Vonovia Stock Explained! Is it for you? ETR: VNA

Duration: 7:33 1072 transcript words EN summary

Video summary

The video provides a critical analysis of Vonovia stock, noting its recent decline from above 30 to below 20 and highlighting that the dividend yield has risen to approximately 6%. The speaker argues that while the underlying business fundamentals remain stable with high collection rates and a supply-demand imbalance in Germany's rental market, the investment carries significant risk due to high leverage. Specifically, the company has refinanced 4.4 billion euros at an average coupon of 3.2%, which is substantially higher than the previous average cost of debt of 2%. This increase in interest rates on their massive debt load creates immediate financial pressure, as even a small percentage point rise in rates translates to hundreds of millions in additional annual payments that could eventually overwhelm the company's cash flow. A central argument presented is the dangerous mismatch between the durability of Vonovia's assets and the short-term nature of its debt. The investments made by the company are intended to last for thirty years, yet the associated debt matures in only six years. This structural flaw becomes catastrophic if interest rates persist at higher levels or if German real estate prices decline, which the speaker estimates could be as much as 30% lower than reported values when adjusted for current interest rate environments. Consequently, the company's reported portfolio value increases might be illusory, masking a potential loss of around 9 euros per share in true economic value. The speaker warns that while guidance looks positive on paper, the reality of high leverage means that any downturn in property prices or sustained high rates could lead to permanent capital loss for shareholders. The transcript also addresses the company's recent equity issuance and special deals offered exclusively to institutional investors, which guarantee a minimum return of 9.7% or 40%. The speaker views this as a clear signal that management is struggling to manage its cost of debt and is diluting existing shareholders to cover obligations. From a value investing perspective, the speaker rejects this approach because it exposes retail investors to risks they cannot mitigate, contrasting their cautious stance with other analysts who might view the current low stock price as a buying opportunity based on assumptions that interest rates will fall. Ultimately, the conclusion is that Vonovia represents a leveraged bet rather than a safe value investment, and the speaker chooses not to include it in their portfolio despite the stock appearing cheap, emphasizing that they do not want to take on the risk of losing everything if market conditions turn against them.

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Here we go again. Bonovia, or it is another song. Anyway, a lot of comments about Bonovia to check it. We have again the stock down from above 30 to below 20. The dividend yield is getting to the 6%. We discussed this in March 2023. To me, it was a risky bet then, a leveraged spread bet depending on interest rates. Interest rates were expected to go down. The stock went higher. Now interest rates are going higher. The stock is going down. And then they did the acquisition, issued equity, things like that. But let's discuss this. There were some angry comments. People were unfollowing me because uh my assumptions about the future were wrong. I don't do assumptions. I just see if this happens, if this happens, am I in a win-win situation? If I'm not, I don't do it. That's value investing. So, Lacy Pew. There you go. Anyway, we are back to where we were back then. A little bit dividends, not a great return over the period. Let's look a little bit at the conference call. What's going on and whether there is value there. Now, first, they refinanced 4.4 billion at 3.2 average euro coupon. Okay, interest rates on this much debt, 42 billion, let me show you this. The average cost of debt is 2%. Now they are refinancing at 50% higher and perhaps will have to pay even more on that. On 40 billion, 1% is 400 million more in payables. Okay, not everything will be refinanced because the average maturity is 6 years, but that's something and that is putting pressure on the stock. The numbers, okay, 3.5% EBITDA up, something value added, some bonuses, things like that. However, I am arguing this is impossible and you will see later. There is no growth in value. First, interest rates are not at zero or negative like there were for the 10-year German government. Now we are 3.3 and going higher. With that change, yes, the rental revenue, everything is stable, collection rates 99.6%. Nothing wrong with the business itself. The issue is and will always be in the leverage. We are talking people about 14 times EBITDA, 14 times. Yes, the target is 12 times, but that's just a target. We can put targets wherever we want. Then look at this. These are the value changes of their portfolio. They say that their portfolio value went up 1%, 2%, 2%. The portfolio value went up to four, let's say 6% since H2 2024. If I know my numbers, since 2024 the start till now, the interest rate in Germany is up 70% 70%. This means that the value of the real estate is down at least 30% in real value calculation. Organic, they are still growing their rents, they plan to grow them. Dividends, grow it a little bit here. Okay, payout ratios. The rental segment is still great in Germany, a lot of supply-demand imbalance. They have this Kappungsgrenze, uh how high they can increase rents, but they are okay. Perhaps market reality, as they say, is even higher, but I'm arguing that market reality is much lower when it comes to true value. If we look at the guidance, everything looks good, nothing wrong. They plan to keep on growing, everything great. However, I'm arguing that the valuation result should be here, minus 20% on the value, that is a loss of around What's that? 20 Rough around 9 euros per share loss. If interest rates persist and there is trouble in German real estate prices, that will be seen there. Everything that you see here will then be destroyed. 42 billion in debt, 2% is 800. If interest rates go to 4, 5, 6% when the company gets into trouble, interest payments take over the company. You are left with zero. This is a levered bet. No matter what any German analyst tells you. This is great financial crisis one on one interest rates. The investments they make last 30 years. The debt lasts 6 years. The mismatch between the durability of the assets and the durability of the leverage is simply something that people do not consider because as long as the bond goes, great. When things change, when things get ugly, then this gets broken, everything gets broken. The covenants, there is renegotiation of all the debt, the bondholders take over, and that's it. Until there is issues, everything looks great, you get your 6% dividend, which is better than the free something bond yield. Okay, everybody happy collecting dividends until it gets ugly. and that's it. And they constantly issue shares, equity rises, just a recent another equity rise. And this is very interesting. When a company goes for equities like this, means that they are managing their cost of debt. And the investors here, that was only offered to institutional investors, they got a minimum of 9.7% return or a minimum of 40%. This means that they cannot lose over the next 5 years. You can lose as an investor a lot. You were not offered these terms, of course. From a value investing perspective, and that's why you are here. No matter how mad somebody might get, is there a risk of permanent capital loss? Yes. Next. Will it happen? Nobody knows. And we are not here to predict the future, to make assumptions. We are just to see, can it happen? Yes, no. How much do I make if it happens? I lose everything. Is that something I want to take on? No. But then yes, the stock is now cheap. It depends on interest rates. If interest rates go down, the stock will be at 40 and people will say, "Sven, what an idiot you were." Anyway, I'm looking at this, a lot of comments. I put it in my curriculum, on my research platform. Okay, it's just a bet. It's not for me. Next. To see what will I include in my portfolios. So, this is why I did the research and I'm not a gambler. I'm sure there will be plenty of other channels that will tell you buy Vonovia now. Interest rates will go lower. This will go higher and everybody will make a lot of money. Yes, that can absolutely happen. I'm just saying it's not for me. Thanks for watching. I'll see you in the next video.