During its recent earnings call, Hypoport SE (HPBK.DE) reported a strong first quarter, with significant growth in its Real Estate & Mortgage Platforms segment, which is the major contributor to its revenue. CEO Ronald Slabke highlighted the company’s robust position in the broker market and its success in gaining market share.
Despite challenges in the property valuation business, Hypoport SE is optimistic about future growth across its sectors, including housing, corporate finance, and personal loans. The company ended the quarter with a neutral EBIT and anticipates a potential record year in 2025, forecasting €400 million in revenue and €10 million to €20 million in EBIT for the current year.
Key Takeaways
- Hypoport SE’s Real Estate & Mortgage Platforms segment showed strong double-digit growth.
- The German housing market remains stable, with high demand for rental units.
- Home ownership is becoming more affordable, with interest rates decreasing slightly.
- The mortgage market saw a year-on-year uplift of more than 50%, mainly from existing house transactions.
- Hypoport SE outperformed the market and gained shares, but growth was tempered by issues with a German bank partner.
- The company remains confident in its property valuation business’s recovery.
- Hypoport SE ended Q1 with an €8 million EBIT and expects to outperform previous years in revenue and profitability.
- The company aims to stay profitable throughout the year and forecasts double-digit growth.
Company Outlook
- Hypoport SE predicts a potential new record year in 2025.
- Expected revenue for the current year is forecasted at €400 million.
- The company forecasts €10 million to €20 million in EBIT for the current year.
- The core market potential is estimated to be around €75 billion to €100 billion.
Bearish Highlights
- Growth rate has been reduced due to issues with a large German bank partner.
- The property valuation business has seen a drop in market volume and faces regulatory changes.
Bullish Highlights
- Strong performance in the Real Estate & Mortgage Platforms segment.
- Stable macro trends in the German housing market with ongoing demand.
- Company’s strong position in the broker market.
- Hypoport SE’s insurance platforms are gaining market share.
Misses
- A weak point acknowledged in the property valuation business which is expected to recover.
Q&A Highlights
- The company discussed its profitability and investment in new offerings and platforms.
- Hypoport SE maintains optimism for market recovery in Germany.
- The company looks forward to reporting its half-year numbers in three months.
Hypoport SE, with its positive outlook and strategic positioning, is set to navigate the dynamic market environment with confidence. The company’s anticipation of double-digit growth reflects its commitment to capitalizing on market opportunities and strengthening its financial performance in the upcoming periods.
Full transcript – Hypoport AG (HYQGN) Q2 2024:
Operator: Hello and welcome to the conference call of Hypoport AG. Throughout the call, all participants will be in a listen-only mode. And afterwards, there will be a question-and-answer session. Please note, this call is being recorded. Today, I am pleased to present Ronald Slabke. Please begin your meeting.
Ronald Slabke: Yes, hello from my side as well. We are talking about the Q1 numbers of Hypoport SE today. I’m sure you’re aware of this, we presented a strong first quarter, double-digit growth in the core business units. We took market share across all business lines, so a solid start after a rough year 2023. First, let’s just dive into the Real Estate & Mortgage Platforms segment, core business unit, 2/3 of our revenue and center of our profitability in the past and in the first quarter. So this is all about home ownership here in Germany and in the core about the mortgage process and the digitalization along the value chain. The market itself has some general macro trends which are stable or slightly positive in the first quarter. So the whole demography is stable here in Germany. We have an ongoing trigger events for families to move to their first home or a second home after separation. We have a net migration which is especially relevant for the rental market, on a high level and a high demand for this net migration in the near future. So there is a certain level of certainty in this that housing is limited here in Germany for everyone. The rental market is extremely regulated. This — lots of, let’s say, state-wide or county-wide regulations that limit the abilities of landlords to raise the rents in an environment with a sharp increase in interest rates. This makes building new renting units highly inattractive. So the supply side of new rental is coming to a halt. On the other side, the existing stock of renting units is blocked by the home occupiers which often have a far away from market event level of their own rent. And with this gap in between fluctuation within the renting market — mobility within the renting market gets lower and lower in Germany which blocks renting units and makes it even less possible for families which traditionally found a solution as well in the renting market, to find a solution here. So more and more are looking to their home ownership market and to the question of affordability of home ownership. Here we saw a positive change in Q1, interest rates came down slightly from a higher level in 2023. Prices