RUSSIAN REAL ESTATE: The Best Exposure to Falling Interest Rates
We initiate coverage of Russian residential developers LSR Group (BUY), Etalon Group (BUY), and PIK Group (HOLD). Equity investments in the residential real estate sector are an attractive opportunity to gain exposure to the broader Russian macroeconomic recovery, and mortgage rates that are falling as inflation slows and the Central Bank of Russia cuts rates. Within a few years, we believe that mortgage rates should decline to 8.0-9.0%, which would be a record low in modern Russia. This can be expected to fuel demand for apartments in the primary real estate market. To meet this upcoming demand, the largest developers are boosting their construction volumes, particularly in Moscow and St Petersburg, where we forecast stable pricing on the primary market. Still, while the market shares of large players with quality products and healthy balance sheets are climbing, small players are being squeezed out as competition remains high. We expect to see significant earnings and free cash flow growth in 2017-18 for all the developers under our coverage, which should translate into rising dividends.
Since its inception in 1991, ATON has built a reputation for combining in-depth local knowledge of the Russian market with the highest international standards in research, sales and trade execution. As a result, we have been able to attract many of the leading domestic and international institutional fund management groups as our clients. As one of the leading independent investment banks in Russia, we offer the full range of institutional brokerage service, including:
- Detailed fundamental analysis of economics, sectors and companies, with the widest coverage universe in Russia and the CIS;
- Timely trading ideas to help clients take advantage from short-term pricing discrepancies;
- Competitive prices and prompt execution of trades;
- An on-line platform providing easy access to all our research products and tools.
- Client-focused Service
- We employ state-of-the art technology to ensure the highest quality of investment services as well as the highest level of data protection.
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