Russian Food Retail: Not relative winners, just winners (X5 stays BUY; Magnit's GDRs and locals upgraded to BUY)
We maintain our preference for X5 (BUY, price target (PT) USD 46.3) over Magnit (upgraded to BUYs, PTs USD 16.7/RUB 5,861); however, at this juncture, we like both names. We see them as the clear winners of the global pandemic, with customer trends strengthening their lfls and easing the margin pressure. In the mid-to-long term, the story remains fairly intact, in our view: X5 not only holds the market leader position, but also outpaces the competition in terms of EBITDA growth potential and digital transformation. However, in a short time horizon, we expect Magnit to enjoy the equalising effect of the lockdowns. Over 2020-22E, we expect an EBITDA CAGR of 11% for X5 and 8% for Magnit. Across this, the stocks are trading at consensus 1YF EV/EBITDAs of 5.5x and 6.3x, respectively, at double-digit discounts vs. their regional peers, which we see as unjustified.
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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