trickled down roughly another 2% in the last quarter and stabilized this quarter. And the incomes are rising because of high demand, especially for skilled labor, we see between 5% and 10% increase in incomes, so that with the interest rates and prices and incomes in the triangle affordability got better here. From a regulatory side, no big events this quarter, just some more talks about potential support in the near-term future, something which slows down markets, doesn’t enable anything, let’s say, in the end this is what we are used to from politics over the last 2 years. Not a lot of efficient policies to really change something in this market which keeps it a potential area of positive surprises in the future. But for now, this is just something which holds the market in a certain level back. So looking on the core KPIs for the market, you see the mortgage rate here in Germany, it’s roughly 3%. I know it’s half of this, what you see in the U.S. for instance and — but German fields at 3% for 10 years fixed interest mortgage is already higher than they were used to under 2 years ago. But the drop of close to 1% to the peak in October, it changed already the affordability and so brings this market back on track, especially for the existing homes and apartments, where you see that prices triggered up in the first quarter and you can say we compensated the fourth quarter already. In a year-to-year perspective, we are still below previous year’s prices and this is still something which influenced the decision process that people still read in newspapers, real estate prices came down compared to last year. So over the period of the next 2 quarters, we will see that this trend is really reaching everyone who’s in the decision-making process and will accelerate this process. Because waiting is — doesn’t — you can’t benefit anymore from declining prices when they are not declining. And so you can’t wait. New construction is still getting more expensive, thanks to regulation. This is a big issue and it limits the supply of new homes. We see right now only the financing of roughly 100,000 units here in Germany. The goal of our government was 400,000 units per year to stabilize the housing market, rents and prices, with just 100,000 finance right now, we will not see much more built in the next coming years. And with this, you can expect increasing prices and increasing rents. Yes, talking about rent supply, a small tick up in the first quarter is seasonal, in general, the availability of renting units is on historic low here in Germany and keep trickling down. On the sales side, there are offers on the market you can buy if your — if it fits to your affordability went down [indiscernible] slightly. I think we see already the increasing pace of transactions on the other side, not only the buyer side is — was triggered and it’s waiting for the moment to process this trigger and buy something. The seller side was triggered as well. Usually you sell in Germany after your — the people who lived there died, your parents died and you have to sell them in a certain moment. But yes, with this trickle down prices, you can wait longer to get a better price and this is what people are doing here right now. So that’s why stock is higher than usual but limited as well. So in this market environment in general, we saw a mortgage market who recovered slightly. So we saw the bottom, we left the bottom. First quarter was an uplift, a significant uplift of more than 50% with a year-to-year comparison, 11% plus. So we are on the way up again and this up is fully linked to more transactions in existing houses. You will see in a moment, later this in 2 slides, 3 slides later, the split between the different usages of mortgages and you will understand that there’s a lot of potential from the different areas for this uplift to continue. So we operate with different business models in the home ownership, home acquisition, home financing market along the value chain. The core is the mortgage platform, Europace with the other activities supporting this or integrating us deeper into the value chain. So when you want to understand how is business going for the first quarter, we look at first on the total numbers for the Europace transactions, 17% year over year compared to 11% market. This means, we outperformed market, we gained market share somewhere 6%. This is below what we usually did. The reason is not in the 4 core activities that you see here, Dr. Klein, plus 20% is in line with our double-digit growth and outperforming the market what we usually do, savings banks and cooperative banks, even they’re growing faster, plus 50%, plus 42%. Here we see that our investments during the last two years in signing up structures, bringing them, migrating them to the platform, pays back now in this environment and we gained market share as well in both of these segments. So what is missing here is our largest private bank here in Germany has a huge processional issue [ph] in their mortgage business. It is doing this now for roughly a year already. But thanks to the sharp drop of their mortgage volume which would have been otherwise transacted via Europace, we are just at plus 17%. Otherwise, we would be at plus 20-something-percent here right now in this quarter. This large German bank will come back, they will recover, they will get their processes under control again and their IT systems efficient, working for