Detsky Mir - 3Q19 IFRS: Lower Prices, Higher Returns
Detsky Mir published 3Q19 IFRS results yesterday. The heavy investments in prices to boost traffic resulted in the gross margin falling by 1.9 pp to 31.5% in 3Q19. However, this was mostly offset by improved operating efficiency, thus the EBITDA margin decreased by just 30 bps to 12.0%. In absolute terms, EBITDA increased by 16.8% to R4.1 bln, generally in line with our projections, but slightly below the consensus. We have incorporated into our model the operational and financial results as well as the updated guidance. Our new EBITDA forecasts are 2% above our previous estimates and are the highest out there. The stock offers an 11.7% yield for the dividends paid in 2020. We upgrade our target price to R135 per share and reiterate our BUY recommendation.Detskiy Mir PAO is a Russia-based company, which is primarily engaged in the children products retail sector. The Company offers a wide range of products, such as toys, clothing and footwear, baby goods, stationery, school and learning related products, creative kits, sport related products, food, car seats, furniture, among others. The Company's structure includes the chain of stores Detskiy Mir and the retail network ELC (Early Learning Center). The Company's Detskiy Mir chain comprises over 480 stores located on the territory of the Russian Federation and Kazakhstan, as well as more than 40 ECL stores. Detskiy Mir PAO is primarily active domestically and in the Commonwealth of Independent States (CIS) countries. In addition, the Company sells products online via its Website. The Company's major shareholder is AFK Sistema PAO.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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