Ozon - FMCG and New Sellers Drive GMV

We reiterate our HOLD rating on Ozon while raising our target price by 44% to R5,035 ($66.24) per share, which represents 14% upside to the NASDAQ-listed share price. Catalysts include the continued development of adjacent verticals, including fintech and food/FMCG e-commerce, as well as possible value-accretive acquisitions. > GMV to grow 96% this year. We expect GMV growth to be supported by additional investments aimed at attracting and retaining customers, a widening assortment amid growth in the share of the marketplace (we expect it to account for 57% of total GMV including services this year), further adoption of e-commerce in Russia's regions, and the development of adjacent verticals, including fintech services and FMCG e-commerce. Ozon decreased its take rates from February, 2021, which we think should allow it to accelerate the recruitment of sellers onto the platform. This move was mirrored by other key multi-category players, including Yandex.Market and Wildberries. We have cut our forecast for Ozon's 3P take rate to 13.5% in 2021 and to 14.5% in 2022 from 17.9% and 17.8%, respectively.> Focus on Ozon Express and FMCG e-commerce. Ozon offers one-hour delivery in Moscow, where it has nine dark stores, and aims to expand into other regions in 2Q21. The number of SKUs is about 24,000, with not only typical FMCG items but also electronics and some others. We see Ozon Express and the FMCG/food category overall as an important driver of higher order frequency. We believe this category is a "traffic builder" in e-commerce and think that Ozon might diligently keep profitability of this category below average, as the other "profit builders" categories would compensate for the difference given that they benefit from a higher frequency of orders and stickiness triggered by the FMCG/food categories. > Capex acceleration. We see capex rising to R24 bln in 2021, for 6% of GMV (up from 3% of GMV last year), as the company intends to scale up its fulfillment capabilities to stay ahead of the growing demand (i.e. front running the 2022 growth) and to invest in Ozon Express. We thus expect FCF to be negative this year at R25.5 bln and break even in 2023. We expect OCF in 2021 of R2.4 bln, 0.6% of GMV, down from 3.3% in 2020 due to lower take rates and accelerated investment in customer attraction and retention, as well as in the FMCG/food and apparel category.> Valuation. We reiterate our HOLD rating while raising our target price by 44% to R5,035 per share ($66.24 at 76 USD/RUB), based on a target 2022E EV/GMV multiple of 1.5, where we see Ozon's fair value over a 12-month horizon. We upgraded our 2021E GMV expectations by 15% and by 18% for 2022E, which, however, led to a deeper hit on profitability, as would be expected. Ozon is trading at a 2022E EV/GMV of 1.4, which implies a premium of around 14% to Allegro and 203% to B2W. Catalysts to watch include potential value-accretive acquisitions and the expansion of new verticals. Key risks include potential difficulty executing the organic growth strategy, increased competition, cybersecurity issues, share overhang pressure (post IPO lock up expires May 22), the economic slowdown and possible adverse changes in regulation.