the mortgage process and then they will come back during 2025 and latest — sorry, during 2024 and latest in full recovery in 2025, you will see an uplift in our transaction volume, in addition to what’s happening in the other segments here. So slightly reduced growth rate here right now, thanks to the special event one partner [ph]. Okay. Structural view on the market. What I say, most of our transactions are coming now from the purchase of existing homes. And when you include that, the prices declined during this period you see here, you can see that we roughly have the same amount of transactions already on the platform for purchase than we had pre-crisis. We gained market share, expect something around 20%, 30% market share gain by our side, so market still is from the numbers of transactions below pre-interest rate change. But you see that this market is coming back. And to be fair, it’s not the end. So this is what you see here in the first quarter 2022, this was not the limit which we will reach. In this time, it was still unusual for [indiscernible] here in Germany to acquire, especially an apartment in a metropolitan area, because it was so much cheaper to rent. And so it is very pretty attractive. The renting market is frozen now. This is not an option anymore. If you want to live nicer, if you want to have a home for your whole family, then you need to buy now and this will bring the purchase market to new higher levels than we saw previously here in Germany. In the — in all three other areas which historically accounted for half of the mortgage volume, we are still on the bottom. So financing of new constructions is on an all-time low, with only a chance to lift up. Refinancing market is still on the bottom. This is a special situation. Usually Germans finance for 10 years, so we had a stable refinancing volume every year but with the extremely low interest rates, 15 — 10 to 15 years ago, we started to finance longer. And so half of the mortgages 10 years ago were financed for 15 years and longer, even 20 years. And with this in mind, people don’t need to refinance right now, half of them, don’t need to refinance right now. And so they can postpone this until 2027. Then we will see an uplift of 50% to 100% in this market, depending on the dynamic on the interest rate side. So at last, modernization, especially energy efficiency investments into the current household stock is something which is still on an extremely low level, even when there is a tough political agenda from EU and the European government, German government right now to ramp this up and do intensive investments of hundreds of billions on a yearly basis to get to a carbon-neutral household stock in 2050 for the EU and for Germany, 2045. So we have 20 years to do this. And for now, nothing is happening because of a mismatch of, let’s say, potential subsidies provided and cost to do this right now. So here, a massive change needs to come. So for all 3 areas, I’m certain that for the future, mid-term future, there’s only one direction where this market can go and this means more volume there. From a structural perspective, in the different sales channels where we are, we see that we have a strong position in the broker market. Dr. Klein is going well and the brokers are taking market share from the 3 bank industry sectors, thanks to their agile approach, picking up clients online, providing a neutral base on Europace, providing a neutral advice and the best product out of hundreds of banks. And with this stake, they keep taking market shares and we grow with that and on the other side, in all 3 sectors, we are gaining market share. And especially savings banks and corporate banks still offer us huge potential to grow. And our position in both industries is strong and both industries, let’s say, keep going in our direction when it comes to the question, how to do mortgage business in the long-term future. Only weak point in the whole segment is our property valuation business, or appraisal business. Here with the delay, the sharp drop in market volume arrived in the last half year, you can say. Plus, we saw 2 massive changes in regulation which were counterproductive for the market and completely out of our direction where we’re heading to. This brought us in the tricky situation, massive mismatch between our resources and the demand side, where we are in the process of working this out. The results of this workout you see already with €1.2 million less in revenue because of a shrinking market, we were able to keep the loss stable from here. We expect an uplift in revenue, thanks to a recovering market and taking market share, thanks to a better integration in Europace and our other platforms to step by step lift up the sales position and the revenues of Value AG here. So we saw the bottom. The losses were higher in the last 2 quarters. We are on the way up and out for 2025. We expect to be breakeven here again. For the total segment, we see strong double-digit growth. The outperformance on the revenue side compared to gross profit is linked to an expansion of our pooling business, where we use our buying power to combine the different sales organizations here on the platform, buy for them the volume, receive the commission and pass through their commission and keep a small additional margin in addition to the transaction fee. So let’s say, we increased the profitability of broker business for us on