Detsky Mir - Closing Trade Idea

We are closing our tactical short-term trade idea after the stock advanced on the disclosure of improved trading results. Yesterday, the company announced that sales in April declined by just 20%, compared to the 33% decline for the first 27 days of April announced previously. Moreover, despite 92 out of 846 stores (11%) still being closed, sales growth turned positive for the first 18 days of May. Thus, in just two days since we issued the trade idea, the stock advanced 9.9% in ruble terms to R95.10 per share, outperforming the RTS Index by 5.7 pp. Even as we close our short-term idea, we like the company's fundamentals and reiterate our long-term BUY recommendation on the stock.INVESTMENT CASEDetsky Mir is Russia's largest children's goods retailer. It posted superior LFL sales growth of 6.7% last year (versus growth of just 0.7% for the sector) and has sustainable double-digit margins and high ROIC. However, sales plummeted 20% y-o-y in April due to the deteriorating macro environment and the start of the nationwide lockdown. The entire non-food retail sector is under considerable pressure, but we think the children's goods market will prove more resilient and recover faster than other subsectors. The company can also adjust its opex more quickly to the lower-revenue environment. The stock is trading close to a record-low EV/EBITDA of 5.2 for 2021E (under IAS 17). Another trigger for the stock to rise may be an announcement of plans for the company's small-format stores, pet stores and online marketplace at the end of the quarter. The company has postponed the dividend payment for 4Q19 (the BoD should make a final decision once the lockdown is lifted). A decision to pay out the postponed dividends would also support the stock.