"PIK is a specialized developer" (MCX: PIKK) — Russia's largest real estate company, significantly outperforming competitors in terms of the volume of current construction and housing commissioning.
About company
In reporting, the company identifies five operating business segments.
Development and construction. Until 2021, the company considered development and construction as two separate segments, and now combined them into one. This includes the main activities of PIK SZ for the construction and sale of residential buildings, infrastructure and commercial real estate, integrated development of territories. Most of the construction is carried out by the company in the Moscow region, there are also projects in St. Petersburg, Kaluga, Yekaterinburg, Yaroslavl and others - in total 14 regions. Basically, PIK SZ builds residential buildings in the mass segment.
The company is also engaged in contract construction services - the so-called fee development. That is, the owner of the land hires PIK SZ under a contract for construction work.
Exploitation. The company is engaged in real estate management in 20 regions of Russia through the country's largest management company PIK-Comfort. The total area of houses under management is more than 50 million square meters. This is a completely different business format compared to the "development and construction" segment - it brings regular revenue from the same facilities..
Industrial segment. The company manufactures building materials and components for construction, IoT devices, assembles panel buildings.
Proptek. The company provides repair services, rental, purchase and sale of real estate in the secondary market.
Other activities. Other activities, e.g. rental services.
Vertically integrated company: itself develops construction technologies, manufactures parts at house-building factories, used in construction, builds, sells, manages ready-made houses. The structure of revenue shows, that she earns the vast majority of her money from development and construction.
Despite the size of the business, its performance is constantly growing: PIK SZ sells more and more real estate in kind, as well as in terms of money. The same dynamics is observed under fee development agreements.
The vast majority of real estate is sold in the Moscow region: in the first half of 2021, it accounted for 87% in kind and 93% - in value. It is worth noting, that the share of mortgage transactions is constantly growing and has already reached 79%.
PIK SZ has the largest land bank in Russia, which has grown significantly in the last couple of years., which gives the company the opportunity to launch several new projects every year, to introduce dozens of new buildings with a total area close to or even exceeding 2 million square meters.
The best way to see the development of the company is the dynamics of assets: over the past four years they have quadrupled to 917 billion rubles.
Number of new projects, buildings and their area by years
| Number of new projects | Number of new buildings | Area of new buildings, million m² | |
|---|---|---|---|
| 2018 | 13 | 102 | 2,5 |
| 2019 | 3 | 85 | 1,8 |
| 2020 | 18 | 92 | 2,0 |
| 1п2021 | 9 | 69 | 1,2 |
The volume of current construction and commissioning of housing for 2021 by the largest developers in Russia, million m²
| Current construction volume | Housing commissioning volume | |
|---|---|---|
| PIK SZ | 6,0 | 1,2 |
| "LSR Group" | 2,9 | 0,3 |
| "Airplane" | 2,2 | 0,4 |
| Setl Group | 1,9 | 0,5 |
| FSK | 1,3 | 0,3 |
The volume of real estate sales and the amount under contracts by region for the first half of 2021
| Volume of sales | Amount under contracts | |
|---|---|---|
| Moscow | 57% | 69% |
| Moscow region | 30% | 24% |
| St. Petersburg | 3% | 3% |
| Regions | 10% | 4% |
The company's revenue structure by operating segments for the first half of 2021
| Development and construction | 81% |
| Exploitation | 7% |
| Industrial segment | 9% |
| Proptek | 2% |
| Other activities | 1% |
81%
The volume of real estate sales and the amount under contracts by year
| Volume of sales, thousand m2 | Amount under contracts, billion rubles | |
|---|---|---|
| 2017 | 1839 | 189,9 |
| 2018 | 1941 | 210,6 |
| 2019 | 1836 | 223,8 |
| 2020 | 2085 | 292,2 |
| 1п2021 | 890 | 146,5 |
The volume of real estate sales and the amount under fee-development agreements by years
| Volume of sales, thousand m2 | Amount under contracts, billion rubles | |
|---|---|---|
| 2018 | 49 | 6,1 |
| 2019 | 120 | 16,5 |
| 2020 | 270 | 48,4 |
| 1п2021 | 198 | 42,5 |
Share of mortgage transactions by years
| 2017 | 60% |
| 2018 | 65% |
| 2019 | 66% |
| 2020 | 76% |
| 1п2021 | 79% |
60%
Land bank of the company by years, million m²
| 2017 | 12,0 |
| 2018 | 11,0 |
| 2019 | 11,1 |
| 2020 | 16,5 |
| 1п2021 | 21,5 |
12,0
Valuation of the company's assets by years, billion rubles
| 2017 | 225 |
| 2018 | 382 |
| 2019 | 608 |
| 2020 | 917 |
225
History and share capital
The company was founded in 1994 by Yuri Zhukov and Kirill Pisarev as the "First Mortgage Company". In the 2000s, several factories for the production of building materials and components for construction were acquired. The company went public in 2007, its securities began to be traded on the exchanges of Moscow and London.
