WOOD Flash – Etalon: Capital Markets Day - embrace the digital; focus on profitability and growth; RUB 12 DPS floor reiterated

Etalon Group held a Capital Markets Day yesterday, updating investors on its vision for the business over the next three-to-four years. The key pillar of its 2024E strategy is a focus on profitability, with a minimum gross profit margin threshold of 35%, well above the 25-30% currently. Etalon expects that the standardisation of its projects and adoption of technological solutions should help it to keep costs down, while dynamic pricing and better market analysis offer room to optimise revenues. The adoption of technology should also help the business become more scalable.
Management is targeting a twofold increase in volumes under construction by 2024E, while maintaining the existing overhead cost level. It not only reiterated its commitment to replenish its St. Petersburg land portfolio, but also suggested that Etalon may expand into regional cities. The land acquisitions are likely to increase the net debt to around 2.0-3.0x EBITDA, from 1.8x currently. It maintained its commitment to a dividend floor of RUB 12/share.
We would prefer to wait for Etalon to start delivering on these goals before adjusting our forecast upwards, but we see the ambitious targets and adoption of digital solutions as clearly supportive for our constructive view on the stock. We see Etalon, as well as LSR, as the most attractive equity stories in our entire real estate coverage, as falling mortgage rates push affordability to historic highs, and the transition towards escrow accounts is likely to speed-up market consolidation. Etalon is up some 15% since our initiation in September, and our 12M PT of USD 3.1/share implies more than 70% of further upside.