LSR (MCX: LSRG) — one of the leading construction companies in the Russian market, concentrated in three regions: St. Petersburg and Leningrad region, Moscow and Moscow region, and also in Yekaterinburg. In addition to design and construction activities, LSR is engaged in the production of building materials at its own production sites.
30 In August, the company published consolidated financial statements for the first half of 2021. In it, we observe an increase in net profit in 2,2 times and record revenue. Taking advantage of good market conditions, holding put into operation record areas in the first half of the year.
But there are two negatives., things to look out for: doubling of net debt from January to June of this year and reducing the total area of newly concluded contracts to a four-year low.
To better understand, what happens to the business, let us consider in more detail the dynamics of the main operational and financial indicators.
Disclaimer: if we write, that something went up or down by X%, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.
Market situation and operating indicators
Mortgage in Russia since the second half of last year has become more affordable, which provoked a rapid increase in real estate prices.
To help the construction industry during the crisis of 2020, the state launched a preferential mortgage lending program. And the Bank of Russia has lowered its key rate to a record low. As a result, Russia ranked fourth in the world in terms of growth in prices for residential real estate..
In 2021, the situation has changed slightly. In the summer, preferential mortgages were extended until 2022, but raised the key rate and reduced the maximum loan amount to 3 million rubles, what particularly hits demand in the capital regions, where the value of real estate is much higher, than in the whole country. All these factors have a negative impact on the demand for real estate. By September of this year, the number of accepted applications and the volume of loans on preferential mortgages for new buildings fell to a minimum since the launch of the state program.
I guess, that from the second half of the year the share of mortgage contracts may decrease, and this will hit the sales of developers, including LSR.
The total area of new contracts fell by 10% - up to 313 thousand square meters, what has become the minimum for the last 4 of the year. That is, from the point of view of natural sales, we can confidently talk about a drop in demand for new real estate.. But property prices remain near historic highs., therefore, in monetary terms, the amount of new contracts increased by 24% - up to a record 47 billion rubles.
The total area of commissioned real estate reached a record 252 thousand square meters - against 172 thousand square meters for the previous same period.
St. Petersburg remains a key business region, which accounts for 59% sales in kind and 55% sales in monetary terms.
Dynamics of new contracts concluded for the first half of the year
| total area, thousand m2 | total amount, billion rubles | |
|---|---|---|
| 2017 | 257 | 25 |
| 2018 | 358 | 34 |
| 2019 | 368 | 38 |
| 2020 | 346 | 38 |
| 2021 | 313 | 47 |
Structure of new signed contracts
| In kind | In monetary terms | |
|---|---|---|
| St. Petersburg | 59% | 55% |
| Moscow | 26% | 38% |
| Ekaterinburg | 15% | 7% |
Share of mortgage contracts concluded by LSR
| 2017 | 47% |
| 2018 | 54% |
| 2019 | 47% |
| 2020 | 64% |
| 1п2021 | 68% |
47%
Put into operation for the first half of the year, thousand m2
| 2017 | 182 |
| 2018 | 102 |
| 2019 | 160 |
| 2020 | 172 |
| 2021 | 252 |
182
Revenue and profit
Against the background of rising prices for residential real estate, LSR's revenue increased by 14% - up to 54.8 billion rubles - and updated the record. About 80% proceeds were brought by the sale of residential real estate and the provision of construction services. Other 20% the company received from the sale of building materials and the provision of tower cranes and fleet services. Let me remind you, that in 2020, the holding entered the freight water transportation market through the company "LSR. Basic».
Cost of sales increased by less than 1% - up to 34.1 billion rubles, while administrative and selling expenses increased by 18% - up to 9 billion rubles, what is associated with the growth of costs for salaries and social payments to employees.
As a result, LSR operating profit increased by 71% and reached a record 11.4 billion rubles.
The company's finance income decreased by 16% - up to 1.3 billion rubles - due to a drop in interest income against the background of a decrease in the amount of money on bank deposits. Finance costs decreased by 6% - up to 4.4 billion rubles - due to changes in the reserve for doubtful debts, which have not been repaid on time and which are not secured in the form of a pledge, bank guarantees or sureties. As a result, the company's net financial expenses remained at the level of the previous year and amounted to 3.1 billion rubles..
The total net profit of the construction holding increased by more than 2 times - up to 5.7 billion rubles - and reached a new historical maximum due to the growth in prices for real estate and building materials compared to the first half of last year.
Company financial results for the first half of the year, billion rubles
| Revenue | Operating profit | Net profit | |
|---|---|---|---|
| 2017 | 40,7 | 3,1 | 1,9 |
| 2018 | 51,7 | 5,6 | 3,8 |
| 2019 | 46,6 | 5,8 | 1,9 |
| 2020 | 48,1 | 6,7 | 2,6 |
| 2021 | 54,8 | 11,4 | 5,7 |
Debts
For the first half of this year, the total debt of LSR increased by a quarter to 128.8 billion rubles. At the same time, the holding's net debt doubled to 34.1 billion rubles, mainly due to a decrease in the amount of money on accounts and their equivalents from 73.8 to 69.1 billion rubles..
Level of debt burden by net debt ratio / EBITDA "since the beginning of the year has increased from 0,61 up to 1.08 ×. Despite the growth of the indicator in the first half of the year, the level of business debt remains low and does not threaten the financial stability of the company.
Debt load, billion rubles
| Total debt | net debt | Net Debt / EBITDA | |
|---|---|---|---|
| 2017 | 72,8 | 43,1 | 1,17× |
| 2018 | 86,1 | 30,3 | 0,83× |
| 2019 | 89,6 | 22,8 | 1,08× |
| 2020 | 102,6 | 16,8 | 0,61× |
| 1п2021 | 128,8 | 34,1 | 1,08× |
Dividends
The holding's dividend policy assumes to allocate at least 20% from IFRS net profit. At the end of 2020, the company paid in total 59 P per share - 50% from net profit.
At the same time, LSR management reported, that the payouts 1 half of 2021 is not planned. In the coming years, the focus will be on reducing the debt burden and developing the business.. I.e, based on the management statement, investors should not count on generous dividends in the coming years.
Dividend per share
| 2016 | 78 R |
| 2017 | 78 R |
| 2018 | 78 R |
| 2019 | 30 R |
| 2020 | 59 R |
78 R
What's the bottom line?
LSR has demonstrated strong financial results, updating records for revenue and profit against the background of rising prices for residential real estate in Russia. The company is very lucky with the state preferential mortgage, but citizens may run out of money, given the rise in prices.
The drop in the total area of new contracts to a four-year low and a reduced operating forecast are already alarming bells. According to the updated data, the number of new contracts may fall by 26%, and in monetary terms - by 4%, compared to the level of 2020. But it is new contracts with customers that are the main source of future income for the company..
Besides, LSR plans to refuse to pay interim dividends, choosing to invest in development and debt repayment. Among the new directions, in which the holding plans to invest, — development of profitable real estate in Sochi, where there is high competition among hotel complexes and landlords.