The global financial crisis of 2008 hit the company hard, the result of which was the loss of control over it by the founders in 2009. Suleiman Kerimov became a major shareholder. But in 2013 he sold his stake, and the structures of Sergey Gordeev became major shareholders, Alexandra Mamut and Mikaila Shishkhanov.
The company grew significantly in 2016, having bought a competitor - the Morton company - from Sergey Gordeev, who had bought it shortly before, who back in 2014 became president and chairman of the board of PIK. And in 2017, he took control of the company., having redeemed shares of Alexander Mamut and Mikail Shishkhanov. Its share in the share capital exceeded 74%.
In the same 2017, the company redeemed its GDRs (GDR), by delisting from the London Stock Exchange, and then sold the GDR package, corresponding 7,6% share capital, VTB Bank. At the same time, a non-deliverable financial instrument was concluded, which we talked about above. VTB tripled its stake in the company in 2019.
In this way, according to the results of the first half of 2021, the company has a controlling shareholder - the head of the company Sergey Gordeev; a major minority shareholder represented by VTB Bank; yet 17,62% shares are in free float.
In March 2021, the company changed its name slightly: changed its name from "PIK Group of Companies" to "PIK - Specialized Developer", and the position of the head of the company changed from president to CEO.
And at the very beginning of October 2021, the company held an SPO - a secondary public offering, having sold about 28.5 million securities for about 36 billion rubles. Of the proceeds, 11.6 billion rubles are planned to be spent by the end of the month on the purchase of GDRs from VTB Bank, the rest - to pay off debt and expand business. At the same time, the number of shares in free float should increase.
The structure of the company's share capital in the first half of 2021
| Sergey Gordeev | 59,33% |
| VTB | 23,05% |
| In free circulation | 17,62% |
59,33%
New points of growth
PIK SZ does not rest on its laurels of leadership in the industry: the company not only increases the volume of construction, but also tries to engage in related areas to further increase the business and diversify it.
International expansion begins. The first project is a 30-storey business class building in the center of the capital of the Philippines, Manila. More projects are emerging in India.
New brands. New Forma and Mono brands for residential business introduced- and premium.
New segments. It is planned to enter completely new segments for the company - the construction of country houses and industrial parks.
Modular construction. The company is actively developing modular construction technologies. It is planned to launch factories in Moscow, St. Petersburg and Manila, which modules will produce. Their use is expected to reduce the cost, improve quality and significantly reduce construction time. At the beginning of October 2021, the company is going to start building the first nine-story building using this technology, with an expected assembly time of only two weeks.. PIK SZ outlined such an ambitious goal in a presentation for investors, as the global leadership of the company in the field of modular construction by the end of 2023 with a share 20% and the volume of real estate being built using this technology is 2 million square meters.
New service. Launched Kvarta service - technology platform for customers, as well as for other developers. It's an ecosystem, combining the convenience of digitalization, many services and marketplace. Supposed, that with its help customers will be able to buy and rent apartments, and small developers - to receive a full package of services, in particular project finance, as well as the possibility of selling apartments at low cost. Service's ambitious goal is to share 25% primary home sales market by 2025.
Financial indicators
At first sight, the company's revenue and net profit show excellent growth momentum. But if you look closely at the financial statements, it will turn out, that the company has non-deliverable financial instruments, the value of which is regularly revalued depending on share prices. And since prices have been on the rise lately, then there are financial gains, which somewhat distort the net profit. If corrected for this, the dynamics will still be great, but there will be some drop in net profit in the first half of 2021.
The company's net debt is also growing, which is not very good, but understandable, since PIK SZ invests a lot in business development.
Financial results of PIK SZ by years, billion rubles
| Revenue | Net profit | Adjusted net income | net debt | |
|---|---|---|---|---|
| 2017 | 175,1 | 3,15 | 3,15 | 15,0 |
| 2018 | 245,8 | 21,3 | 18,1 | 3,65 |
| 2019 | 280,6 | 45,1 | 42,0 | 73,3 |
| 2020 | 380,2 | 86,5 | 64,7 | 135,5 |
| 1п2021 | 189,3 | 69,4 | 13,5 | 284,6 |
Dividends and dividend policy
In 2017, the company adopted a dividend policy, according to which it was planned to pay dividends every six months in the amount of at least 30% net cash flow from operating activities. But in reality, the company paid a fixed amount for several years in a row. 22,71 P per share once a year.
