Between March 2022 and July 2023, the US Federal Reserve had increased the interest rate by 5.25 percentage points to 5.25 to 5.50%. In Europe, the ECB took a similarly radical approach to combat the rampant inflation. This historic series of interest rate hikes has burdened hardly any industry as much as the real estate sector. However, inflation is now on the decline.

Fed Chairman Jerome Powell announced three interest rate cuts for this year at the last meeting last year. This turnaround is playing into the hands of real estate companies like Vonovia. The stock of the largest German housing construction company has managed to turn around on the stock market, but is still undervalued.

Largest real estate group in Europe The company, based in Bochum, was founded in 2015. Deutsche Annington, as the company was then called, was renamed Vonovia after the merger with GAGFAH. In the same year, the company joined the DAX. In October 2021, Vonovia acquired the majority shares of Deutsche Wohnen.

This made Vonovia the largest residential real estate group in Europe. The company specializes in managing private apartments. Vonovia owns almost 550,000 apartments in total. In addition to the home market of Germany, Vonovia also has holdings in Austria and Sweden.

The massive increase in interest rates has also affected the industry leader. The company responded with apartment sales. In the first nine months of last year, Vonovia generated revenues of around 3.7 billion euros through this.

For the full year 2023, management expects an operating profit in the middle of the target range of 1.75 to 1.95 billion euros. This year, the result is expected to be slightly below the level of the previous year due to higher taxes and interest.

Share trading well below book value A few days ago, Vonovia successfully placed a bond in the United Kingdom for the first time. The 12-year bond was oversubscribed more than eight times. With the liquidity it receives, the company wants to replace financing that will be due from 2025 onwards.

The strong demand shows that the capital market is ready to invest in the troubled industry again. Vonovia benefits greatly from falling interest rates, as financing costs decrease significantly.

In Germany, too few apartments are being built. The limited supply is causing prices to rise, especially in major cities. As the largest provider of housing, Vonovia benefits from this development.

Despite the recovery in the share price since the lows in May of last year, the DAX share is still more than 50% below its all-time high and more than 40% below the net asset value (NAV), i.e. the book value of the real estate portfolio. This makes the Vonovia share interesting according to my analysis. (Editorial deadline: January 22, 2024 at 6:20 p.m.)