Atrium - One – Offs Heavy Year

Atrium – Instant Earnings Comment

Recommendation:  Accumulate

Target price (12M): EUR 4.4

 

• In a nutshell, during a transitory period (portfolio repositioning coupled with asset enlargements) came one-off items that modestly affected Atrium’s profitability. Operation-wise, occupancy ratio was flat, excluding one-offs EBITDA margin has improved to 93%. DPS of 0.27 EUR cent for 2019 is confirmed again.

 

• Total NRI fall by 6% y-o-y to EUR 179 million by EUR 10 million due to mainly divestments (EUR -10.5m), developments (EUR -4.3m), which were mitigated by gain on indexation and acquisitions.

 

• On an operational level, EBITDA came below our forecast by ca. EUR 12 million (EUR 162m vs. EUR 150m) due to higher than assumed administrative cost EUR +5 million (Buy-out of a management contract) and due to unforeseen asset disposals. The former is related to Atrium Dominikaska which was managed externally. This contract was terminated for additional expense, thereafter Atrium will manage the shopping centre internally which will have earnings accretive effect, but unfortunately this extent was not disclosed. EBITDA margin came to 84% while excluding one off items it would have been at 93%.

 

• FFO also pictures similar patterns as EBITDA but financial expenses further deteriorated due to net losses on bond buyback and other financial expenses related to the refinancing and issuing the EUR 300m bond. However this was expected. FFO arrived to EUR 111 million, 11million lower compared to last year, implying 0.29 EUR cent FFOPS and 8.5% FFO yield.

 

• On our calculation there is ca. EUR 22 - 23 million non-recurring cost amounting to ca. 15% of current EBITDA which put a pressure on Atrium’s FY earnings:

 

1. Buy-out of a management contract (EUR 4.5m)
2. EUR 17m net loss from the bond buyback during the bond refinancing and some additional sums related to the transaction cost. (Next large maturity will be in 2022 )

 

This amount should not appear next year and will lift FFOPS from 0.29 by 0.04 – 0.05 EUR cent, in our view.

 

• Net profit dropped significantly by 32% (by ca. EUR 28m) to EUR 60.6 million due to the above mentioned causes and due to the generally lower rental income related to portfolio repositioning.

 

 

• FX movements: PLNEUR remained flattish on a yearly comparison while RUBEUR depreciated significantly y-o-y ca. 15%, however since all of Atrium’s revenue is denominated in EUR, the company’s figures have limited negative consequences as the Russian economy is performing well:
  • GDP growth on a yearly basis remained in 1-2% range and not expected to break out from this in the near future – according to Bloomberg survey, see chart below.
  • Retail sales is still robust at 3% Y-o-Y

It is also worth mentioning that Atrium has ca. EUR 90 million exposure (0.24 per share) – unitized lands in Turkey. In this regard, TRYEUR has depreciated significantly, thus a negative revaluation is expected in the near future ceteris paribus. In our model we gave only half of the value for those plots / lands thus our Target Price would remain unchanged.

 

GDP growth for Poland and Russia

Source: Bloomberg

Notes: 2018 Q3 is the latest official

 

 

Retail sales dynamic for Poland and Russia

Source: Bloomberg

Notes: 2018. 12 is the latest official

 

 

FX movements and EU high yield spreads

 

• News:

 

1. Atrium receives Fitch credit rating upgrade to 'BBB', Outlook Stable

 

2. Atrium completes refinancing for Wars Sawa Junior with a €170 million loan

Atrium has taken a €170 million secured loan with a tenor of eight years to replace the existing bridge loan taken in October 2018. The Group’s average maturity following the refinancing is extended to 5.5 years.

 

Recommendation:  Last year Atrium faced several one-off item which compressed profitability and decreased FFOPS to 0.29 EUR cent from last year’s 0.324 EUR cent. These non-recurring items will diminish next year, and should lift FFOPS in an extent of 0.04 – 0.05 EUR cent, not mentioning the organic growth in NRI due to the openings of the redevelopment in 2019.

 

Risk to our recommendation is the deteriorating macro in Russia which may dent the basket from which Atrium distributes Dividends, however as of now Russian economy seems strong and FX also strengthened back to normalized levels, the other risk is the more severe effect from Sunday trading ban but as of now this risk is also limited in our view.

 

We are in a view that continued economic growth in the retail sector and although this rate of economic growth, arising from the high wage and GDP growth in the CEE, is expected to slow in the next two years, the underlying economic strength, combined with continued low interest rates, is good for retail investment. This is especially true in the prime locations which dominate Atrium’s portfolio. Thus we reiterate our TP and recommendation.

 

P&L

 

Simplifed P&L and KPI’s

 

Source: Concorde, Atrium

 

 

Gellert Gaál
Equity analyst

CONCORDE SECURITIES LTD.

Alkotás Point
50 Alkotás street, H-1123 Budapest.
Phone:
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MEMBER OF THE CONCORDE GROUP

 

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