London, UK, 16 May 2018

Edison issues initiation on UmweltBank (UBK)

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).

Following a c 40% price decline over the past 12 months, UBK's shares are trading at a P/BV 2018e ratio of 1.2x (vs peer average of 1.3x), which in our opinion is not fully reflecting its earnings potential. We have valued UBK using a P/BV-ROE approach and arrived at a fair value of EUR11.1 per share, implying a 13.4% upside potential. UBK offers a dividend yield of c 3.5%, which is above the average level offered by large banks (c 3%).

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