Analysis of the results of "Etalon": When will stocks stop falling?

Разбор результатов «Эталона»: когда остановится падение акций

"Reference" (MOEX: ETLN) — one of the largest corporations in the field of development and construction in Russia. During its work, the company commissioned 7.5 million square meters of real estate.

At the end of January, the group published operating results for 2021, which turned out to be ambiguous: average price per square meter increased, while overall sales have declined. Key points:

  • real estate sales fell by 23% to 129 100 м², in terms of money - 6% up to 24.9 billion rubles;
  • the average price per square meter increased by 22% compared to the fourth quarter of 2020 from 158.4 to 192.5 thousand rubles;
  • cash flow decreased by 18% to 23.9 billion rubles against the backdrop of a decrease in the number of new contracts, which year on year decreased by 23%;
  • the share of mortgages in total quarterly sales reached a record high in 70%.

Sales structure of the company

Etalon has built a vertically integrated business, which allows the company to control every stage of the development of a new project, starting from the analysis and acquisition of a land plot and ending with the construction and commissioning of already built real estate objects.

Sales geography. Etalon specializes in the design and construction of residential real estate in Moscow and St. Petersburg, but over time the company wants to enter the regional markets. The first city has already been selected, it will be Omsk. At the end of December, the developer announced the construction of the first three houses as part of the first stage of the new residential complex "Green River". The start of sales in the project is scheduled for the first quarter of 2022. After Etalon Omsk, probably, will enter the markets of the following cities: Novosibirsk, Kemerovo and Novokuznetsk.

Sales in Moscow and St. Petersburg fell sharply in the second half of 2021 due to three factors. The first is the high base of 2020, within which the developer showed record sales results. The second is the growth of the key rate of the Central Bank of the Russian Federation, which also led to an increase in bank interest on loans and deposits: for example, the current mortgage rate at VTB is over 10%. The third factor is the decline in the interest of the population in real estate due to a strong rise in prices: According to "Etalon", the average price per square meter of residential real estate increased by more than 1 year-on-year/3.

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In the fourth quarter of 2021, the above three facts led to a drop in sales and a decrease in cash receipts: in Moscow for 34 And 23%, in St. Petersburg for 10 And 9%. Strong market conditions remain positive in the results, the price per square meter of residential real estate has increased: in Moscow for 49%, in St. Petersburg for 21%.

Разбор результатов «Эталона»: когда остановится падение акций

Dynamics of results in Moscow and the Moscow region for 4 neighborhood

2020 2021 The change
New sales, м² 86 470 56 849 −34%
New sales, million rubles 15 315 14 868 −3%
Number of contracts, things 1715 1146 −33%
Cash receipts, million rubles 18 436 14 118 −23%
average price, rubles per m² 177 110 261 542 48%
Average apartment price, rubles per m² 221 118 329 779 49%

Dynamics of results in St. Petersburg and the Leningrad region for 4 neighborhood

2020 2021 The change
New sales, м² 80 318 72 220 −10%
New sales, million rubles 11 103 9982 −10%
Number of contracts, things 1422 1259 −11%
Cash receipts, million rubles 10 767 9779 −9%
average price, rubles per m² 138 241 138 221 0%
Average apartment price, rubles per m² 162 723 197 093 21%

Total annual figures

2020 2021 The change
New sales, м² 538 194 446 480 −17%
New sales, million rubles 79 922 84 388 6%
Number of contracts, things 9725 8560 −12%
Cash receipts, million rubles 81 985 84 094 3%
average price, rubles per m² 148 501 189 008 27%
Average apartment price, rubles per m² 178 685 238 677 34%

Why Etalon shares continue to fall

The securities of the construction company since September 2021 have been adjusted from 130 P almost to 80 P after the implementation of the two drivers. The first is a significant deterioration in the current market conditions, which was mentioned earlier, in the last section. The second negative driver is negative corporate events: carrying out an additional issue and changing the dividend policy.

