MLP SE
XETRA:MLP
Earnings Call Analysis
Q3-2023 Analysis
MLP SE
MLP has displayed notable stability in the face of economic pressures, including inflation and interest fluctuations, with significant increases in total revenue. Despite these challenges, their strategic positioning has provided a unique selling proposition over competitors, allowing the business to maintain its course during the difficult times, especially in the first nine months of the financial year where revenue reached a record EUR 684.6 million. However, EBIT saw a decrease during the same period due to one-off balance sheet effects and inflationary costs.
The company has confirmed its EBIT forecast for the year to be between EUR 75 million to EUR 85 million and directs attention towards a strong fourth quarter, particularly in ODX provision and the interest rate business. Looking to the future, MLP maintains plans of reaching an EBIT between EUR 100 million to EUR 110 million with more than EUR 1.1 billion in sales by the end of 2025, aligning with its ambitious growth path bolstered by consistent digitalization and value creation strategies.
MLP has been emphasizing digitalization directed at both enhancing consultant efficiency and client experience. The optimized client portal and improved consultant portal reflect this aim. Automating work processes and exploring artificial intelligence applications are also part of their effort to provide consultants more time for complex client issues.
The company reported increases in various business segments, with the interest rate business enjoying a significant surge of 264% to EUR 45.7 million. Revenue from commissions and fees stood at EUR 603.3 million. On the other hand, real estate development revenue saw a downfall, while normalized insurance and the industrial broker segment contributed positively to the overall fiscal health of the company.
Assets under management have remained fairly stable at EUR 55.9 billion, placing MLP on par with genuine private banks. This indicates a promising sign of investor confidence and company stability.
MLP is implementing effective cost management strategies to mitigate factors that led to the lower EBIT of EUR 45.2 million after nine months. The initiation of a new training program aimed at recruiting young consultants signifies an investment in the company's future growth. A 20% core capital ratio and an LCR of 1,680%—far above the required 100%—showcase the firm's financial robustness.
The number of family clients and corporate/institutional clients has seen an upward trajectory, and consultant numbers are expected to substantially increase in the mid-term, which aligns with the company's growth strategy and its recent training initiatives.
The demand for health insurance remains high, contributing to the forecasted positive revenue development. The real estate sector, despite experiencing inflation-driven revenue boosts, is expected to face moderated growth rates of 7% to 10% in 2024 compared to the larger increases of the prior year. Performance in non-life insurance is also anticipated to be strong in the future, despite possible market pressures.
MLP anticipates a strong final quarter across various sectors but acknowledges potential volatility and market pressures. The company reiterates its commitment to its guidance, projecting EBIT within the range of EUR 75 million to EUR 85 million for the current financial year. However, it acknowledges that pressures from the market may influence outcomes.
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Ladies and gentlemen, a warm welcome to the publication of the results of the third quarter 2023 of MLP SE. [Operator Instructions] Let me now turn the floor over to your host, Pascal Löcher.
Thank you very much, and welcome to MLP's conference call to our results for the first 9 months in the third quarter of 2023. With me today is our CFO, Reinhard Loose. He will guide you through the presentation. And of course, we are happy to take your questions after the presentation. So please go ahead, Reinhard.
Thank you, Pascal, and good afternoon, ladies and gentlemen. Despite significant external pressures associated with overall economic development, uncertainty in nonconsumers as well as factors such as inflation, interest rate drivers and global crisis, MLP was able to maintain its successful course in the first 9 months of the financial year. The high stability of the overall business once again showed positive effects. Thanks to the broad and strategical interlink positioning our group enjoys a USP over the competition. With this systematic developed diversification, the group is capable of continuously driving forward its business as so often demonstrated particularly during tough economic times. In the period from January to September, we were able to increase total revenue to EUR 684.6 million, which represent a new record at EUR 209.7 million. Q3 revenue also surpassed the figure from the same quarter in the previous year. The decrease in earnings before interest and taxes during the first 9 months compared to the same period in the previous year can be attributed to various factors that are both understandable and amongst other things, also unrelated to operational activities. We already presented most of these in previous quarters, including one-off balance sheet effects as well as the key impact of foreseeable cost increases due to inflationary pressures. In August, I also gave a detailed report on our new trainees program that aims at acquiring more MLP consultants. Our investments in this program, to already taking into account in our annual forecast have started. The program itself has now also been successfully launched. At the same time, we continue to operate an effective cost management system. Our operational development is successful, and we are now anticipating a strong closing quarter above all in ODX provision and the interest rate business. We are also happy to once again confirm our EBIT forecast of EUR 75 million to EUR 85 million for the year. In the midterm, we are adhering to our plan of recording an EBIT of EUR 100 million to EUR 110 million for the group with more than EUR 1.1 billion in sales revenue by the end of 2025. Thanks to strategic further development of the group, we are continuing to make progress along this ambitious growth path. We have been continuously optimizing and strategically diversifying the MLP group since 2005. Above all, the latest phase of our ongoing further development is characterized by enhanced value creation and consistent digitalization. I've already reported on this topic on several occasions in the last few months. The intelligent end that comes from personal support provided by our consultants