Stable performance in turbulent times

Q4 2021 results

11 April 2022

Annual Results

 

  • BREF reported positive 2021 annual results amid a very turbulent year with Revenues increasing over 18% and Net Profit growing more than 40% to keep superb Net Profit Margin of 45.7%
  • The notable increase in Non-Current Assets, as well as Current and Non-Current Liabilities is due to the utilization of the investment loan for the completion of the Synergy Tower and the ongoing works associated with it. A point to note is the extension of the completion date for the building to 2022, rather than Q4, 2021.
  • Anchor tenants left as part of their strategy to centralize operations searching for even bigger office space locations – a notable trend among the largest IT and BPO providers. Modis Bulgaria, part of Adecco, left the Kambanite Green Offices resulting in occupancy drop to 33.26% effective end of March 2022. Atos IT Solutions left Business Park Building effective end of December 2021 resulting in occupancy drop to 50.15%. BREF managed to find replacement – New Work Business Park – effective April 2022, increasing the occupancy of the building to 67.56%.
  • An agreement was reached to sell Bricolage Varna for EUR 6,800,000. The deal is expected to be finalized by end of Q2, 2022. Additionally, the land plot in Mladost 4, Sofia, was sold in Q1, 2022, for EUR 350,000. The sales allow for a very comfortable cash cushion to meet dividend payments or possible unexpected costs associated to asset renovation.
  • Despite the decline in revenues in 2022 due to decline in occupancy and asset disposal, the expected annual rental revenue decline, even if no further tenants are found, is negligible 0.65%. This is due to the positive impact of the operations of Synergy Tower. Realistically, tenant agreements are expected in 2022 from 3 of its assets – Synergy Tower, Business Park and Kambanite Office Bldg – which would significantly improve the revenue figure at the end of 2022.
  • With a current market price of BGN 2.10 we see the stock as greatly undervalued with 57% potential from the NAV of BGN 3.30 (derived from BGN 107,628,000 equity and 34,641,925 outstanding shares). We believe investors abstain from purchases due to the geopolitical uncertainty, however, the portfolio seems to be generating steady returns even in worst case scenarios, which do not consider the upside of their main asset, Synergy Tower.

Ivaylo Valchev
Equity Analyst
Tel.: +359 2 937 9862
e-mail: valchev@sis.bg

Svetozar Abrashev
Senior Managing Partner
Tel.: +359 2 937 9869
e-mail: abrashev@sis.bg

Sofia International Securities
Sofia 1000,
140 G. S. Rakovski Str.
Tel.: + 359 2 937 98 65
e-mail: info@sis.bg

Disclaimers and Required Disclosures

Sofia International Securities AD is a member of Bulgarian Stock Exchange (BSE) and the Central Depository of Bulgaria. The company provides brokerage, investment banking, equity research, portfolio management and other services. Sofia International Securities AD is regulated by the Financial Supervision Commission of Bulgaria.

Analyst Certification
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Financial Interest
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Equity Valuation and Risks
The value estimate(s) stated in this report is (are) valid only in light of the valuation methods used to derive this estimation. The use of other or more comprehensive approaches could result in other estimates of value that could diverge substantially from the results presented herein. With regard to the above, when making our conclusions about the intrinsic value of the Company’s share capital, we have not considered or evaluated any possible tax, legal or other effects that might arise from engaging in transaction(s) with the shares of the company. The document should not be regarded by recipients as a substitute for the exercise of their own independent judgment and they should seek and obtain independent investment advice is necessary. Any facts and/or information stated in this document are subject to change without notice and Sofia International Securities is not under any obligation to update or keep current the information contained herein. Any opinions expressed herein are only correct as of the stated date. Past performance is not indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security.

General
The report is prepared solely for informational purposes and is not to be construed as a solicitation, recommendation, investment advice or an offer to buy or sell any securities or related financial instruments. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. The document is based on information obtained from sources believed to be reliable but Sofia International Securities do not warrant its accuracy, nor that it is a complete summary of the securities, markets or developments referred to in the report. This report does not intend to provide assurance on the value of the company’s shares or on the achievability of the projections, statements and assumptions used by us. Actual results achieved in future periods might differ substantially from the projected ones because events and circumstances frequently do not occur as expected. Sofia International Securities accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. Additional information will be made available upon request.