Let's start with an increase in the authorized capital of the company. Etalon announced an additional issue in July 88 487 395 global depositary receipts - thus, the total number of securities increased by 30% from 294.96 to 383.45 million pieces. The developer spent the money to increase its land fund - in 2021 it grew by almost 2 million square meters.

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Looking at the long term, then this is a positive event, because it will increase the financial results of the group in the future, but in the short term, a 30% increase in the company's authorized capital may put pressure on dividend payments for 2021.

In September 2021, the company's management announced dividend payments for 2020 and made a significant change to its dividend policy, removing the item about the minimum fixed distribution - not less than 12 R: “In connection with the restoration of business profitability, the Board of Directors decided to change the dividend policy. The company intends to pay dividends in the amount of 40-70% of net profit under IFRS before the distribution of the acquisition cost of assets (PPA)».

Besides, here you can add a third negative driver - a general drop in quotations of the leaders of the Russian construction sector. Etalon's main competitors, LSR and PIK, also showed negative dynamics over the past six months..

Разбор результатов «Эталона»: когда остановится падение акций

Comparison with competitors

EV / EBITDA P / E net debt / EBITDA
"Reference" 1,46 6,54 0,03
PEAK 4,99 4,44 1,59
LSR 3,29 4,62 1,08
"Airplane" 22,32 40,36 3,84

Management forecasts

After the publication of operating results for 2021, management provided an extended comment. Main points.

Current results. In 2021, even though the real estate supply is temporarily limited, Etalon set a new record in terms of sales in monetary terms and came close to the target levels for key operating indicators.

Most of the annual sales are almost 30% from a record 84.4 billion rubles - came in the fourth quarter. The average price of residential real estate in the portfolio of "Etalon" by the end of the year increased by 36% up to 261 thousand rubles per square meter due to the launch of new projects in the high price segment and increased demand for projects in Moscow and St. Petersburg.

Strong price action coupled with cost cutting should boost margins: according to the results of the first half of 2021, the profitability of the Etalon business reached 38% and become the strongest in the industry.

Forecast for 2022. To significantly expand the business and ensure sustainable growth rates in all regions of presence, last year the company launched a program of large-scale replenishment of the land bank. Only for the last 12 months, Etalon increased its portfolio by almost 2 million square meters, doubled the geography of operations and entered the regional markets.

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In 2022, the company intends to launch three times more space for sale, than a year earlier. The property will include areas in new projects and new buildings in current projects. Besides, the developer will continue to actively acquire assets, expand its regional presence and plans to become one of the industry consolidators in the future, including through mergers and acquisitions.

Financial indicators. Record sales, systematic work to improve efficiency and a prudent approach to debt management strengthened the financial position of the company. Net corporate debt decreased to 5.1 billion rubles, and the multiplier "net debt" / EBITDA fell to 0,2 at a comfortable value of 2-3.

The current net cash position of Etalon at the project level is 23.4 billion rubles. Starting from 2022, an additional support factor will be the gradual disclosure of escrow accounts in accordance with the new construction rules.

What's the bottom line?

Etalon posted weak operating results for the second quarter in a row, within which the developer was unable to 100% compensate for a strong drop in sales by rising property prices.

Current market conditions - record prices per square meter in Moscow and St. Petersburg plus double-digit mortgage rates in Russian banks - do not allow investors to hope for an improvement in the first half of 2022. Sales, at least in the first half of 2022, may be under pressure, because the share of mortgages in the overall results of Etalon is about 70%.

On the other hand, current market negative, abnormally low valuation and growth of the land bank provide an interesting entry point into the asset. Company at prices below 80 R may be of interest to long-term investors, because its estimate will drop to the lows of the pre-Covid period - P / B.V. less 0,5.

In addition, investors should not forget, that in 2022 the company intends to put on sale three times more space than in 2021.

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