Real Estate Sector Footing get stronger, its time to build
LSR Group A diversified leader of St.-Petersburg real estate market comes to Moscow LSR Group possesses competitive advantage in the real estate sector due to flexible and effective business model, comfortable debt level and prospective projects portfolio focused on expansion of construction volumes in the Moscow region. In 2010 the company launched new cement plant, opened the representation, initiated a number of large perspective projects in the Moscow region, modernized and expanded capacities, continued negotiations with banks to improve credit terms for the buyers of residential real estate. We believe that LSR Group is capable to show one of the best recovery rates in the sector backed by growing demand for residential real estate and investments into infrastructure construction sector. We recommend to BUY LSR Group with the target price of $12.5/GDR and 50$/share. Expansion to Moscow will be accelerated. LSR Group has thoroughly prepared to enter the Moscow real estate market. In 2010 the portfolio of projects in the Moscow region grew 7 -fold up to 890,000 sq m that makes about 18% of all the company’s projects at development stage. Construction is planned to complete till 2015. Company upgrades capacities of its concrete products’ facilities in Moscow by 40%. This will enable the company to increase its output to 240,000 sq m of housing per year. Besides, the own concrete facilities with a capacity of 3,000 cubic m per day will be involved in construction process. To cut administrative expenses and construction time, the company bets on lowheight panel housing construction in Moscow Region. We believe that this fact should also play supportive for increase in short-term liquidity and raise of company’s financial stability. Business expansion in the Moscow region will have a positive impact on profitability of the company: the capital market is the most profitable for construction companies. Infrastructural projects will cater for materials’ demand. Despite active expansion to the Moscow region, St.-Petersburg and Leningrad region are still the basic market for LSR Group. The company takes leading positions practically in all segments of construction market where it operates. Launch of cement plant with capacity of 2 mn tons per year has completed the building materials production chain and provided the company with an additional source of income. By our calculations, in 2011 the cement plant share in revenue will make 4% and increase up to 7% by 2012. Additional demand for cement will be provided by infrastructure construction sector which, in our opinion, will continue its development in the coming years. Flexibility of business model allows the company to shift products in a segment of infrastructure construction which were previously supplied only for housing construction. By our forecasts, the share of building materials’ segment will make 36% of 2011 total revenue against 26% in 2009 and 31% in 2010.
LSR GROUP Ticker Recommendation Price, $ Target price 12M, $ Upside/downside potential
Common LSRG
GDR LSRG LI
BUY
BUY
33.2 50.0 51%
9.2 12.5 37%
SHARE DATA Bloomberg
LSRG LI GDR 515.2 5,540 4,714 6.8 10.9 Common 5
# of GDRs outstanding, mn EV, $mn MC, $ mn MIN 12 mnth., $ MAX 12 mnth., $ GDR per 1 share SUMMARY FINANCIALS, $ mn 2010E Rev enue 1,751 EBITDA 484 Net income 199 EPS ($) 0.4 Rev . growth (%) 8.9 EBITDA margin (% 27.6 Net Margin (%) 11.4
2011E 2,161 607 306 0.6 23 28.1 14.2
2012E 2,669 752 418 0.8 24 28.2 15.6
SUMMARY VALUATIONS 2010E P/E 23.7 EV/EBITDA 11.5
2011E 15.4 9.1
2012E 11.3 7.4
SHAREHOLDER STRUCTURE Streetlink Limited A. Molchanov Management Free Float
53% 9% 11% 27%
PRICE DYNAMICS 12
LSRG
RTS
10
Debt loading will be reduced. LSR Group remains the unique construction company which did not experience difficulties with repayment and refinancing of debt even during financial crisis. Following the results of 1H10 the net debt made up $1,033 mn. We expect decrease in Net debt-to-EBITDA in 2011 to 1.7 against 2.3 in 2010 and 2.6 in 2009.
8 6 22.12.09
22.3.10
22.6.10
22.9.10
Source: Bloomberg, TKB Capital estimates
Attractive by multiplies. Valuation based on multiplies indicates good upside potential. LSR Group trades at an average 2011-2012E EV/EBITDA of 9.1 and 7.4 accordingly, that implies average 22% discount to its foreign peers. Fundamental value is above the market. We recommend to buy LSR Group - the market leader of construction sector. Based on our DCF-model, 12-month’s target price of LSR Group is $12.5 per GDR and $50 per share.
120
STRATEGY 2011
22.12.10