WOOD Flash – LSR: 2021 KPIs – prices offset weak volumes; buyback, hotels and escrow drive leverage up

LSR sold only c.613k sqm NSA in 2021 (down 26% yoy). However, in value terms, the volumes sold were stable yoy, thanks to the strong price momentum, which was also supportive for margins. During 2021, LSR delisted the GDRs, bought back part of its own stock, and started to invest in hospitality assets, hoping they would provide diversification and a stable stream of cash flow. Along with the ongoing transition to escrow accounts, all these steps drove the leverage higher. The stock is inexpensive, trading at around 0.7x P/B, c.4-5x EV/EBITDA and c.5x P/E, on the consensus 2021E estimates. Barring a recession, triggered by a war in Ukraine and the sanctions this could trigger, it seems that the margins could also remain fairly strong in 2022E, supported by a higher share of upmarket projects in the product mix, as well as the increasing exposure to Moscow. A clear strategy and a commitment to stable dividend payments could help the stock to rerate, in our view, if the margin strength continues. Aside from geopolitics, we believe that the key risks include the expiration of the remaining mortgage subsidy programmes, additional rate hikes, rising construction costs and an increase in the supply of apartments in the two key metropolitan areas that LSR operates in.