Etalon Group - 4Q21 Trade Update: Miss on 2021 Guidance, Healthy 2022 Outlook

Etalon Group posted its 4Q21 trading update yesterday, which surprisingly missed the company's sales guidance. However, robust prices in 4Q21, a high EBITDA margin guided for 2H21 and beyond, greatly improved leverage and a positive outlook for 2022 softened the initial weak impression from the numbers.> News sales dynamics improve in 4Q21... New sales grew 34% Q-o-Q in m2 terms and 35% in ruble terms, mainly due to seasonality. They were down a respective 23% and 6% y-o-y (-36% and -23% y-o-y in 3Q21). > ... but numbers below guidance and our forecasts. Full-year sales fell 17% y-o-y to 447k m2 and 6% y-o-y to R84.4 bln, missing the company's 2021 guidance of 538k m2 and R88 bln by 17% and 4% and our forecasts of 494k m2 and R89 bln by 10% and 5%. This was surprising given that the guidance was confirmed in mid-October. The miss was mostly due to a two-week delay in the launch of the Voxhall project in Moscow and a bigger impact than expected from the lack of available-for-sale projects in St Petersburg. > Average selling prices continued to grow. They were up 1% Q-o-Q for the whole portfolio and 6.6% for apartments in 4Q21, driven by higher prices in Moscow due to like-for like growth and an improved project mix. > ... which should support margins. Thanks to strong pricing, Etalon doesn't see a risk of the pre-PPA gross margin declining in 2H21 from the record 1H21 level of 38% (our 2H21 forecast is 34%). It also reiterated its long-term target of a 35%+ margin for 2022-23 (we project 34%).> Other positives included improved leverage. Etalon disclosed that its net debt of R1 bln at end-2020 (including cash on escrow accounts) had turned into a net cash position of R18.3 bln at end-2021 (we had expected a R1.8 bln net cash position). > Moderately positive outlook for 2022. The company guides strong double-digit sales growth in ruble terms in 2022 (the actual figure will be provided in March; our forecast is 19%). The growth will be driven by the new project acquisitions last year (1.9 mln m2, 67% of the land bank as of end-2020) and a tripling in sales launches (to 0.84 mln m2). In addition, the company is considering non-organic growth opportunities in St Petersburg and plans to acquire 3.5 mln m2 of NSA in core and other regions.> Valuation and forecasts. We plan to update our forecasts after the 2021 IFRS results and updated portfolio valuation are published (both are due in March). We note that the stock is trading at attractive 2022E multiples (a 1.3 EV/EBITDA and 3.8 P/E) and offers a 14% dividend yield.