm giving back to our moderator for more -- to handle the Q&A session, if anyone has a question.

[Operator]

Ladies and gentlemen, we will now begin our question-and-answer session. [Operator Instructions] We haven't received any questions.

[Ronald Slabke, Co]

Okay. No problem. No. It's a good feedback as well when there are no questions. Then stay healthy. We, at Hypoport, focus on the opportunities the environment gives us, and we keep growing. So hope to hear you -- hear in the same chat from your in 3 months when we present our half year figures.Thank you, and bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded.