LSR Group - Lower Mortgage Rates to Support Sales; BUY Reiterated
LSR Group recently published 1H19 operating results. Although sales in volume terms were somewhat weak, in ruble terms they found support from a strong increase in the company's average selling price (up 18% y-o-y in 1H19). We believe that higher mortgage rates in the first half of the year had a negative impact on the company's sales, which was also the case across the sector. Despite the recent strong rally in the shares, we think that LSR still offers good value. Our view is supported by falling mortgage rates, with several banks already offering rates below 10%. Falling rates should be a significant tailwind for LSR given that its sales are still dominated by mass-market residential real estate. We increase our target price to $2.70 per share and reiterate our BUY recommendation.Group LSR PJSC is involved real estate development in Saint Petersburg, Munich, Yekaterinburg and Moscow, prefabricated panel construction in Saint Petersburg, Moscow and Yekaterinburg, commercial real estate development in Saint Petersburg and Moscow and Yekaterinburg, the production of building materials at plants located in Russia and Ukraine, the extraction and processing of aggregates in Leningrad region, and the provision of construction services. These products and services are sold mainly in Russia. As of Dec 31 2015, Co. had five reportable segments: LSR.Building Materials; LSR. Construction; LSR.Project management; LSR.Cranes; and LSR.Real Estate.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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