Russian Food Retail: Zero lfl is the new reality (X5 and Lenta stay BUY; Magnit (local and GDR) stays HOLD)
We maintain our positive views on X5 (BUY, price target (PT) USD 27.7/GDR) and Lenta (BUY, PT USD 5.2/GDR), and our neutral view on Magnit (HOLD, PT USD 14.4/GDR and RUB 4,060/lcl). Russian food retailers have seen an average share price dive of 46% this year, dragged down by the margin-diluting acceleration of the cut-throat promo competition, on top of the general market weakness. As a result, all the three names in this report are trading at 2018E EV/EBITDAs below 6x, not only 50% below the average of their Polish peers, but also 40% below the Turkish names and two standard deviations (SDs) below their own long-term multiple averages. Even assuming that a zero lfl is the new reality and margins remain subdued, we expect 2017-20E EBITDA CAGRs (in RUB terms) ranging from 8% for Magnit to 12% for Lenta and X5.
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.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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