X5 Retail Group - EBITDA in 4Q17 as Expected; High Dividend, Upgrade to BUY
X5 Retail Group reported 4Q17 IFRS EBITDA of R23.8 bln, in line with our forecast. The gross margin was stronger than expected, though the spike in opex exceeded our expectations (due to massive space additions in Moscow and the surrounding region). The company announced a dividend of R79.5 per GDR, aims to add 2,500 stores in 2018 and targets an EBITDA margin above 7%. We reduce our target price from $47.00 to $42.50 per GDR, but upgrade our recommendation on the stock to BUY. At a 2018E EV/EBITDA of 6.3, it is trading at a 53% discount to EM peers, despite offering better growth prospects and a higher ROI.
X5 Retail Group is a holding company. The main activity of Co. is the development and operation of grocery retail stores. Co. operates a retail chain of soft-discount, supermarket and hypermarket stores under the brand names "Pyaterochka", "Perekrestok" and "Karusel" in major population centres in Russia, including but not limited to Moscow, St. Petersburg, Nizhniy Novgorod, Rostov-on-Don, Kazan, Samara, Lipetsk, Chelyabinsk, Perm, Ekaterinburg and Kiev, Ukraine.
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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