X5 Retail Group - Waiting for a Pickup in the Regions
The boost from renovations has already evaporated, so further top-line and margin improvement will require a pickup in sales densities outside of Moscow and St Petersburg ("the regions"). This may be challenging and involve higher volatility and margin pressure. We lower our margin forecasts, target price (to $47 per share) and recommendation (to HOLD). Should X5 find a way to boost revenues in the regions (traditionally Magnit's territory), this could mean another three years of outperformance. But this may take a couple of quarters to pull off, so for now, we remain neutral on the stock.
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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