Raven Russia was founded in 2005 to invest in class A warehouse complexes in Russia and lease to Russian and International tenants. Its Ordinary Shares, Preference Shares and Warrants are listed on the Main Market of the London Stock Exchange. The company has a market capitalisation of approximately £335 million and the capital value of all of its listed instruments is £610 million.
The Group has just released its 2016 Final results. These showed an IFRS profit after tax $7.7 million (2015: Loss of $192.4 million); a year end cash balance of $198.6 million (2015: $202.3 million); and diluted net asset value per share 71 cents (2015: 70 cents). Raven Russia is emerging from the depths of the Russian recession with its business intact, and its balance sheet strengthened and capable of supporting opportunistic acquisitions on favourable terms. The first acquisition (in St Petersburg) should be completed before the end of March, on a yield of 16%.
Raven Russia has done remarkably well to hold Net Operating Income (‘NOI’) relatively stable for the last three half year periods, following the sharp decline in H2 2015. This has been against a background for which the term ‘challenging’ should be considered inadequate. There are two principal reasons for this: concentration on high quality tenants has protected it more than most from defaults, and the company has defended robustly and successfully its dollar-denominated leases in the Russian courts, while renegotiating extensions to existing leases on favourable terms, giving further protection over the next few years.
The Russian economy appears to be bottoming out, with growth expected from 2017 onwards. Some of the effects of the recession are delayed, but are contained within a business plan which looks increasingly expansionary. NOI should be flat in 2017, but pre-tax should fall without the exceptional $18m forex profit in 2016, but subsequent years should show a slow return to growth in NOI after allowing for further conversion to rouble-based rents, and NAV should rise after a period of write-downs, as valuation yields fall. The ordinary shares stand at a discount to NAV and on a yield of 5.0% rising to 6.0% on our estimates. We raise our fair value to 60p per share.
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