the platform this way, even when it slightly inflates our revenue figures. So the 80% gross profit is in line with the 70% transaction volume growth of Europace and this shows the underlying real growth beside the change of the business model in this case. So €8 million EBIT in the first quarter. Best results for 2 years now. And when you consider the close to €2 million loss, the appraisal business brought us. So we are already at €10 million of revenue or 30% EBIT margin to gross profit again. This in the current market environment where market just starts to recover. I think you feel the strong position we have with our platforms here and the great probability, such a platform business is able to achieve. So let’s come to the platforms in other credit areas, our financing platforms for housing sector, corporate finance and personal loans. Here, we saw a different market environment in these 3 credit markets. Let’s start with the housing associations, the social housing sector here in Germany, a solid first quarter for the financing side on a low level, so historic low level, you see our 2019 to 2022 numbers. And this was a time where we started to ramp up the construction of social housing, far from the demand but a steady increase and now we sharply dropped to a fraction of this, even when net migration is high and the demand for social housing is high. So here’s looking forward, billions of investments to be done in new constructions, billions of investments to be done in energy efficiency of the current household stock, nothing of this is right now financed, so we are — we are still here on the bottom in this part of the mortgage market you can say. What is stabilizing our position in this industry is our Software-as-a-Service solution to manage deposits of rentees, trickling up volume. Our revenue is linked to this volume. So each year we are able to expand our revenue basis here slightly and our growth driver for the future in this area, our management software for housing associations, the most modern one in the market, web-based open for integration which meets perfectly the demand side in really underserved, very traditional served IT market. So with our platform, we gain traction and keep signing up new clients. We are migrating larger and larger clients right now which opens up the market of the mid-size and large housing associations in Germany for us, with a scalable model where we get paid per unit, managed by our platform. And integration of all 3 offers is something where we see long-term, a very attractive business model here for us. So that the investments we do right now in this ERP platform are very long oriented investments and we see that they are going to pay back in just 2 to 3 years. Okay, more tricky, corporate finance market, we saw a budget freeze here in Germany end of last year, going to the beginning of this quarter, plus the government agency who were responsible to provide decisions to [indiscernible] programs and credit programs, delaying the process of approving projects deep in the first quarter so that we were really effective in our business here by this budget freeze for Germany, by the German federal government. So this environment reduced the volume of new projects that we could acquire and especially as well reduce the volume of projects that could be closed. Because without the — a clear decision on the subsidy part of structured finance project, this was a tough environment in Q1. This will change during the year, so this budget phase is over. The agency started to work again even when there could be done much more to help the German industry at Mittelstand to transform in the current political agenda. The worst — this difficult first quarter will not happen again in the upcoming quarters here. For last credit market, personal loan business, last year this market was shrinking by 40%. There is no official Q1 number but we expect it to still decline while we could increase transaction volume by 17% on the Europace platform in general and 60% for the white label third-party brokerage offering which we have, where on one side banks which is not fitting personal loan product are able to broker this wider platform to other banks with a fitting risk or pricing model. We see some challenges here in the current credit appetite of banks. So even when we increase the transaction volumes, the cancellation — delayed cancellation rates are going up. So consumers don’t take the loan because they — we consider this decision and banks after a long time of checks then finally decline loan applications because of their general appetite. So, let’s say, the quality of the transactions declined and you can say compensated in a large part this growth in transaction volume, this will normalize when the general outlook for German economy is getting normal again. And during this time we keep signing up more and more banks on both platforms, on the supply and demand side and keep growing in the volume. In total, the segment had, let’s say, solid start. First quarter 2023 was exceptional good. And now we see here that, especially from the corporate finance side, a difficult market environment. We expect to recover from this and in total, outperform 2023 over the next 3 periods. So our last segment, Insurance Platforms, with our offerings in 3 markets, the personal loan environment — insurance environment with standardized insurance products, they’re