continues to sit at the heart of our digitization strategy, coupled with the digital self services that our clients demand in addition. Our client portal, which we recently optimized from the ground up is a visible sign of this. In the background, we are working hard on further automating work processes, particularly for [indiscernible] activities. At the same time, we are also continuously improving the consultant portal, which can be seen as a kind of cockpit for our highly qualified consultants. The objective in all of these activities is to free up more time for challenging and ambitious client topics. In other words, the core of our consultancy services. In addition to this, we are expanding our service offering within the MLP Group and also entering new business areas with a digital focus. As a high-grade digital platform for employee benefits, pxtra is a prime example of this. We are also further tapping into the field of artificial intelligence. Our group-wide AI task force has been supporting the first applications in the MLP Group and is working hard to determine new potential users and collaboration with the subsidiaries. Each recognition is likely to play a key part here, particularly in our service units, and we are proactively advancing this topic in a very targeted way with professional partners. You can find an overview on revenue development on Slide 5 of the presentation. Total revenue rose to EUR 684.6 million in the period from January to September 2023, which represents another new record. Income from commissions and fees was EUR 603.3 million. The interest rate business at MLP Banking also enjoyed particularly strong growth with an increase of 264% to EUR 45.7 million. As expected, in light of current market developments, real estate development revenue displayed a significant decline to EUR 60 million after the first 9 months of 2023 compared with a very strong equivalent period in the previous year. In normalized insurance, MLP was able to record a particularly strong increase in revenue, the 14% rise after 9 months. The Industrial Broker segment, Tonkowa and MLP's private client business all contributed to this. Growth also continued an old-age provision, where revenue increased by 6%. The good development and occupation provision is set in a particular impact here. In addition to this, our [indiscernible] area has continued to display good development. In health insurance, MLP was also able to record further significant growth with an increase of 8%. This reflects the increased awareness among many citizens of the importance of securing their own health. In addition to this, we are observing increasing interest in occupational health insurance. To this end, we are offering consultancy and implementation services for companies via our TPC business. As expected, the challenging market developments continue to negatively impact both the real estate brokerage and loan mortgages consulting after 9 months. Accordingly, revenue was significantly lower in these two fields. Although a slight upturn could be observed in loans and mortgages in the third quarter with the revenue contribution of EUR 3.3 billion. Wiesloch mentioned revenue after 9 months was EUR 228.5 million. This figure displayed quarter-to-quarter improvement. At EUR 78.1 million Q3 was already at the previous year's level. In light of volatility on the capital markets in the preceding quarters, only very limited performance fees have been collected so far this year. Nevertheless, the investment concepts display good performance. Assets under management remained virtually constant. It's EUR 55.9 billion as of 30th of September '23. The figure is slightly higher with the end of the first quarter and only slightly below the record high from the second quarter. The MLP Group is therefore operating on a par with real private banks. The non-life insurance portfolio volume managed in the group once again set a new record at EUR 689 million as of the 30th of September. This figure is in line with the medium-sized non-life insurers in Germany. You can find the current income statement on Page 8 of the presentation. Despite operating in conditions that remain challenging in parts of the market above all in real estate. EBIT after 9 months was at EUR 45.2 million. The start of investment on our new training program for attracting multiple consultants, one-off effects. And in particular, inflation-based cost increases were all factored that led to EBIT mainly lower in the same period in the previous year. We are responding to this with a consistent cost management approach, which we are continuing both result as well in a high targeted way. The negative one-off effects we have seen for this financial year have already been processed in the first 9 months of '23. The trainee program, already mentioned, we are further accelerating our acquisition of young MLP consultants in the midterm. More than ever before, we feel certain that this will help us win over the best talents to our company. After all, only these talents actually are capable of delivering MLP services commitment to our deserving client. At the same time, we are actively investing the challenges that all companies are now facing as a result of demographic developments. In other words, the trainee program represents a key strategic step with which we are once again making highly targeted investments for our own future. The next slide shows our balance sheet. At 20%, the core capital ratio remained at a high level on the reporting date. The liquidity coverage ratio, LCR, which serves as a benchmark for the short-term liquidity situation of stress scenarios and as such, is an indicator of resilience, is 1,680%. It is, therefore, well above ratio of 100% required by the supervising authorities. The consultants in the MLP Group were serving 578,200 family clients as of the 30th of September. Across the number of newly acquired family clients in the period from January to September rose to 14,100. The number of corporate and institutional clients as of 30th of September was 27,100. The number of consultants in the MLP Group at the 30th of September was 2,030. This also reflects a knock-on effect in the context of our new training program for aspiring consultants, which we successfully launched in mid-July. As already announced in our figures for the first half of the year, this will then also be visible in the comparison of consultant numbers at the end of the year. In the midterm, we are still anticipating a further substantial increase in consultant numbers, above all, thanks to our new trainee program. Ladies and gentlemen, please now allow me to move on to the forecast. Despite continuing to operate in challenging conditions in parts of