M.Video - GMV Targeted to Double in Five Years, with 100% Payouts of NI

Yesterday, M.Video released strong 4Q20 operating results, accompanied by a commitment to distributing at least 100% of net income as dividends. It also held a capital markets day event, from which we came away with a positive impression. The company aims to double its GMV in five years - which would be triple the market growth rate - and it presented a sensible strategy to deliver this growth. The plan suggests upside to our model, which we will update following the financial results. The stock offers a 10% dividend yield > Strong 4Q20 operating results. Consolidated revenues grew 19% y-o-y to R136 bln in 4Q20 (excluding VAT, calculated by dividing the reported figure by 1.2). Total online sales rose 101% y-o-y to R88.0 bln, reaching 64% of overall sales. Full-year online revenues came in at R250 bln (for a GMV of R300 bln). Excluding sales originating from consultants in stores, online revenues amounted to R43 bln in 4Q20 and R139 bln in 2020 (for a R167 bln GMV). This came amid just 1.4% selling space growth last year.> Ambitious five-year targets. GMV is seen doubling from R0.5 trln in 2020 to R1.0 trln in 2025 (with up to 5% coming from the 3P model), which would mean a 15% CAGR. This would require opening 500 stores and entering 100 cities. As half of the stores are to be in a small format (250 m2 Eldorados), this would only entail 5% space expansion annually. The EBITDA margin should stay at 5-7%, with capex not exceeding 2% of GMV (spent mostly on IT). This should allow M.Video to distribute 100% of its net income as dividends.> Good positioning in the market. The consumer electronics market is expected to grow at a just 5-6% CAGR, reaching R2.7 trln in 2025 (R3.1 trln including services). But most of the growth will come from the online channel and the premium segment, where M.Video is strong. The company should continue to dominate in the market and sees the share of marketplaces at 10% over the long term > ONE Retail is the key driver. The share of registered customers making purchases through the web/mobile platform is now 42%, and they generate a higher purchase frequency and larger tickets. As the company promotes and enhances ONE Retail, the ratio should grow to 84%. This should come alongside an increase in customers amid growing assortment and geographic expansion.> Sustainable competitive advantages versus marketplaces. With 1 mln m2 of warehouse space across Russia, the company is now able to deliver 85% of orders the next day, with logistics costs of R220 per order. In the medium term, it assumes 15-minute pickup availability for 50% of GMV. On top of that, M.Video offers personalized discounts and better service.> Upside to our numbers. Our model, which incorporates similar capex and higher space expansion assumptions, assumes an 11% revenue CAGR over 2020-25, and we have a 6.4% long-term EBITDA margin assumption. While the management's targets seem ambitious to us, we think the strategy makes sense and could be capable of delivering this growth. We intend to revise our forecasts after the financial results are published on March 4. On our conservative numbers, the stock trades at a 2021E EV/EBITDA multiple below 6 and offers a 10% dividend yield.