industrial, they’re the smart insurer platform in the center, the industrial insurance products where each risk is underwritten in the specific — under specific terms. With Corify and Oasis and the employee-linked pension schemes which we transact via ePension. In all 3 markets, we kept migrating new clients to our platform. So we are gaining market share in an overall very stable market environment. We balance our investments, so let’s say keep innovating on a low level in this industry. We are focused on execution right now to bring clients on the platform. So plus 11 — sorry plus 12% for SMART INSUR. This is in slight acceleration compared to the last year’s, so let’s hope we can wrap this up. We came from a single-digit environment, now we are double-digit here and this is — with the current investments we do in this area, really a success. So Corify could sign up the first 2 clients for their newly-launched platform for specialized industrial insurances. And the tender process which needs to be done here, especially the risk profiling, is implemented already and is now used by 2 clients. And we try to find and attract more clients out of the focus group with whom together we developed it and out of our existing client base to bring this marketplace to life in 2024. So this is a really exciting moment in this development and, let’s say, the final stage of 2 years of heavy investments in this new marketplace. A marketplace tool farther developed already is ePension for the occupational insurance business. So pensions employer-linked. Here we are already in an acceleration phase of this marketplace effect. We signed up large set of annualizations last year and now the migration speed of volume to the platform is accelerating. We will see this double-digit, this high-double digit growth whole year already with the — the signed up partners and we are certain that we are in a lead position here in this market, the number two is struggling, there is no number three. So it looks like that we have a good chance here to come to a winner takes it all market. And this is a relevant market for the German insurance industry and quite an amount of scalability for us in our business model. And we are already profitable even on this small stage with ePension. In total, it’s the challenge for the insurance platform is to stay profitable this year. So this first quarter we ended with a neutral EBIT fourth quarter in a row. So a goal accomplished and balancing the investment in new offerings and new platforms with the probability of the existing ones is working out even when on the total revenue for the group or for the segment, overall 3 segments, we are still single-digit in a more or less stable market environment. So growth speed can go up, will go up starting in 2025. But for now we balance our investments here. So for the group, it means a strong first quarter compared to this what we saw last year. This is what we saw in 2021, there’s still a huge potential up. You can imagine this looking on the situation, especially in our core market and the first segment. So when you look on our numbers in the long-term figures, you can see that we will outperform 2023. On EBITDA side in 2023, there was a one-off of double-digit million. So on both areas, we will outperform last year and how close we will get to the record year 2021, we will see. Latest for 2025, I expect a new record year and this is the second year of a transition and we are back on track I would say. So back on track outlook. Just to give you a feeling, our core market beside the fact that we will take market share double-digit and that we will expand our profit split in this market over the next 5 years. This is a market who in a normal environment should be around €75 billion to €100 billion, just because of the needed transaction by families to purchase their new homes, plus a little bit more new constructions than right now, plus refinancing, latest in 2027, plus energy efficiency investments of roughly €20 billion per quarter which needs to be done to achieve the set goal for carbon neutrality in 2045 here in Germany. So the speed of recovery of this market is the only uncertainty, not that we get there. For the total group outlook, it means that we will see a very well performing real estate and mortgage platform, financing platform, insurance platform will outperform last year in average stable market environments for the different segments. This brings us to the statement that our 2-month old forecast for this year, €400 million plus in revenue and €10 million to €20 million in EBIT, is just solid. And for the upcoming years, expect double-digit growth in top and bottom line from us again. So with this, I would hand over to the moderator. Maybe we have some questions from you. I would be happy to answer some.
Operator:
Ronald Slabke: Thank you. I would like to answer some questions in English as well but that’s fine. All questions answered maybe, yes, we will see you again in 3 months. We had a good feeling — we have a good feeling for how the market developed in April and looking forward to bring our half year numbers then in 3 months and hopefully we continue our recovery and see a prospering market environment here in Germany again. Hope to see you soon. Bye-bye.
Operator: This now concludes our presentation. Thank you for your attendance. You may now disconnect.
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