WOOD Flash – Etalon: 2021 KPIs — prices drive higher yoy volumes sold; leverage down due to SPO, cash collections

Etalon's 2021 was marked by steep apartment price growth, driven by: the broad-based market trend and changes in the product mix; the ongoing shift from St. Petersburg towards Moscow; and the shift within Moscow, from projects located further out to more central ones, such as Zil Yug and Nagatino-i-Land, which were launched during the year. Although Etalon sold 17% fewer sqm yoy, mainly as it struggled to replenish its offer in St. Petersburg, the growing prices meant that the sales in value terms were slightly higher yoy. This should be also supportive for margins – the pre-PPA gross profit margin stood at 38% in 1H21, and it seems likely that it will remain strong throughout both 2H21 and 2022E. The strong cash collections and the USD 150m SPO helped to reduce the net debt, and should allow for continued land acquisitions both in the regions, as well as in the traditional markets of Moscow and St. Petersburg. The continued transition to escrow could also create larger M&A opportunities in the sector. The removal of the dividend floor means less visibility, and lower payouts in the near term. That said, if Etalon proceeds successfully with the expansion to the regional cities (where it benefits from very attractive land prices) and boosts its volumes to 800-900k sqm, while maintaining the margins in the mid-30s (driven by improved cost management), the earnings growth could, eventually, drive dividends above the former floor of RUB 12/share, in our view.