Hypoport SE

XETRA:HYQ

Earnings Call Transcript 2021-Q3

[Operator]

Dear ladies and gentlemen, welcome to the Webcast Results Q3 2021 of Hypoport SE. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Roland Slabke, who will lead you through this conference. Please go ahead.

[Ronald Slabke, Co]

Yes. Welcome from my side as well to the presentation of the Q3 results of Hypoport SE. As you know, we are digitalizing the credit real estate and insurance industry in Germany. And for another 3 months, for another quarter, we succeeded with this. We were successful and we increased our market share in all 4 segments.Also segments are on growth track. The 2 traditional pretty mortgage market linked ones. We are growing the strongest, the credit platform and the Private Client division, both this new record numbers, but as well insurance and the real estate platform, increasing their pace, they keep growing from a lower smaller numbers, but we are on track to progress as well here. So we have reported our numbers already earlier. You know them already. Double-digit growth on top line and outperformance on the profitability side. here, we have a lot of things where we profit from here right now and where we show how high our incremental margins are and how powerful the business models of Hypoport general is. And this all in then, let's say, more or less stable market environment. I will come to this in a moment, especially mortgage market, let's say, especially in the third quarter, we saw there's some slowdown, and we keep growing in this environment. And for now, we are pretty certain that we will meet our guidance and we'll have another record year in a row.So let's talk about market environment. The general drivers of the German housing market, the German mortgage market are intact. We still see a net migration. We see that Germany is recovering pretty well from corona environment that we profit from a, let's say, a lot of firepower from the government side. We had votings in the third quarter and came out with pretty modern and, let's say, hope to be aggressive new government. And so we expect as soon that the net migration effects to a huge demand on the unemployment side, we start within the European Union. Within Germany, we see that people still move to metropolitan areas. So there is still an ongoing process that rural areas are changed to metropolitan areas. And within the metropolitan areas, we see that the surrounding suburban profit more than the center side now because of the lack of available housing in the centers. All in all, in our metropolitan areas, we lack EUR 2 million in houses and let's say we can't keep the pace of building enough buildings. From a perspective of construction of new houses, we are pretty flat this year again. What is new[indiscernible] tank orders that especially in the upper 1/3 of the market, households increased their need for space. Two people need a home office now, children need some space. You solve this issue by moving in the suburban and buying a house or you buy a big apartment if you're able to afford in the city where you are living. This creates additional demand, especially in the upper 1/3 of the market, which leads as well to additional increase in prices. We're talking about prices. Rents are up from a low level still and will keep going up in Germany for a long time still because of a higher regulation of the renting market. So this is a pretty easy prediction that for the next decade, we will have increasing rents here. Property prices they are sharp up in the third quarter by 13%, the highest increase ever in the market and we are on an all-time high. This is -- this looks a little bit overheated now. And we see already in the third quarter that they are still coming a stable number of apartments to the market. So still not an increasing number, but the same amount of partners which come to the market it takes much longer to be marketed to the buyer. So the -- let's say, the pricing aggressivity of the pricing of the sellers, the demands are a little bit too high right now to meet the buyer side. This slows down the numbers of transactions right now. And with this, even with a multiple of higher property prices, it slows down the transaction volume in the market, plus we see additional equity is used right now because German banks in the last month really started to execute the negative interest policy of ECB. And you can say latest at the end of the year, everyone with a balance of more than EUR 50,000, will have to pay a negative interest of 0.5%. And some of this money is already redistributed to the housing market because nobody likes to pay negative interest. This is a, let's say, reducing the -- especially the transaction volume of the mortgage business in the summer, plus people were happy that after this long lockdowns and this depressive time of corona, they had a pretty good summer. So people really used this for vacation. And so the combination of high prices, longer transaction times plus holiday season slowed down the mortgage market. And we expect that it was a small double-digit decline compared to the second quarter, which was on a new record high from the volume perspective. So in this market environment, the different platforms of Hypoport performed or pretty well. So let's start with the credit