PIK SZ overview: largest Russian developer

Обзор ПИК СЗ: крупнейший российский девелопер

"PIK - a specialized developer" (MCX: PIKK) - the largest real estate company in Russia, significantly outperforming competitors in terms of the volume of current construction and housing commissioning.

About company

In the 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. PIK SZ mainly builds residential buildings in the mass segment.

The company is also engaged in contracting construction services - the so-called fee development. That is, the land owner 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 over 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 objects.

Industrial segment. The company produces building materials and components for construction, IoT devices, assembles panel buildings.

Proptek. The company provides repair services, renting out, redemption and sale of real estate in the secondary market.

Other activities. Other activities, e.g. rental services.

Vertically integrated company: itself develops construction technologies, produces at house-building factories parts, used in construction, builds, sells, manages ready-made houses. The structure of revenue shows, that she earns the overwhelming majority of money on development and construction.

Despite the scale of the business, its performance is constantly growing: PIK SZ is selling more and more real estate in kind, and in monetary terms. The same dynamics is observed under fee development contracts.

The overwhelming majority of real estate is sold in the Moscow region: at the end of 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 development of the company is best seen in 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 year

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 in 2021 of 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
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Real estate sales volume and 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 structure of the company's revenue 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

Real estate sales volume and amount under fee-development agreements by year

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 year

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

Assessment of company 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. In 2007 the company went public, its securities began to be traded on the stock exchanges in Moscow and London.

The 2008 global financial crisis 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 major shareholders are the structures of Sergey Gordeev, Alexandra Mamuta and Mikaila Shishkhanova.

The company has grown 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 gained control of the company, having bought out stakes in Alexander Mamut and Mikail Shishkhanov. Its share in the share capital exceeded 74%.

In the same 2017, the company redeemed its global depositary receipts (GDR), by delisting from the London Stock Exchange, and then sold a stake in the GDR, 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, at the end of the first half of 2021, the company has a controlling shareholder - the head of the company Sergey Gordeev; large minority shareholder represented by VTB Bank; yet 17,62% shares are in free float.

In March 2021, the company was slightly renamed: changed its name from "PIK Group of Companies" to "PIK - a 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, selling 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 to buy out GDRs from VTB Bank, the rest - for debt repayment and business expansion. Along the way, the number of shares in free float should increase.

Share capital structure of the company based on the results of the first half of 2021

Sergey Gordeev 59,33%
VTB 23,05%
Free float 17,62%

59,33%

New points of growth

PIK SZ does not rest on its laurels of leadership in the industry: the company is not only increasing the volume of construction, but also tries to engage in related areas to further increase the business and diversify it.

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International expansion begins. The first project is a 30-storey business class house in the center of the capital of the Philippines, Manila. There are still projects in India.

New brands. New brands Forma and Mono presented for residential business- 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. Due to their use, it is expected to reduce the cost, improve quality and significantly reduce construction time. In early October 2021, the company intends to begin construction of the first nine-story building using this technology with an expected assembly time of just two weeks.. PIK SZ in a presentation for investors outlined such an ambitious goal, 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 the Kvarta service - a technological platform for both customers, and for other developers. It's an ecosystem, combining the convenience of digitalization, many services and marketplace. It is assumed, that with its help clients will be able to buy and rent apartments, and small developers - to receive a full package of services, in particular project financing, 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.

Обзор ПИК СЗ: крупнейший российский девелопер

Financial performance

At first sight, the company's revenue and net profit show excellent growing dynamics. But if you look closely at the financial statements, it turns out, that the company has non-deliverable financial instruments, the value of which is regularly revalued depending on stock quotes. And since quotations have been growing lately, then there is financial income, which somewhat distort the net profit. If we correct it for this indicator, then the dynamics will still be great, but there will be a slight drop in net profit at the end of the first half of 2021.

The company's net debt is also growing, which is not very good, but understandable, as PIK SZ invests a lot in business development.

PIK SZ financial results 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's dividend policy was adopted, 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 profit under IFRS, adjusted for non-cash income.

In May 2021, dividends were announced immediately for 2020 and the first quarter of 2021, the total amount turned out to be almost twice as much, 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 directions: the volume of real estate sales is growing in square meters, and in rubles, diversification by segments and geography of construction is increasing. Innovations are being introduced to make it cheaper and faster. New growth units emerged, which in the future may even be listed for an IPO.

Recently, the company's stock quotes have grown significantly, but this is in many ways 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 the PIK SZ business, its industry leadership and outlook.

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Possible positive from SPO. The conducted SPO brings several potential benefits to PIK SZ. Firstly, part of the money raised is planned to be used to pay off the debt, grown a lot lately.

Secondly, this should increase the liquidity of shares due to their greater number in free float. In addition, back in August, the company was named a candidate for inclusion in one of the main stock indices for Russian shares of 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 a very 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 life of a remote work format. All this led to a strong increase in home sales and rising prices for it..

It seems, that the conjuncture has reached its climax and will only get worse now, - and this assumption has several prerequisites at once:

  • increased inflation reduces real disposable income of the population and makes housing less affordable;
  • due to inflation, developers' spending on building materials and wages increases. As a result, or will the business marginality decrease, or if price increases are passed on to the end customer, 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, in turn, the reason for the increase in interest on loans and in particular mortgages;
  • preferential mortgage program extended, but on less favorable terms.

And along with the deterioration of the market situation, the financial indicators of developers and, in particular, PIK SZ may suffer., which will negatively affect quotes.

Potential problems with new lines of business. The company is actively developing new business areas, diversifies it. If all goes well, then this will be a good help for the company, but there are risks: possibly, the company will not be able to realize its ambitious plans, and large investments will only result in losses.

Обзор ПИК СЗ: крупнейший российский девелопер

Обзор ПИК СЗ: крупнейший российский девелопер

Обзор ПИК СЗ: крупнейший российский девелопер

Обзор ПИК СЗ: крупнейший российский девелопер

Multipliers of Russian public 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 construction market in Russia. The company's business is growing steadily, financial indicators and stock quotes are growing behind it. Not the least role in this was played by the good conjuncture in the real estate sector in the last year and a half..

The company does not stop there: looking for new points of growth and business diversification, increases the number of free float shares, adopts a new dividend policy. At the same time, the situation in the industry, most likely, passed its peak, and investments may not work and become just a waste of money.

I would also like to draw your attention to the fact, that PIK SZ shares do not correlate with the market, as seen by the value of the beta coefficient, equal 0,02.

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