Dom Development: Better late than never (upgraded to BUY)

We got our call on Dom Development wrong, as the Polish residential market has shown impressive resilience, with record-strong demand, combined with restricted supply, continuing to push apartment prices up. Dom’s expansion to Tricity and Wroclaw is now being followed by a move to Krakow, via the acquisition of Sento (closing planned for 2Q21E). This regional diversification should enable Dom to sell significantly more units annually than when it was focusing purely on Warsaw, in our view. While we may be late to the party with our upgrade to BUY, we believe that its ample landbank should enable Dom to continue to supply apartments, even if other developers struggle to secure plots. While the stock may seem expensive, at 3x P/B, on our estimates, we believe its superior profitability justifies a premium relative to its peers. Despite operating with a net cash position, we forecast Dom to maintain its ROE at around 25% for the next three years. On EV/EBITDA, we see Dom trading at around 8-9x, on our estimates, broadly in line with its peer group. We see the stock trading at a c.7% dividend yield. We upgrade our recommendation to BUY (from Sell), and increase our 12M price target (PT) to PLN 177/share.