Both cyclical and structural factors drove strong revenue growth in H119 (adjusted revenues up 32% y-o-y, above our expectations) which, combined with efficiency gains and economies of scale, led to EBITDA growth of 67% y-o-y and net income almost doubling. We forecast growth to continue, albeit at a more moderate pace, as we expect a stabilisation in rail container transportation prices. We have significantly increased our forecasts, which drives a 33% increase in our valuation to RUB9,460/share.
In H119, TransContainer experienced strong volume and price increases, which led to strong revenue and profit growth, ahead of our expectations. Adjusted revenues grew 32% y-o-y and net income almost doubled to RUB6.1bn. TransContainer benefited from strong cyclical growth in certain industries, such as the timber (+34% y-o-y transported volumes for TransContainer) and auto and components industries (+22% y-o-y), which represent a large portion of the volumes transported albeit a limited share of Russian GDP.
TransContainer has consistently beat our expectations over the last 12 months and we increase our forecasts again following the H119 results (revenue up 10% in FY19 and 16% in FY20, and net income up 29% in FY19 and 44% in FY20). We believe the structural trend towards containerisation should continue to support growth. However, our forecasts reflect some moderation in revenue growth rates vs H1 (+32% y-o-y) to reflect the risks to the Russian economy and the likely stabilisation in prices. We now expect 26% adjusted revenue growth in H219 and a 16% increase in FY20.
TransContainer’s share price has continued to rise since the Q1 results and has now doubled year to date. We believe the recent strong results and the increase in future earnings expectations were the key drivers. However, the share price rise was not accompanied by a large re-rating, with the stock still trading at c 9x 2019e P/E. Hence, despite the share price rise, the stock remains at a discount to peers in both emerging markets and developed markets, which is at least partly explained by the limited liquidity, in our view. Following our forecasts revisions, we have significantly increased our DCF-based valuation to RUB9,460 /share (from RUB7,100/share). If the auction to sell a 50% stake in TransContainer to a Russian investor on 27 November 2019 results in an increased free float for the stock, we would see room for a re-rating