platform. We, as you know, combined our multi-business businesses, the core is residential mortgages. Besides this, we have personal loan business as well and -- in this segment and developed over the last 3 years, corporate finance business with a newly established corporate finance platform funding Board, which is in beta right now. So let's start with the mortgage business and the Europace marketplace as the center of the whole segment here, we are at plus 20% in mortgage finances. Linked to this, a flat building finance volume, which is an interest security product. Total market is slightly down there. And especially with the links to mortgages, we are pretty happy that it stays that you could keep it neutral in compared to a strong last year.And we are up 13% in personal loans, where the market is down 15% to 20% compared to last year. So we are keeping market share in personal loans aggressively. In total loans, we profit from the fact that professional advice organizations more and more focus as well on the loan side. The pandemic environment, the general need of the consumer is higher there. And especially in the restructuring of the loan portfolios of consumers, independent advice adds a lot of value. And behind independent advice, there's usually the Europace marketplace. So in this segment, we are growing. And the second growth track is the white label personal loan business for banks, where banks not only sell personal loans to their consumers when they fit their own credit criteria's but they match as well everyone against the Europace marketplace and distribute personal loans of other lenders as well in case that their loan offering is not feasible or too expensive for the consumer. So this loan brokerage for banks is the second growth path for the personal loan business. In mortgages, we are growing in all 4 market segments. For a long time, we keep increasing our market share in the mortgage broker business, where we replaced still some paper-based transactions. The mortgage brokers are taking market share from bank branches still. So this is another small growth track for us. In the private commercial banking area, who's working with us keeps outperforming, who's not working with us and the ones who are not working with us are constantly challenged by the other market participants and see that the outdated software solution is not feasible anymore if they are competing with Europace around them. So there's, let's say, a lot of thoughts are going on and everyone who's still based on some on-premise solutions, which are 20 years and older. where we see a permanent growth track is corporate and savings banks , hundreds of small banks, which makes a couple of decisions at each of them to migrate the shares and channels of their sales organizations to Europace.In the cooperative banking industry, we saw a plus of 71% in the first 9 months. It's a slowdown compared to last year, where we were close to 100% but it's still, it's a massive increase and a great track record. And you can see here pretty well how our joint initiatives with -- especially here Bausparvertrag still keep a high pace and help the corporate banks to digitalize their business and help us to grow in their area. We reached now 50% market share. We expect that when we reach something around 30%, that there is some kind of tipping point where we start a discussion if it makes sense to have some competing in-house solutions still being maintained, and what the other 70% of the corporate banking sector should do or, let's say, how fast they should migrate to your base. Savings spends a certain level of slowdown, only 29% growth for this first 9 months. We see that corona takes a toll on the speed of projects that we can do. We teamed up here with the centralized IT service provider. The message to the savings banks were clear. Still the execution lags a little bit, but we have a clear path together with Finanz Informatik that for much more than the current transaction volume Europace should be used in the semi bank sector.And we expect this is a slower speed than the corporate banks that it will accelerate the migrations half will accelerate again from the current level of 29%. So this -- see this more or less some kind of a button for now. We expect a positive development, especially next year here. So all in all, we are heading to a market share of 80% in our perspective. And for now, third quarter was in line with our ambitions to gain market share here in this mortgage business. So besides the good performance of Europace in the market environment, we had a very strong quarter in Corporate Finance with REM Capital especially. The reason was that as announced already in the first and the second quarter that a lot of state subsidized programs are where we shaped and we started on first of July. So a lot of financing projects, which are the typical area of activity for REM Capital, which are linked to these state subsidies were on hold under the new structure were in place and we executed a lot of prepared applications and finance projects in the third quarter. So that we got a strong revenue and profit impact from corporate finance for the total segment. So that the credit platform overall finished 9 months with record numbers on top and bottom line. This -- especially strong performance