Since Russian residential developer
The first thing is that despite the coronacrisis, business has been booming. Real estate is one of the sectors that has actually done well out of the crisis and the company’s market capitalisation has gone up by 60% since then, making it a billion dollar company.
That is partly because the company has put in such strong results. Samolet reported sales up by 46% in the fourth quarter and topped
Samolet’s share price has soared by 60% since October as a result, only slightly worse than market darling and sector leader PIK, which was the first of the real estate developers to see its share bounce back after the market-wide sell-off in the spring.
“Other companies started to bring out good results for last year and investors realised the sector is growing, so our share price took off,” Andrey Pakhomenkov, Samolet’s CFO, told bne IntelliNews in an exclusive interview.
bne IntelliNews profiled Samolet ahead of its IPO and the business has been booming. Pakhomenkov says the company earned its best profits ever in 2020 and the company announced equally strong first-quarter results this week.
“It was a strange but amazing year,” says Pakhomenkov. “But we received the best results in our history. People stayed home and ended up wanting more space so that increased demand and the sales went up”
Specialising in
Last week the company also published the valuation of its land bank, which as of
“The company offers the most aggressive development profile (for the short term) of the companies under our coverage, while having the country’s largest land bank and enjoying sector tailwinds,”
Mortgage dynamics
Over the last two years the real estate business has had a boost from the
Analysts say as a rule of thumb each 25bp rate cut makes a mortgage affordable for millions more Russians and so the subsidy programme has increased the demand for new builds dramatically.
However, CBR governor
“In 2018 the CBR rate was 7.5% and the mortgage rate was 9.6% – a 2% difference and there were no subsidies then,” says Pakhomenkov. “By May last year the CBR rate had dropped to 4.25% but the average mortgage rate had fallen to 5.9% – so less than a 2% spread as the business gets more competitive. What will come next? The CBR interest rates rising by 50 or 75bp? I don't know, the mortgage rates are not likely to rise as fast.”
Crisis mild impact on real estate development
The crisis has boosted profits but it also reduced the amount of new space that Samolet and other developers were building. Three years ago the sector added 10.239mn sqm of new apartments, but that has fallen every year since and only 6.832mn sqm were built in 2020. The falling volumes of new supply have helped keep prices up and maintained profits.
At the same time, the sector has been through a major consolidation as the rules were changed to protect homebuyers. Many developers used to pre-sell apartments before construction had even begun and use the money raised from sales to pay for the cost of construction. Inevitably a few scammers would sell apartments and disappear with the cash without building anything. More unfortunately, some genuine developers went bust during construction and the buyers lost their money.
To prevent these problems the government introduced a new system in 2019 where homebuyers can still buy apartments at reduced prices before they are built but the money is held in an escrow account and is not released to the developer until the project is finished. That means the developer has to raise hundreds of millions of dollars of financing before it can start and that kind of deal is only available to the very largest developers.
“Since the escrow system was introduced about 300 developers have left the market,” says Pakhomenkov. “There has been a big consolidation so that the top ten players now account for about half the market in MMA.”
Banks love the real estate business, as it is bringing them a lot of new and profitable business in otherwise difficult times. They are issuing more mortgages to the population and offer them the escrow services as well as cutting multi-million dollar financing deals with the developer to get the project done. The increasing demand and volumes have been driving down the developers’ cost of borrowing.
“In 2019 the cost of borrowing was about 4% but that changed in 2020 and today you can borrow at around 2.6%, partly due to the CBR rate cuts and party due to the increased number of banks that want this work,” says Pakhomenkov, who added that previously only a few banking giants were prepared to take on the financing deals, but now the company can pick and choose who it wants to work with.
Fixed prices
Costs are important, as Samolet’s competitive advantage is that it offers some of the lowest prices on the market. As incomes have been squeezed in the last year yet again but the subsidised mortgage programme makes financing a new home possible, price has become more important than ever, pushing more customers from competitors to Samolet.
“We are keeping the prices at the level of
And there is plenty of work left to do.
“If you think about it, there are 20mn people living in the
There are several decades more of work after that if
Future funding
Russia’s economy is forecast to grow by 3.1% this year and real incomes should finally start to rise again after over six years of stagnation as stimulus and national project spending gets underway. That will improve the conditions for real estate developers who can go back to increasing the volume of new builds. But that will require even more financing and Pakhomenkov says Samolet is already thinking about a SPO, even though it floated the company only six months ago.
The company is also working on improving its appeal by introducing an environmental, social and governance (ESG) strategy and has recently hired Russian tech entrepreneur
“An SPO is something we are considering in prospect of 1,5-2 years,” says Pakhomenkov. “Our results have been very strong and we are expecting to see EBITDA up 2 times this year (to
Samolet 2020 IFRS highlights
RUB mn | 2019 | 2020 | Chng, YoY | 2020F, VTBC | Diff |
---|---|---|---|---|---|
Revenues | 51,145 | 60,100 | 18% | 54,470 | 10% |
Chng, Y/Y | 32% | 18% | 7% | ||
Gross profit | 9,859 | 15,200 | 54% | 13,482 | 13% |
Gross margin | 19% | 25% | 25% | ||
Adjusted EBITDA | 7,521 | 11,300 | 51% | 10,081 | 12% |
Adjusted EBITDA margin | 15% | 19% | 19% |
Source: Company data,
Samolet 1Q21 IFRS highlights
RUB mn | 1Q20 | 1Q21 | Chng, Yoy |
---|---|---|---|
Revenues | 14,191 | 19,300 | 36% |
Chng, Y/Y | 36% | ||
Gross profit | 3,552 | 6,500 | 83% |
Gross margin | 25% | 34% | |
Adjusted EBITDA | 1,822 | 4,500 | 2.5x |
Adjusted EBITDA margin | 13% | 23% |
Source: Company data,
Samolet 1Q21 trading update
RUB mn | 1Q20 | 2Q20 | 3Q20 | 4Q20 | 1Q21 |
---|---|---|---|---|---|
Residential sales, 000 sqm | 127 | 101 | 124 | 138 | 126 |
Residential sales, RUB mn | 13,835 | 11,397 | 15,854 | 18,549 | 18,400 |
Average price, RUB / sqm | 110,000 | 113,254 | 128,128 | 134,375 | 148,000 |
Share of mortgages, as % of sales | 69% | 71% | 71% | 73% | 70% |
Chng, Y/Y | |||||
Residential sales, 000 sqm | 4% | -7% | 5% | 8% | -1% |
Residential sales, RUB mn | 23% | 11% | 37% | 46% | 33% |
Average price, RUB / sqm | 19% | 19% | 31% | 35% | 35% |
Source: Company data,
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