the market, we're happy to confirm our forecast for the current financial year. We still expect to record EBIT in the range of EUR 75 million to EUR 85 million. Above all, we are anticipating the interest rate business to remain strong as well the strong fourth quarter old-age provisioning, where increased dynamics over the same period of the previous year could already be observed in the last 9 months. The same applies to the health insurance consulting field in which we are now anticipating more positive revenue development for the full year with a slight increase being forecasted. Demand for insurance to protect their own health remains high, particular amongst our customer mentality. In Wealth Management, as already mentioned, we achieved a quarterly improvement in the current year. Regarding continuation of this, the future development of the capital markets will obviously also play an important part. Based on the assumption that aside from the recent setback, no significant disruption will occur in this field, we stick to our forecast for this consulting fields, which we indicated as stable. In the loan and mortgages converted fees, we observed a slightly improvement in the past quarter of the preceding quarter. Now in real estate brokerage indicators such as the number of visits and notary appointments are also giving an indication that things are likely to improve somewhat in the final quarter. I've already spoken about the development of costs and our cost management. The only thing to add at this point is that the investments of the last few years, in particular, including those in the IT infrastructure are having a significant positive effect on the cost items. We are adhering to our mid-term planning of recording EBIT in the range of EUR 100 million to EUR 110 million with revenue of more than EUR 1.1 billion by the end of '25. This planning continues to be essentially based on the three key strategic success factors that you are already aware of, a further increase in assets under management in the group, ongoing development of non-life insurance portfolio volumes and sustainable growth is all part of the MLP Group. At the same time, we are keeping a close eye on actively managing our costs. Ladies and gentlemen, please now allow me to come to the summary. Firstly, the last 9 months underlying stability of our group with strong pillars mutually support and compensate each other. This strategically developed positioning enables us to continuously drive forward our business. Secondly, we've already made good progress in our operating business. We are anticipating a strong fourth quarter, in particular with a view to our interest rate business and the ongoing dynamics and old-age provision. And thirdly, in the midterm, we are still planning to increase sales revenue and profit of the MLP Group significantly by the end of '25. We are already making good progress on this ambitious growth path. Many thanks for your time and your interest. I'm now happy to take any questions.
[Operator Instructions] The first question comes from Fabien Le Disert from Kepler Cheuvreux.
Yes. So Fabien Le Disert from Kepler Cheuvreux. I have several questions. The first one is on FERI, the level of performance fees. Did you see significant shifts in terms of asset allocation request from your client base in Wealth Management in Q3? And what was the exact amount of performance fees in Q3? Second question regarding the banking business. Do you expect an uptick in the cost of risk in the coming quarters in the bank segment given the macro environment in Germany? Third question, in non-life insurance, do you expect the strong dynamics seen over the last few months to continue into 2024? And the final one on guidance. Do you see the lower end of the guidance as a more probable outcome? And don't you think that the guidance could be challenged by investors if the macro environment were to deteriorate further in Q4?
Thank you for the questions. The first question, performance fees and I'll start with the figure. In Q3 itself, we only had performance fees that carries together from only a little more than EUR 100,000, which led to overall performance fees and carries of EUR 2.1 million for the whole year. Concerning the question, asset allocation, obviously, we see a little shift towards more one business, a little bit less request concerning the question of alternative assets that we saw, especially in the last strong year. And therefore, yes, definitely, there are, obviously, other questions from our clients in the FERI business. The next question was concerning bank and cost of risk. In general, we -- let's say, in our internal plans, yes, we expect a little uptick in cost of risk, but not too much. Why? Our clients in the banking business are, as you know, clients of, let's say, upper middle class, and there might be more problems than we had in the past where we had extremely low cost of risk, but we don't see too many cost of risk. Therefore, overall, for the banking performance we don't see a huge negative effect. Non-life insurance. We had a very strong development during this year. And the question was if this will continue in '24? Let's -- obviously, we will give you more guidance in bond '24 in the beginning of the year, but just as an outlook, part of this positive development in '24 was also inflation on the contracts, which we had with our customers, especially in real estate. In the real estate sector, there were increases overall in the market between 15% to 25%. And this increases in the conditions towards the customer also increases our revenues. And for next, yes, it would be real estate sector for next year, the perception of the increase in '24 is more between 7% to 10%. And therefore, positively speaking, we expect an increase and a very interesting increase also in revenues, but at least there are some factors which will not support as much as they supported in '23, but nevertheless, our overall dynamic, our overall positive outlook for the sector stays in place. And therefore, I'm relatively sure that we will see very nice figures also for the sector in '24. And concerning guidance, let's see, we -- from the past, we all know that the last quarter in many areas, in the areas of FERI, in the areas of old-age provision is relatively volatile and therefore, is still a little open question how the last quarter obviously will end. Therefore, definitely, there are some pressures from the market as we said or as I said right now, we believe that we will come out, we will finally finish in the range of our guidance, which is between EUR 75 million to EUR 85 million. And then let's see in which area of the guidance we will finally land. I hope this answered your question.
