Page 16 - RusRPTFeb21

decelerate in 2021, which should be somewhat mitigated by faster space expansion. We also expect more pressure on profitability due to (1) lower LfL and sales density growth; (2) a gradual step-up in promotions; and (3) faster cost inflation (our macro team is looking for an average CPI of 4.2% y/y in 2021 vs. 3.4% in 2020). As a result, we forecast a y/y contraction in the EBITDA margin for X5 and a flat margin for Magnit (as market pressures should be negated by continued business improvements, we think). We also expect weaker FCF generation this year due to increased capex requirements for both chains.
X5: Our preferred food retail exposure for 2021. We update our forecasts for X5, and we expect the retailer to show revenue growth of 10.6% y/y with an EBITDA margin of 7.2% (IAS 17). The increased capex requirements this year (c. RUB85bn vs. RUB78bn in 2020) will keep FCF broadly in line with 2020 (c. RUB43bn). However, the robust balance sheet (with leverage well below the company’s internal ND/EBITDA threshold of 1.8x) will allow X5 to increase dividends y/y to our forecast of RUB55bn for FY21 (c. RUB202/GDR for a yield of 7.8%). Going forward, FCF should continue to rise, with dividends reaching a double-digit yield by 2022-2023. Our new TP is $45/GDR, which should bring a total return of c. 31% over the next 12 months when coupled with our 2021 dividend forecast. We reiterate our BUY rating on the stock.
Magnit: 2020 turnaround fairly rewarded, although any further upside or scope for earnings surprises look limited. Last year was the best year for Magnit since Sergey Galitsky sold his 29% stake to VTB in February 2018. We see further scope for the company to excel, although the pace of improvements will slow down. We forecast revenue growth of 9.0% y/y driven mostly by the more active store rollout (resulting in a 7.9% expansion in selling space), with the EBITDA margin remaining flat y/y at 7.1% (IAS 17). Accelerated openings suggest a c. 50% y/y increase in capex to around RUB61bn, on our estimates. Coupled with the diminishing positive effect from the reversal in working capital this year (after a positive contribution of RUB12bn in 2020, on our estimate), this should reduce Magnit’s FCF from c. RUB59bn in 2020 to RUB37bn in 2021. This should also decrease dividends from c. RUB50bn for FY20 (RUB491/share, suggesting yields of 8.0% for GDRs and 9.4% for local shares) to c. RUB35bn for FY21 (RUB342/share, suggesting yields of 5.6% for GDRs and 6.6% for local shares), on our estimates. We keep our TP at $17/GDR and set it at RUB5,830/local share. We downgrade our rating to a HOLD for GDRs but keep a BUY for local shares.
2.5 ​ ​Russia’s greenlights first carbon trading scheme in Sakhalin
Deputy Prime Minister Victoria Abramchenko approved the roadmap for Russia’s first carbon trading pilot in Russia on 19 January.
The project is to take place in the Far Eastern island of Sakhalin, and could lead to the region becoming carbon neutral by 2025, according to the minister.
16 ​RUSSIA Country Report​ February 2021 ​ ​www.intellinews.com