UmweltBank’s (UBK’s) preliminary FY18 numbers confirm the continuation of healthy lending business and deposit base growth, but also further interest margin compression. The additional tier 2 capital raised recently (EUR 45m in total) provides a solid foundation for further loan book expansion, which together with gradually diminishing pressure on margins could translate into UBK’s earnings momentum turning positive in 2020. The planned launch of new products in 2019 and 2020 (such as the sustainable consumer credit) may provide some additional tailwinds, but may also translate into a temporarily higher cost income ratio (CIR).
UmweltBank’s (UBK) lending activity in H118 illustrates the considerable demand for green construction financing amid high residential demand in Germany. Moreover, the impact of recent regulatory changes in the renewable energy segment so far seems to be less pronounced than initially expected. A successful placement of the junior green bond, which is currently underway, would equip the bank with a capital base allowing it to leverage these favourable trends and further grow its loan portfolio. UBK shares continue to trade at a P/BV of 1.2x in 2018e, which looks low relative to the bank’s ROE (which we forecast at 11.8% in FY18).
UmweltBank (UBK) is a play on Germany’s ongoing transition towards a low-carbon, resource-efficient economy. The bank’s long-term asset and earnings growth should continue to be driven by regulatory and public support of green construction and renewable energy (RE) projects. In this context, UBK intends to raise new subordinated debt to strengthen its capital base. UBK is one of the most profitable listed banks in the German-speaking region due to its low cost base and high credit quality. UBK’s shares trade at a P/BV 2018e of 1.2x, which looks low relative to its above-average ROE (we expect 11.5% in FY18).