on the probability. You know that we try to achieve a -- let's say, a growth track where we grow double digit on top and bottom line in an equal manner. And outperformance means that we were not able to hire as fast new sales people and new engineering people as the top line they're growing. And especially corona environment made it tricky to hire fast people. And so you see the incremental probability of the platform business here. There will be -- what they usually come up to 100% incremental EBIT margin. And a lot of this is now shown in the profitability increase in the 9 months figures. So great base for the whole group. Coming to the next segment, which is linked to the mortgage business, the private client business of Dr. Klein. This is a franchise system, where our franchisee employed the advisers and we power the whole system from brand experience lead generation via the Europace system to Indian closed mortgages with lenders which we negotiated supply contracts. Transaction volume was up 9% for Dr. Klein in the first 9 months. So Dr. Klein was as well growing above market, slightly compared to last year where they had a high double-digit growth above market, reasons that we had a lot of headwind because of the short digitalization of the business last year. So Dr. Klein was pretty well outperforming everyone the bank branches and other mortgage brokers. This year, it got a little bit more difficult again. So especially other mortgage brokers learned from us and got more digital as well beside using Europace and let's say, we had to had that digest the strong growth of last year as well. Our franchisees had to digest this to adopt their structures and to get used to this new volume, the new size. Also this cost energy. Plus last year, it was difficult to hire new people. You saw this in a slowdown in the number of advisers, which you could report because of the, let's say, in the beginning of the corona environment it was really hard to hire people, especially advisers from bank branches to a franchise system. So this changed. We are now at plus 13% at the headcount, so above double-digit growth on the number of advisers. This is a promise for the near-term future that the pace on the top line of the sold mortgage volume will go up again because it stays in this business where we generate leads. The core bottleneck is the number of human advice resources, the number of advisers. And usually, we are growing above the number of headcount because of additional productivity gains by the Europace system plus an increased average loan volume because of rising prices. And both is pretty shortening for the near-term future, the rising prices, given when this increase slowed down slightly and the productivity gains in the Europace Serbian. So looking forward, even the record numbers of the first 9 months of Dr. Klein are just a dot point on the path. We keep growing here. Independent advice that has a high demand, it's still underdeveloped when you compare this with other Saks markets. So there's a lot of place to go for Dr. Klein, together with the other intermediaries plus outperforming them because of the higher level of profitability. So besides the 8% growth track, which is in line with the volume growth, we saw an increase in profitability because of, let's say, some lower cost pandemic-linked events and traveling, but as well scaling a franchise system where we heavily invested, especially in 2018 and 2019 into scaling it. So -- and so we are at the first of the newer divisions and newer segments. We start with real estate, an area where we address both markets, the home ownership and the rental market. Core focus is the homeownership market where we see that with the Europace system, we have an asset, which gives us some kind of answer advantage in this value chain where a transaction is initiated between buyer, real estate agent and seller. And they are lately -- or latest the bank needs an valuation by an appraiser. And within the real estate segment, we offer a transaction platform for the broker side, the real estate agent side, and we are creating a digital evaluation platform where right now -- and a lot of people on our payroll are doing appraisals for banks in an increasing number. We see that the core process of home ownership is -- needs to be fully digitalized, needs to be fully integrated. It can't be that these are 3 de-caped and detached processes in the market with a different level of automation and digitalization. So this is what we are doing for the mortgage market, we expect together this to approach here in the segment to do for the whole ownership market in the next couple of years. And our investments here right now are heavy. And they are just to create a necessary basis along the value chain to make sure that this, let's say, EUR 200 million to EUR 300 billion transaction market split in the 2 -- 3 markets right now. That's why the EUR 800 billion is step-by-step form to one highly integrated ecosystem under our control. So how the different units performed within the first 9 months. First, sales platform, we are strong, especially with the large sales agents in Savings banks and other banks here in Germany. But the savings banks, we reached a market share of 89% already. Still a lot of digitalization necessary, but we have the market