Page 90 - RusRPTAug20

9.2.2 ​Automotive corporate news
Despite a notable reduction in leverage and the positive contribution from the consolidation of Ford Sollers in 2H19, Sollers’ 2019 results were marked by the strong challenges the company is facing​, including low profitability and its strong dependence on state support. Our unchanged 12-month Target Price of RUB 450 (ETR of 73%) and Buy recommendation are based on the assumption that Sollers will normalise its margins by 2022, when it plans to start selling its new SUV. However, given the strong near-term profitability pressures (further exacerbated by COVID-19), no dividend prospects and the stock’s low liquidity, the near-term investment case looks blurred, in our view. Sollers’ plans to cooperate with KAMAZ, Russia’s leading truck producer, could be a near-term catalyst. However, after the initial media reports earlier this year, the topic has not seen any further developments so far.
9.2.4 ​Construction & Real estate corporate news
Etalon​ has reported a 38% y/y decline in residential sales in 2Q20, ​its worst quarterly performance in five years. Amid challenging conditions for the lockdown period, with shuttered sales offices and construction sites, we note a tangible underperformance vs. PIK, which saw declines of 10% y/y in 2Q20. We link the weakness to Etalon’s historically lower exposure to mortgage deals (44% of sales vs. close to 90%, respectively, in 2Q20) and, as a result, more modest participation in subsidised programmes, as well as its focus on comfort class housing (18% price premium) and a less extensive market offer. As mortgage limits under the programme went up 50% to RUB12mn in the capitals, 85% of Etalon’s portfolio now qualifies (vs. 65% before), with further potential to accelerate sales (up 78% m/m in June from pressured base). In 1H20, volumes decreased 31% y/y, generally in-line with our stress-case established in April. Price dynamics were comparable for both developers, standing at 9-12% y/y growth. Etalon reported a stable net debt position that increased only RUB2.5bn to around RUB24bn in 1H20, implying decent cost control and balanced cash flows.
LSR Group​ (LSR) has released its 2Q20 operational results, thus wrapping up one of the most challenging reporting periods for the development sector in recent memory. ​Lockdowns, the shuttering of construction sites and sales offices, and household budget uncertainty all slammed into the sector in 2Q20. The freefall in residential sales in early April (down 65%) was arrested by the introduction of subsidised mortgages at a record low rate of 6.5%. This became the prime differentiating factor for the sales of listed developers. PIK enjoyed the best results, with sales declining only 10% YoY in 2Q20 as the share of mortgages in its sales spiked to 86%. Etalon suffered the largest decline, 38% YoY: the share of credit deals in its volumes was just 44%, as only 65% of its product mix met the parameters of the original mortgage programme (85% after revision). LSR volumes declined 18% YoY (mortgages at 67% of total), while the company’s more uniform presence reflected both the tighter limitations in Moscow (down 48% YoY) and the more resilient St Petersburg (7% YoY correction) and Ekaterinburg (flat YoY). Blended price growth was 5% YoY across the companies, as they stuck to prices-over-volumes amid fewer opportunities during the pandemic. The stocks of the aforementioned developers have gained 30% in the last three months, and now trade at a sector P/NAV of 0.5x. However, we believe that
90​ RUSSIA Country Report​ August 2020 ​ ​www.intellinews.com