Expansion Into New Business Lines Will Improve Services For High-Net-Worth Clients

Key Takeaways

• Digitalization with AI is set to improve efficiency and client service, potentially boosting net margins and stimulating growth.
  
• Focus on expanding business lines and assets under management aims to drive revenue growth from institutional and high-net-worth clients.
  
• Challenges in profitability and revenue growth may arise from margin pressures, acquisition costs, and strategic shifts amid demographic and market uncertainties.

Catalysts

Provides financial services to private, corporate, and institutional clients in Germany.

• MLP's strategic growth plan aims to increase EBIT by 50% to reach €140-150 million by 2028, driven by planned expansion in total revenue to €1.3-1.4 billion. This will likely enhance their earnings potential significantly.
  
• The digitalization strategy, including extensive use of artificial intelligence, is expected to lead to increased operational efficiency and improved client service, potentially increasing net margins.
  
• MLP is targeting substantial growth in its assets under management to €75-81 billion and aims to exceed €1 billion in non-life insurance portfolio volume by 2028, which should drive revenue growth.
  
• Expansion in business lines such as corporate benefits and wealth management, alongside partnership skills from high-profile investment firm FERI, is likely to boost the revenue from institutional and high-net-worth clients.
  
• Recurring revenue, providing stability, makes up nearly 70% of MLP's revenue; this strong foundation supports the company's ability to grow its earnings consistently over time.

MLP Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MLP's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.6% today to 7.4% in 3 years time.
• Analysts expect earnings to reach €91.0 million (and earnings per share of €0.83) by about April 2028, up from €69.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, up from 11.9x today. This future PE is lower than the current PE for the GB Capital Markets industry at 21.2x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.7%, as per the Simply Wall St company report.

MLP Future Earnings Per Share Growth

Risks

• The pressure on margins in the DOMCURA segment, coupled with specific upfront development costs for AI tools and restructuring costs, could hinder profitability. This might negatively affect net margins and overall earnings.
  
• The acquisition strategy in the industrial brokerage sector shows a potential dependency on organic growth due to high acquisition costs, which could limit revenue growth if organic strategies do not pan out as expected.
  
• The conservative approach towards performance-based compensation, especially in the Wealth competence field, implies a potential limitation in earnings growth if market conditions are not favorable.
  
• The continued restructuring in the DOMCURA segment due to a move to a new building and changes at the board level are affecting margin stability, possibly leading to ongoing costs that could impact net earnings.
  
• The MLP Group's reliance on expanding its family and corporate client base amid demographic and social security pressures introduces risk if market dynamics shift or if they face competition, potentially limiting revenue growth opportunities.

Valuation

• The analysts have a consensus price target of €11.0 for MLP based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €13.0, and the most bearish reporting a price target of just €9.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.2 billion, earnings will come to €91.0 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 5.7%.
• Given the current share price of €7.56, the analyst price target of €11.0 is 31.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.