Page 104 - RusRPTSept19

Markets sees the 1H19 results as neutral with numbers looking "in line on revenue side and show slight miss on operating profit & adjusted EBITDA." The analysts welcomed solid trends in operating cash flows with RUB6bn working capital release boosting the cashflow to RUB6.9bn and maintained a Buy recommendation on LSR shares with target price of $2.6 per LSR's net debt declined by RUB8bn to RUB21.6bn. However, BCS GM warns that "as escrow sales pick up, the trends of debt burden decline and working capital release shell reverse," referring to new regulation that prohibits financing housing construction through pre-sales and obliges the use of escrow accounts.
9.2.5 Retail corporate news
Russian toy store Detsky Mir released 1Q19 IFRS results on April 30 that positively surprised on the EBITDA line, but disappointed on net income. The company had previously reported 16% y/y sales growth, with 6.6% y/y increase in LFL and 12.1% y/y expansion of selling space. Nevertheless, the results were robust despite the slowdown. VTBC has an unchanged 12-month Target Price of RUB120 implies a 46% ETR: Buy reiterated. The company’s EBITDA margin, adjusted for LTI was reported at 6.7%, 70bp higher y/y. The key reason for the improvement came on SG&A (including rent, excluding D&A and LTI expenses), which dropped by 130bp y/y to 22.2% of revenue. The prime component was rent (down 30bp y/y) as the company was able to receive discounts for 10% of its rental contracts and resign 70% of its contracts on the previous terms. Meantime, salaries fell 30bp y/y due to personnel per store reduction (17 vs. 18) and the implementation of staffing automation incentives. At the same time, the gross margin decreased by 60bp, which analysts believe was due to a slight increase in shrinkage expenses (which was most likely due to initiatives on wage line) and more aggressive pricing during the quarter helping sales growth. VTBC says that investors have to wait until the next two quarters of results before drawing any conclusions about the sustainability of the SG&A improvements. Adjusted EBITDA increased 30% y/y to RUB1.9bn, but its strength did not translate into net income due to FX losses of RUB182mn (mainly attributable to forward contracts, which were affected by RUB appreciation) that was higher than in the previous quarters and accounted for 0.7% of sales. Therefore, net income was down 13% y/y.
Russia's largest retailer and industry innovation front runner X5 Retail Group continued to post solid financial results with 2Q19 IFRS report showing 14.3% year-on-year rise in revenues to RUB437bn ($6.6bn), and gross margin of 24.8%. X5's Ebitda of RUB36bn and 8.3% margin beat consensus expectations by 6%. Net income of the retailer posted RUB13.5bn in 2Q19, and beat the expectations by 18% on lower depreciation and interest expenses. BCS Global Markets attributed improved profitability in the reporting quarter to "improved gross profit, efficient cost control, and lower finance expenses." X5's net cash from operating activities was up more than 2 times y/y to RUB31.8bn, while debt stood at RUB212bn and net debt/Ebitda was at 1.6x as of June. During the conference call, the management also announced that the new pricing system driven by big-data technology is already operating in 1,700 stores in and around Moscow, with the system to be rolled out across all stores in Moscow in 2019 and fully implemented across the chain next year. Sberbank CIB welcomed the results and reiterated the long-term BUY recommendation on the stock. The analysts believe that the future price investments should bring additional traffic in stores, while the big-data pricing system seems to be supporting the financials. X5 Group shares rallied over
104 RUSSIA Country Report September 2019 www.intellinews.com