WOOD Flash – Russian homebuilders: 3Q KPIs support our constructive view on the sector

Etalon, LSR and PIK have all reported their 3Q20 KPIs in the past two weeks. The Russian homebuilders continue to benefit from the supportive rate environment, with demand for the cheaper units enhanced further by the government mortgage subsidy programme. The falling mortgage rate is driving improving affordability, boosting demand, which opens up room for the growth of prices, in turn. The results of both Etalon and LSR seem to point towards like-for-like per sqm price growth in the mid-teens. We continue to see significant upside for both Etalon and LSR, and reiterate our BUY recommendation for both stocks. Etalon's strategic update, scheduled for 11 November, could provide more colour on the market, which could be supportive for the momentum for both stocks in the very near term. Other triggers include: ongoing supportive price dynamics; continued monetary easing; sector consolidation; and earnings growth. A further rise in COVID-19 cases in Russia and a prospective new lockdown would be a short-term setback for the sector. On a longer-term perspective, the most important risk factor would be likely to be a reversal of the affordability improvements, either via a deterioration of the purchasing power of the population, or via monetary tightening.