Today, we present you with further DuPont decomposition of selected Croatian Blue Chips by looking into financial leverage and comparing it with their peers.
Yesterday, we looked at the first component of DuPont 5-step decomposition of ROE – Operating Margin. You can read about it here. Today, we present you with further DuPont decomposition of selected Croatian Blue Chips. Today we will look into financial leverage.
Financial leverage divides a company’s total assets with the company’s equity, giving us information on how leveraged the company is with debt. Financial leverage can be useful as it emphasizes the financial stability of a company. Financial leverage equal to 1 would indicate the company has no debt – that company financed its total assets with equity.
The higher the financial leverage goes, the more leveraged the company is. High leverage can be a dangerous threat to a company during a recession, as the company may not be able to pay off its debt. However, the company should use debt to finance the growth and operations of the company, as the use of leverage amplifies the magnitude of operations. If used carefully, financial leverage can make “wonders”, as the famous Warren Buffet likes to emphasize.
Financial leverage – Croatian Blue Chips [FY 2023]
Source: Bloomberg, InterCapital Research
We can clearly see the trend of lower financial leverage of Croatian blue-chips when compared with its regional comparable peer group. Only Atlantic Grupa has the same financial structure in equity and liabilities, as their peer group. The highest deviation from its peer group is reported for Končar. Končar has a financial leverage of 1.9x, while its peer comparables have much higher leverage to boost their operations, with a median financial leverage amounting to 3x. Further, strong deviation from its peers can be seen with HT. HT has a financial leverage of 1.2x, compared to a 2.1x median with taken peer group. This difference can be attributed to the large cash position of HT. The roots of this correlation between HT’s cash position and lower leverage lies within industry norms and structure. This industry is highly capital intensive, meaning a lot of CAPEX is necessary in order to operate within the industry. Consequentially, if a company does not have a large equity position, it has to finance – via debt. In this case, debt enables a company to even operate and grow further. As HT has mentioned a large cash position, it doesn’t have to finance via debt, thus having much lower financial leverage.
Recently, One United Properties concluded a memorandum of understanding for the acquisition of 21 hectares plot of land, which marks the Company’s entry into a new subsegment: affordable premium housing.
One United Properties announced recently that it has signed a memorandum of understanding with CPI Property Group for the acquisition of a 21 hectares plot of land located within minutes of driving to Tineretului and Carol parks and within walking distance to Eroii Revolutiei subway station.
According to ONE, this initiative marks the Company’s entry into a new subsegment: affordable premium housing. The new development targets approximately 5,000 units, master-planned as a small, self-sustainable neighborhood. It will be aimed at the upper tier of Bucharest’s residential mass markets, with the development combining affordability and quality, offering high-quality living conditions and a distinctive choice within the city’s housing landscape.
ONE further notes that the development will include a park, plenty of green spaces, educational facilities, a fitness center with a pool, markets, retail facilities with food operators, a community health center, as well as walking and cycling paths. Despite targeting the mass market, this development will maintain the signature design, quality finishings, and community that ONE is known for. The first phase of the project is expected to be completed in 2028.
Like ONE’s other developments, such as One Floreasca City, One Cotroceni Park, and One Herastrau Towers, this new development will become an example of urban regeneration, bringing back to life an area located in the center of Bucharest that has been abandoned for many years, raising once again the bar for the future development of the city.
Lastly, the emphasis on premium yet affordable housing is in line with ONE’s strategy for sustainable growth, which goes beyond just building homes to create vibrant communities, thus making a lasting impact on Bucharest’s urban development. This effort reflects the Company’s adaptation to the changing market needs, driven by increasing urbanization and the rise of dual-income families in Romania that value convenience and access to city amenities. As economies expand and personal incomes rise, an increasing number of customers are venturing into the mid-market, seeking properties that blend quality with affordability. This trend is leading to a growing preference for purchasing premium products at a reasonable price.