Yes. Yes.
The next question comes from Philipp Häßler from Pareto Securities.
Yes. Philipp Häßler from Pareto. I have a few questions. Firstly, on the interest rate expenses, which were stable quarter-on-quarter, which surprised me somewhat. Maybe you could comment on the reasons wy interest expenses were stable and not increased due to the higher interest rates and give an outlook, how do you expect interest expenses to develop in the next quarters? Then secondly, net liquidity went up by EUR 70 million quarter-on-quarter. This is quite a high number. Is there any special reason for this? Thirdly, your financial result or financial cost, sorry, you call it, was positive in Q3. Normally, it's negative. Is there any specific reason for this? And last, but not least, my favorite question, could you give us the net flows for Q3, please?
Yes. [indiscernible] I will ask -- I would start, sorry, start with your favorite question, the net flows of the -- and as always, I will answer with the gross inflow and outflows which is very easy not too positive, but very easy this time because we had EUR 3.7 billion gross inflows from 1st of January to the 30th of September, EUR 3.7 billion, and we had EUR 3.7 billion also outflows, that means the net flow for the first 9 months were 0. The performance, by the way, for our concepts and for the whole asset under management were at EUR 1.7 billion for the first 9 months. This was the first question. Then the last question -- the first question, I'm fighting a little bit with your question because you said interest rate expenses were stable, which I...
So the interest expenses on the banking business, if I'm correct?
I don't think so. In my numbers, the interest we had a little bit more than EUR 400,000 -- EUR 300,000 interest expenses in the bank in the first 9 months of 2022 and EUR 9.9 million in the first months of '23.
Yes. Sorry, sorry, I mean Q3 versus Q2 this year, I mean, sorry, for not being precise.
This -- okay, the quarter-to-quarter was more or less stable due to the fact that we had some increases. We were limited earlier in the market in Q2. And we, in general, were more or less stable in Q3. You will see an upturn there in Q4 because end of Q3, we increased interest rates. We are at the moment for 1 year FX rates at 3.5%. And for daily accounts for target at 1.5%. And the interest rate for pxtra was increased as far as I remember in end of September. Next, liquidity went up also quarter-to-quarter. In Q2, we had the dividend payments, which was always a negative impact in Q2 and which we haven't in Q3. And that was, I think, quarter-to-quarter was the reason for the liquidity increase and the financial results positive was that due to the fact that some liquidity was in the -- let's say, nonbanking business was, let's say, profitably put to some banks, and therefore, we received some nice interest rates for the liquidity of the non-banking business and that the main reason as far as I know right now why our financial results went up.
But this was a one-off, we cannot expect this to continue in the next quarters?
In general, the positive effect in general will continue.
So we can rather -- we can expect rather positive than a negative financial result going forward on a quarterly level?
Yes.
Okay. And the increase in net liquidity was only due to the dividend. Okay, I thought there may have been some other reasons, but there weren't any.
No. No, there were no main reasons. No.
The next question comes from Henry Wendisch from NuWays.
Basically, my colleagues have already been quite detailed, but I have one more follow-up question on the real estate business. I saw in Q4 '22 that the DEUTSCHLAND Immobilien segment made a rather large EBIT loss in Q4. Was that probably due to some depreciation that you had to do on the real estate? Is there something we can look at and expected Q4 as well or is that basically already been done with?
Overall, as we all know, the real estate segment stays in a difficult condition, but we see some tailwind there in Q4 2022. We had to do some depreciations and also some loss protection. And in the last quarter of '23, we expect there a positive -- more positive development. Therefore, Q4 2022 was one-off event.
So at the moment, we have no further questions. So I will hand over back to you.
Okay. So if there are no further questions, I would like to thank you for taking part in our conference call. And of course, you can reach us if any further questions arrive later. Thank you, and goodbye.