WOOD Flash – Russian homebuilders: 2020 KPIs underscore that conditions remain favourable

In this flash note, we compare the operating KPIs of LSR and Etalon, and discuss several drivers for the sector. We remain bullish on the Russian homebuilders, as we believe the significant improvements in affordability should continue to support the demand for apartments and allow for room for further price appreciation. The transition to escrow accounts is favouring the large developers, and is likely to speed up the sector consolidation, which could result in attractive land acquisition opportunities. We view LSR as the safer, lower beta option of the two, thanks to its strong track record, large pipeline and strong balance sheet (net debt to EBITDA of 1.2x). We believe Etalon could generate greater upside in the near- to medium-term, if it delivers on its efficiency improvement targets, and turns the promising Zil Yug project on the Marc Chagall Embankment in Moscow into a success. That said, we see a higher execution risk and also note the net debt to EBITDA, which we expect to increase to around 2-3x by 2024E from 1.8x currently, which means the stock could be the more volatile of the two. The key risk for our constructive view on the sector would be a change in the direction of the monetary policy in Russia, which would reverse the recent affordability improvements.