Russian Food Retail: Too early to switch horses (X5 stays BUY; Magnit (locals and GDRs) stay HOLD)
We maintain our preference for X5 (BUY, price target (PT) USD 39.6) over Magnit (HOLD, PT USD 13.0 /RUB 3,325). Despite some green shoots in Russia’s economy, and the restructuring efforts of Magnit’s management, the story remains fairly intact: X5 not only remains the market leader, but also outpaces the competition, expanding its market shares in a near-zero lfl world. We also see X5 as ahead of the curve in terms of digital transformation. Over 2019-21E, we expect an EBITDA CAGR of 12-13% for both X5 and Magnit. The stocks are trading at our 2020E EV/EBITDAs of 5.4x and 4.6x, respectively, at double-digit discounts to their regional peers, which we see as unjustified, either by a slower real growth profile, or interest rates. We would reconsider our preference once Magnit shows a recovery in traffic and gross margin.
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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