reach and most of the transaction going for a real estate agent of a saving bank goes through our system already. Just the automation part is -- still needs to be fulfilled. On the Pipes & Banking side, we power a major part. On the corporate banking side, we have a huge potential. When we acquired 5 or 3 years ago, they were close to 0. Now we reached a 12% market share here with cooperative banks under contract. It's as good as the increase is, it's still slow and part of this is linked to a corona environment. So to gain new clients for a new offering is a challenge in this environment from the distance. Plus, we still need to get better in integrating and using our existing proposition and client relations on the credit side. This is still underdeveloped. And right now, there are a lot of projects ongoing within Hypoport to optimize this and to get better . As a result, for the real estate agent platform, selling platform, we saw a plus of 1% in the first 9 months. Please keep in mind that at the beginning of the last year, we still had some project business here, which we discontinued to make -- to focus with all our -- especially IT development resources on the recurring revenue.Second quarter, third quarter, we were growing roughly by 10%. So the transformation is ongoing, and we are gaining traction that this -- this business has really start to profit from our role in the mortgage business. But still a lot to come here, and there's still a lot to integrate and bring forward together. It works out a little bit better already in the aviation side of the business, with Value AG, we have a huge client base already within the Europace contractual partner base. Close to 500 banks has a relation with Value AG and use their services. Just only some of them use it for all of their business and more than 90% just use it for, let's say, the first part, they try it, how it works, how it fits to their processes. There's still a lot of work ongoing. And so the resulting growth track of 70% to EUR 18 million in the first 9 months is a good result for business, which we acquired 3 years ago, started to scale with a lot of human labor. And now for the last 12 months, just scale by automation and getting better with what we are doing. The goal here is an integrated evaluation system that starts at the buyer. And over the last couple of months, we created the best automated value model AVM in the market. So we have the highest accuracy of predicting the value of a property by an algorithm, and we just start to market it and integrate this in our platform. So this is -- and this is what it's all about. We think that by providing the market transparency and an integrated process that drag in the direction of our digital ecosystem will be high because we are able to promise faster and more reliable transaction for our consumers and all participants from either estate agent to mortgage broker to mortgage directly. And so high investments here on both sides, property sales platform and property valuation platform from our perspective. So now we switch to the renting market. We have a very strong relationship to the housing industry in Germany. We financed via our platform every fifth investment in -- professional investment into a renting space. We are up 21% here to EUR 1.5 billion in transaction volume for the large property owners here in Germany. We had a positive impact from intersite. During the third quarter, interest went up slightly. And this professional players here, they tend to close their preprepared applications and financing projects when the interest rate is volatile to secure it. So it could close more than last year and last year was already pretty good numbers for 9 months. This another -- a relevant part for you. We started the rollout of a digital platform for this business. So while it was very advices-based and human-based up until now, step by step replace the human labor and the exchange of information with traditional methods via a platform here. WOWIFIN is launched and is now introduced to our clients so that besides using an adviser of Dr. Klein as a professional housing association, you are well able to use this to run a tender and find the best offer for your needed mortgage as well without the advice process of Dr. Klein. We see that this will increase in the future our market reach, and the volume that we can direct to our platform. And we don't expect to lose on the advice side because of the increased complexity in the financing market and the -- let's say, the lack of competencies, especially for medium-sized housing associations here. So on growth tech and on track of digitalization and another investment yield, as you can imagine, so all in all, the whole real estate platform is growing slower than the credit platform still, but there's a huge potential and a huge investments that we do here. You see the minus EUR 3.6 billion in probability. We expect this to be a growth driver in the next decade of Hypoport. So here's a lot ongoing in this business. But it's a core focus this year and by sure core focus as well next year to develop this to a growth driver of Hypoport. So talking about growth drivers, last segment, insurance platform. As you know, we are digitalizing here the household insurance side. So from life health, liability insurances for