Raven Russia, the London-listed Russian warehouse investor, has reported a strong turnaround in earnings and a slim rise in net asset values in 2016, as it took advantage of a recovering Russian economy
Net asset value per share rose marginally from 70 cents (£0.57) to 71 cents, while IFRS basic earnings per share were 1.17 cents, up from a loss of 28.81 cents per share in 2015.
The results were above analysts’ expectations and reflected the economic recovery Russia experienced in the second half of 2016.
Inflation fell to 4.6% last month, down from 9.81% at the beginning of 2016. While negative, annual GDP growth rate has also been on the mend. The economy shrank 0.2% in 2016, compared to a 2.8% contraction in 2015.
source: tradingeconomics.com
With US president Donald Trump easing sanctions against Russia and the price of crude oil, which account for more than a third of Russian exports, rising from $31 to $54 in the past year, Raven Russia said it is “more confident” in its future prospects.
In a nod to president Trump’s election campaign slogan, Glyn Hirsch, chief executive of Raven Russia, began his report to shareholders this morning with: “Let’s make Raven Russia great again!”
Meanwhile, the value of the rouble has risen nearly 42% against the pound and 21% against the US dollar in the past 12 months, which has led to significant gains for the company. Foreign exchange movements were responsible for $15m of losses in 2014 after the rouble crashed, but that reversed in 2016 with £18m in gains.
Raven Russia’s rouble-denominated leases are underpinned by a minimum annual index of 7.7%, giving them a minimum upilft every year.
Trevor Griffiths, an analyst at N+1 Singer, said: “You’re going to see a rather more complex movement in rents because you are going to get rouble escalation in rents and that will translate that dollars. If there is continuing stability in the Russian economy, international participants in the economy – which are few and far between – are probably going to increase, and that’s going to help the exchange rate again.”
The downsides
There was a $43m downward revaluation on estimated rental values in 2016 and vacancy stayed broadly flat at 19% as the Russian market continued to be cautious of real estate. Net rental income fell by about 12.6% to $157m.
Although the company said it expected hardening yields, warehouse yields are still about 12% in Russia, according to N+1 Singer.
Richard Jewson, chairman of Raven Russia, said: “Whilst a number of macroeconomic and political factors have positively contributed to Russian sentiment in the last 12 months and particularly since the year end, we still remain wary and our occupancy levels reflect the continuing caution in the market.”
Putting new capital to use
Griffiths praised Raven Russia’s management, which raised $128.3m through new convertible preference shares in July. The company paid back $164.5m of debt facilities using some of the proceeds from that issue, extending the average term to maturity by about two years to 4.7 years.
The analyst said the capital would also allow the company to invest in properties as the warehouse industry “bounces at the bottom” in Russia.
It bought three properties in St Petersburg for a combined $83m, an initial yield of 16%, at the end of last year.
In an environment where Russian benchmark yields have fallen by almost 150 bps since the start of 2016 and economic prospects have risen, finding the right investments at the moment could lead to stronger returns in the future, especially as warehouses tend to lag behind the rest of the Russian property industry.
Griffiths said: “The convertible preference issue has opened up a great deal of additional flexibility for them. With the lower amortisation of debt, they can take advantage of the opportunities out there.”
Raven Russia’s 2016 results at a glance
| Net asset value per share | 71 cents | 70 cents |
| IFRS basic earnings per share | 1.17 cents | -28.81 cents |
| Property revaluation losses | -$43m | -$257m |
| Net rental income | $152m | $174m |
What is Raven Russia?
Raven Russia is a Guernsey-based investor in Russian warehouses, founded in 2005 with the intention of building a “class A” logitstics portfolio in Russia. Following a number of significant share price falls in 2009 and 2014, the company has posted some of the strongest returns and share price growth in the UK since the referendum
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Raven Russia’s Board of Directors
Richard Jewson, non-executive chairman
Glyn Hirsch, chief executive
Anton Bilton, executive deputy chairman
Mark Sinclair, chief financial officer
Colin Smith, chief operating officer
Christopher Sherwell, senior independent non executive director
Stephen Coe, non-executive director
David Moore, non-executive director
