9M Result confirms operating Momentum
On November 22nd, Pro Kapital Grupp (PKG; ISIN EE3100006040, Open Market, 17E GF) published its Q3 financial figures which support our projections published in our previous basic research report. During the first nine months buoyant construction and development activity lifted total sales by 170% to €21.04 mln compared to €7.8 mln in last year´s period. Simultaneously, operating result (EBIT) increased by €5.5 mln into positive territory and reached €4.78 mln. Especially the Estonian and Latvian business segments contributed to this strong improvement. However, a change in fair value of the Kalaranna project led to a positive effect in the amount of €1.9 mln. Without this non-cash revaluation effect, EBIT still showed a strong increase of €3.6 mln. Consequently we still expect EBIT to reach €5.3 mln at the end of FY 2018.
The company´s topline growth was mainly driven by strong construction and development activities especially in Estonia where real estate sales nearly quadrupled. Even more impressive was Latvian´s real estate market sales contribution that jumped from zero to €5.58 mln during the nine months period. Contrary to this, business activity in Lithuania and Germany showed a more stable development with growth rates of 21.8% and 14.4%, respectively. After PKG exited its Baltic hotel businesses last year, the Estonian and Latvian operations mainly consist of development and sale of premium residential apartments. We expect the company to intensify its construction activity in the coming years and anticipate a significant increase in real estate sales, also in Lithuania.
On November 26th PKG held a presentation at the German Equity Forum for the first time and introduced its business model to national and international institutional investors. Besides aiming at broadening its investor base and enhancing trading activity in its shares on the German stock market, this event was also a good opportunity to emphasize PKG´s solidity despite its inherently volatile business model. Especially PKG Ìs largest single-project, the T1 shopping and entertainment center in Tallinn, which opened to public on November 9th, has the potential to change PKG´s risk-return profile significantly in the coming years and reward investors for their investments. As mentioned before, this should not only stabilize operating profits in the coming years but also enable the company to pay a dividend on a regular basis.
We leave our projections unchanged but adjust our DCF analysis for the basic market input parameters. We calculate a fair value of €2.04 per share and reiterate our “BUY” rating.
Pro Kapital Grupp AS is an Estonian-based holding company active in the real estate sector. The Company is engaged in buying and selling as well as renting, operating and management of own and leased real estate. The Pro Kapital Grupp AS focuses on commercial and residential real estate development in Estonia, Latvia and Lithuania. It offers office spaces and apartments in Tallinn, Estonia, apartments in Riga, Latvia, and apartments in Vilnius, Lithuania. As of December 31, 2011, the Company operated five direct subsidiaries as well as a number of indirect subsidiaries and affiliated companies.
Since 2007, BankM AG (Frankfurt am Main, Germany) is the partner of small and medium-sized enterprises and specializing in capital market financing with its experienced, interdisciplinary team. SME customers benefit from individual service and rapid access to selected investors that fit their needs. BankM's services include capital market advisory, arranging IPOs and capital increases for equity financing, debt advisory and debt capital mediation, designated sponsoring and research as well as M&A, hereby specializing in the identification of suitable strategic partners in China.
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