Still lagging behind valuation-wise

– We upgrade ECO Business-Immo to Buy and increase our target price from EUR 3.6 to EUR 4.0. The increased target price is based on (1) a reduced risk-free rate (from 4.00% to 3.80%) in the detailed planning period and (2) a slightly increased weight of the NAV in our target price calculation (15% instead of 10%). The remaining 85% are based on our DCF valuation results. Our calculation still includes a 10% liquidity discount.

– The Austrian real estate stocks have risen by 30.2% in the last month (as measured by the IATX), the ECO stock is just up by 14.7%. We believe that the stock has clear catch-up potential.

– In a peer group comparison, the stock is now clearly undervalued. Whereas ECO trades at 0.30x P/NAV 2009e, the sector average already amounts to 0.42x. Some stocks (Sparkassen Immo and conwert) have already reached a level of 0.50 P/NAV 2009e. The relative discounts of the ECO stock amount to about 27-40% based on estimated P/NAV and P/BV multiples.

– 95% of ECO’s properties are based in Austria and Germany, where valuation levels have stabilized already. We therefore expect only limited further valuation write-downs. There are just 2 development projects currently running, where we have already included a loss upon completion in our projection model.

– 2Q09 results will be released on August 25, 2009. We expect a net loss of EUR 5.7mn after a EUR 9.9mn loss in 1Q09. This estimate is based on expected EUR -11mn in the revaluation result.