Magnit - Tracking the Turnaround
Magnit is planning to start implementing long-awaited assortment changes by end-2Q19. In this note, we discuss how to gauge when those have begun to succeed. In contrast to X5, which faced ticket issues in 2013, Magnit has seen traffic outflow. So when the assortment improves, it could take longer to get customers back. But once this initiative does pay off, we think it could add $4-5 to the GDR fair value. We will be tracking consumers' perception of the chain in our surveys to determine any early signs of progress. We keep our target price of $17.00 per GDR and reiterate our HOLD recommendation. We think 2Q19 should see improved figures mainly thanks to the low base, but there are risks of elevated shrinkage.Magnit is a holding company. Through its subsidiaries, Co. operates in the retail and distribution of consumer goods under the Magnit name. Co.'s retail operations are operated through convenience stores, cosmetic stores, hypermarkets and other. Most of its stores are located in the Southern, Central and Volga regions. Co. also operates stores in the North-Western, North-Caucasian, Urals and Siberian regions. As of Dec. 31 2014, Co.'s stores chain consisted of 9,711 stores: 8,344 convenience stores, 190 hypermarkets, 97 Magnit Family stores and 1,080 drogerie stores in 2,108 cities and towns throughout the Russian Federation.
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