Page 8 - RusRPTMar20
P. 8
“The CBR's balance of payments projections for 2020 now see a $5bn slimmer current account surplus (the 2020 current account balance was revised to $47bn, from $52bn) due to the slightly higher imports of goods and services, which are expected to be offset by a lower outflow of private capital. This might reflect the halt in FDI outflows registered in 2019 and the CBR's expectations of that continuing in 2020 (see our Balance of Payments 2019 sets record for international inflows into Russian public debt, of 17 January),” says Isakov.
2.1 Russian state spending to boost the real estate sector in 2020
The recently announced state initiatives to support consumption in Russia call for annual spending of RUB830bn in 2020-24 (1.3% of total household consumption), which will support the real estate sector, with the greatest impact on the sales of flats with an average price of RUB3mn, for families with two children.
In 4Q19 sales of flats in Moscow and St Petersburg dropped around 25% y/y, due to the low launches and the high base of 4Q18. Prices grew 10-20% for listed companies in 4Q19, offsetting the volumes correction.
Mortgage rates hit a record low in December (9.0%) and the further downward trend represents a tailwind. The escrow transition is gradually underway, mostly covering Moscow (47% in accounts) and core developers.
LSR Group (LSR) has surged 45% in the last twelve months but still represents the most balanced, and dividend yielding (8.5%), exposure. PIK is at 1.1x P/NAV vs. 0.6x of LSR and lags in payout (5.8% yield) while Etalon’s unclear strategy and cash flows make it inferior amid pressured valuation (0.2x; 8.2%).
New stimulus improves the development sector’s outlook. In addition to the 1.3% uplift in overall consumption, the greater maternity capital, lower mortgage rates and income tax deduction are set to fuel the number of deals, we think.
Demand was lower y/y in 4Q19, with residential volumes declining 20% in Moscow and St Petersburg. The high base, lower market launches and transition to escrow weighed on the results.
Prices increased 10-20% for listed homebuilders in 4Q19, offsetting lower volumes. Industry leaders outperformed the broader market, which was up a blended 10% in the capitals.
“Mortgage rates hit a record low 9.0% in December. We see further downside risks after the 25bp cut to the key rate in February, and our macro team forecasts an additional 25bp cut this year,” VTB Capital (VTBC) said in a note. “Valuations at 0.2x-1.1x P/NAV and dividend yields of 6-9% make the development sector appealing to us. New individual investors mean that yields are a core theme.”
2.1 Ownership of Sberbank transferred to NWF
The Central Bank of Russia (CBR) has agreed with the Ministry of Finance about the sale of its full stake in Sberbank on February 11, which will be transferred to the National Welfare Fund (NWF). A draft of the federal law is due to be published shortly.
The CBR’s package is to be purchased at the NWF’s expense at market value, with the sale carried out at the 6mo average price prior to the first deal.
8 RUSSIA Country Report March 2020 www.intellinews.com
