"Reference" (MCX: ETLN) — one of the largest holdings in Russia in the field of construction and development, which focuses on residential real estate for the middle class in Moscow and the Moscow region, and also in St. Petersburg. The company operates on the market for more than 30 years and during this time put into operation 7.5 million square meters of real estate.
27 September the company published consolidated financial statements for the first half of 2021, where it reflected the growth of key financial indicators against the backdrop of high prices for residential real estate in their regions.
I propose to consider the dynamics of the main financial indicators, to understand, how effectively the business uses favorable market conditions in the development market.
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.
Operating indicators
Since the second half of last year, Russia has entered the top ten in the world in terms of rising housing prices.. Prices rose faster in metropolitan areas, than the market average. If in the second quarter of 2020 the average cost per square meter in Moscow was 199.1 thousand rubles, then in the second quarter of 2021, the average price has already reached 262.3 thousand rubles. In St. Petersburg, over the same period, the average price per square meter increased from 135.5 to 184.1 thousand rubles per square meter.
Average apartment price, thousand rubles per m²
| Moscow | St. Petersburg | |
|---|---|---|
| 2к2020 | 199,1 | 135,5 |
| 3к2020 | 214,5 | 149,2 |
| 4к2020 | 221,1 | 162,7 |
| 1к2021 | 230,0 | 184,2 |
| 2к2021 | 262,3 | 184,1 |
Thanks to an increase in the average sales price, Etalon managed to earn a record amount in the first half of this year - 41.15 billion rubles against 29.52 billion rubles in the first half of 2020. At the same time, in real terms, new sales even decreased slightly.: from 220.96 to 220.94 thousand square meters, which has been the lowest in recent years..
The number of signed contracts increased by 10% - to 4286. Judging by that, that the number of contracts has increased, but in-kind sales declined, it can be concluded, that against the background of rising prices, people are buying apartments of a smaller area.
As a result, cash receipts from sales increased by 30% - up to 40.89 billion rubles.
Dynamics of new sales for the first half of the year
| total area, thousand m2 | total amount, billion rubles | |
|---|---|---|
| 2017 | 236,07 | 21,59 |
| 2018 | 262,54 | 27,5 |
| 2019 | 322,21 | 38 73 |
| 2020 | 220,96 | 29,52 |
| 2021 | 220,94 | 41,15 |
Number of contracts signed in the first half of the year
| 2017 | 4403 |
| 2018 | 5105 |
| 2019 | 6530 |
| 2020 | 3882 |
| 2021 | 4286 |
4403
Dynamics of cash receipts for the first half of the year, billion rubles
| 2017 | 19,0 |
| 2018 | 27,47 |
| 2019 | 42,81 |
| 2020 | 31,55 |
| 2021 | 40,89 |
19,0
Financial indicators
Thanks to high prices for residential real estate, Etalon's sales revenue increased by 29% - up to a record 39.88 billion rubles. Of these, 22.02 billion rubles fell on the Moscow region, and 17.87 billion rubles - to St. Petersburg.
In the first half of this year, inflation in Russia turned out to be higher than expected. Prices for building materials and labor rose, and as a result, the cost of real estate sales increased by 12% - up to 26.09 billion rubles. General and administrative expenses also increased for 6% - up to 2.45 billion rubles.
The company's revenue grew faster than the cost and operating expenses, due to which the operating profit increased by almost 3 Times: with 2,2 up to 6.46 billion rubles.
Finance income decreased from 1,13 to 0.64 billion rubles due to a decrease in interest income from money and bank deposits. At the same time, financial expenses increased from 4,17 up to 4.41 billion rubles, which led to an increase in net finance costs for 28% - up to 3.71 billion rubles.
As a result, the net profit of Etalon amounted to 1.3 billion rubles - against a recorded net loss of 1.77 billion rubles for the same period last year.
Company financial results for the first half of the year, billion rubles
| Revenue | Operating profit | Net profit | |
|---|---|---|---|
| 2017 | 29,02 | 2,53 | 2,12 |
| 2018 | 24,7 | −1,99 | −1,16 |
| 2019 | 39,56 | 3,53 | 0,56 |
| 2020 | 30,87 | 2,2 | −1,77 |
| 2021 | 39,88 | 6,46 | 1,3 |
Debts
Etalon's total debt increased by 19% over six months due to an increase in the amount of long-term loans and borrowings from 34.6 to 50.3 billion rubles due to an increase in project financing from 5 up to 19.6 billion rubles.
The state introduced project financing instead of equity, to reduce the risk of fraud when buying real estate. The point is the following: a financial intermediary appears between the developer and the buyer - usually a large bank, - which guarantees the purity of the transaction and the fulfillment of obligations of each of the parties. The future owner of the property does not pay money directly to the developer, and a financial institution to an intermediary. Bank, in its turn, transfers money to the developer to finance construction, but part of it is frozen on special escrow accounts - the developer will receive this money only after, how to put the finished object into operation.
This is a negative factor for the construction industry., because unlike equity financing, which was free for developers, the project is issued by the bank at a certain percentage.
The volume of cash and cash equivalents at the company increased from 25.8 to 40 billion rubles, which is mainly due to the increase in the amount in banks on escrow accounts from 23.6 to 37.9 billion rubles.
As a result, the company's net debt increased by 3% from the beginning of the year and amounted to 20.3 billion rubles. The level of debt burden according to the ratio "net debt / EBITDA" and completely decreased from 1,2 up to 0.9 × amid growth in EBITDA in the first half of the year.
Dividends
In recent years, Etalon has gradually raised the target level of dividend payments from 15-30% to 40-70% of net profit. In September of this year, the Board of Directors made changes to the dividend policy. According to the new rules, the company will seek to direct on dividends from 40 to 70% from IFRS net profit. Dividends will be paid once a year at the end of the reporting year, in this case, the recommendation is issued no later than 31 May.
Debt load for the first half of the year, billion rubles
| Total debt | net debt | net debt / EBITDA | |
|---|---|---|---|
| 2017 | 24 | 9,7 | 0,7× |
| 2018 | 20,91 | −2,2 | −0,4× |
| 2019 | 52,69 | 21,5 | 1,8× |
| 2020 | 50, 5 | 19,6 | 1,2× |
| 2021 | 60,3 | 20,3 | 0,9× |
Dividend per share
| 2016 | 0,08 $ |
| 2017 | 0,147 $ |
| 2018 | 0,18 $ |
| 2019 | 0,19 $ |
| 2020 | 0,16 $ |
0,08 $
What's the bottom line?
The first half of 2021 looks good in terms of key financial indicators: record revenue, almost threefold growth in operating profit, 1,3 billion net profit against loss for the same period last year. But Etalon owes such results to favorable market conditions and rising prices for residential square meters in Moscow and St. Petersburg. In terms of in-kind sales, the company has reduced sales volumes to a multi-year low., and the commissioning volumes completely collapsed in the first half of the year from 177.4 to 3 thousand square meters.
IN 3 quarter, the value of residential property continued to grow, but probably, that this is a residual growth and the real estate market is waiting for a correction ahead. So, in the study "Avito-estate" reported, that the demand for new buildings in July - September collapsed by 25%. This could be a wake-up call for the entire development industry..
In the summer, the state extended the preferential mortgage until 2022, but increased the rate and reduced the maximum loan amount to 3 million rubles. Besides, Central Bank Raises Key Rate Amid Rising Inflation. Only from March to September of this year, the rate increased from 4,25 to 6,75%, And, probably, this is not the last increase this year. All these factors have a negative impact on demand and may cause a correction in the primary real estate market..