every family here in Germany with an integration of all participants along the value chain, plus via acquisition of ePension a year ago, we are digitalizing as well the employer linked insurance portfolio. So pension and health, which is distributed and subsidized by employers where next to a consumer and insurance broker and digital company, the employer is another participant in the complexity of the information exchange and the data management along the later. So a similar complex area like Smart InsurTech just a little bit smaller market. Both are growing. And focusing on Smart InsurTech. Our migration path of acquired on-premise solutions to a cloud business to a single digit -- single fully automated platform is there going forward. We could increase the premium volume of Smart InsurTech, which is already in the cloud by 30% to EUR 3.3 billion for this year. There's still a huge potential in the yard. On-premise solutions, there is still EUR 5 billion of premiums with our clients. This -- when you follow the quarterly numbers, you see that it's slightly increasing now the speed of migration here. Plus [indiscernible], we validate this data against more and more interfaces, which we have to the core systems of the insurance companies. And with these validated numbers, we create the base for all kinds of automation, which you can imagine along the value chain. So everything what an insurance broker may automate with the interaction with the client or the sales agent, the adviser, it's only possible that you base this on validated data. Otherwise, you risk a lot of hassle with misguided, misadvises and misleading processes. So this validation number went up from 40% in the beginning of the year now to 21% of the total premium platform. That's it. We expected a faster increase during the year already, but you see here the slowdown of complex projects in the current corona environment. And, let's say, the general issue in the insurance market that you have a huge complexity, outdated systems and let's say, 2 additional organizations. So -- but step by step, we are coming forward here. And in total, the segment delivers slowly some growth drag. So plus 8% on the revenue side, 13% on gross profit saw a slightly double-digit growth already. With this together, we increased our investments to increase the pace of migration and adoption in the market and , let's say, see right now an investment of EUR 2.1 million in EBIT for the first 9 months. So looking forward, this is a huge opportunity for Hypoport to digitalize as well as ensure the market. And we still don't see anyone who is trying to do something similar. We see a lot of access in the market that certain institutions understand that the market is changing, that they need to open up. Banks try to monetize on their client relation and start bancassurance offerings for this, you need a complex infrastructure and as well insurance companies start to open up their tight agent networks for third-party sales. For this, you need a very complex infrastructure. So all that is going on, and there is a lot of noise in the market right now is a process which will lead to a market environment where everyone needs Smart InsurTech to succeed. Otherwise, you have a huge hassle in your let's say, in your back office because of the lack of automation or unreliable data and nonexisting automation processes. So these are the 4 segments. This all sums up to record numbers for Hypoport, EUR 225 million in revenue, EUR 55 million in EBITDA. We outperformed on the earnings side because we couldn't hire as fast as we may would have done outside of a corona environment. You can see the pretty impressive incremental profitability of our business here. And let's say, we keep the scaling and developing Hypoport along this path of double-digit growth on top and bottom line. On a long-term track, you can see that we are getting close already to the last year's numbers with our 9-month number. So it will be a new record year for Hypoport. And we expect to stay in line with our guidance. Even if we heavily invest again in this year after the EUR 40 million last year, EUR 40 million plus something EUR 40 million to EUR 45 million, we will have invested in 2021 in future growth on the sales or engineering side. Yes. This leads us to the question, how is this year going forward? We stick to our forecast. We feel pretty well with our guidance now. So it will be a record year, we will bring this home in the last 2 months, which are now left. And we will set the basis and the direction already for next year to be, again, a year of growth for Hypoport with double-digit numbers. Thanks for your attention. I give back to Mrs. Sanders for the moderation. Is there any questions today?

[Operator]

[Operator Instructions] So far, we have no questions. So I would like to hand back to you, Mr. Slabke.

[Ronald Slabke, Co]

Yes, it's good that I answer all questions in English always in advance. I had this German call to train a little bit, so I hope you are happy and satisfied with all what you heard. We are going back to our operational business. Steve is here at see here again in 4 months, beginning of March with great numbers for Hypoport, the 2021, at a pretty amazing outlook, I'm sure. So see you soon. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.