In 2021, the company adopted a new dividend policy with a similar payout formula: twice a year at least 30%, but now - from net income under IFRS, adjusted for non-monetary income.
In May 2021, dividends were declared immediately for 2020 and the first quarter of 2021, The total amount was almost double, than usual, — 45,22 P per share. The dividend yield of this "double" payment was about 4,5%.
Company dividends, rubles per share
| 2017 | 22,71 |
| 2018 | 22,71 |
| 2019 | 22,71 |
| 2020 | 22,51 |
| 1к2021 | 22,92 |
22,71
Why stocks can go up
Growing industry leader. PIK SZ business is actively developing in all areas: the volume of real estate sales is growing as in square meters, as well as in rubles, increasing diversification by segments and geography of construction. Innovations are being introduced to make it cheaper and faster. New growth units emerged, which in the future may even be brought to an IPO.
The company's share price has risen significantly in recent years., but this is largely just a reflection of the operational and financial success of the business. Yes, the company is trading at the multiple P / E more expensive, than a couple of years ago, and more expensive than most competitors, but in general this reflects the high efficiency of PIK SZ business, its industry leadership and outlook.
Possible positive from SPO. The conducted SPO brings several potential benefits to PIK SZ. Firstly, part of the proceeds will be used to pay off the debt, grown a lot lately.
Secondly, this should increase the liquidity of the shares by having more of them in free float. In addition, back in August, the company was called a candidate for inclusion in one of the main stock indexes for Russian shares MSCI Russia, after the SPO, the likelihood of this increased even more. The fact of inclusion may also be positive for the company's share price.
Commencement of compliance with dividend policy. If PIK SZ begins to regularly comply with its dividend policy, this will increase the transparency of the company and the predictability of the amount of dividends for its shareholders, which will increase its attractiveness and may become another reason for the growth of quotations.
Why stocks might fall
Deteriorating business environment. In 2020 and the first half of 2021, the construction industry was in an extremely favorable environment: historically low value of the key rate of the Central Bank of the Russian Federation, introduction of government subsidized preferential mortgages, increased demand for housing due to the emergence of a large number of people in the remote work format. All this led to a strong increase in home sales and prices for it..
Seems, that the conjuncture has reached its climax and now it will only get worse, - and this assumption has several premises at once:
- increased inflation reduces the real disposable income of the population and makes housing less affordable;
- due to inflation, the costs of developers for building materials and wages increase. As a result, the margins of the business will decrease, or when shifting price increases to the end buyer, demand will suffer;
- in order to curb inflation, the Central Bank of the Russian Federation began to raise the key rate: if for most of 2020 it was at the level 4,25%, then in September 2021 it was already raised to 6,75%, and this is not the limit. And this is, in its turn, the reason for the increase in interest on loans and mortgages in particular;
- preferential mortgage program extended, but on less favorable terms.
And along with the deterioration of the market situation, the financial performance of developers and, in particular, PIK SZ may suffer, which will negatively affect prices.
Possible problems with new lines of business. The company is actively developing new business areas, diversifies it. If everything goes well, then it will be a good help for the company, but there are risks: maybe, the company will not be able to realize its ambitious plans, and large investments will only result in losses.
Multipliers of public Russian developers for the first half of 2021
| P / E | ROE | Net Debt / EBITDA | |
|---|---|---|---|
| PIK SZ | 16,0 | 24,6% | 2,36 |
| "LSR Group" | 5,04 | 16,2% | 1,88 |
| "Airplane" | 115,6 | 27,9% | 7,30 |
| "Reference" | 8,56 | 8,1% | 0,90 |
PIK SZ multipliers by years
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| 2017 | 67,4 | 5,8% | 1,11 |
| 2018 | 11,7 | 27,2% | 0,09 |
| 2019 | 5,89 | 41,3% | 1,09 |
| 2020 | 18,2 | 26,4% | 1,21 |
| 1п2021 | 16,0 | 24,6% | 2,36 |
Eventually
PIK SZ is the leader of the Russian construction market. The company's business is growing steadily, followed by rising financial indicators and share prices. Good conjuncture in the real estate sector over the past year and a half has played a significant role in this..
The company does not stop there: looking for new points of growth and business diversification, increases the number of shares in free float, adopts a new dividend policy. However, the industry environment, probably, passed its peak, and investments may not give results and become just a waste of money.
I would like to pay particular attention to, that PIK SZ shares do not correlate with the market, what can be seen from the value of the beta coefficient, equal to 0,02.
