Page 106 - RusRPTSept19

demand balances across Rusagro’s businesses and an impressive pricing environment. Our attention has now switched to the new season: risks of sugar oversupply underpins our cautious stance until the final balance emerges in September. Sizable destocking in sugar and grains underpinned impressive 1H19 FCF of RUB12bn that brought deleveraging in-line with the company’s guidance (RUB44bn net debt as of June vs. RUB54bn as of YE18). We maintain our financial forecasts and 12-month TP of $14.50, which implies a 34% ETR: Buy reiterated. 2Q19 IFRS – matching forecasts. Rusagro had previously reported unconsolidated sales that surged 2.4x y/y on the rapid destocking in sugar (volumes up 2.2x y/y) and strong pricing environment in grains (up 35-70% y/y). Profitability remained comparable q/q, at a 11% EBITDA margin, with impressive performance in farming (35%) and meat (29%) being offset by soft results in sugar (11%) and vegetable oil (1%). Sugar demonstrated the first signs of the market being concerned with oversupply in the upcoming season, showing a price decline of 17% q/q (flat y/y), while oil segment has not yet consolidated the financial performance of the SolPro assets (it is to happen from July 2019). The 1H19 dividend recommendation is $0.19 with 2% interim yield and a record day on September 13
Rusagro has announced the acquisition of a 22.5% stake in Agro- Belogorie, Russia’s third largest pork breeder. Agro-Belogorie’s capacity in meat is comparable to that of Rusagro’s. For 2019, we estimate the total output of the two at 0.5mnt, which would make the combined entity the country’s leading pork production unit, with a market share of 13%. We see the acquisition as having been driven by Rusagro’s strong focus on volume growth, ongoing sector consolidation (share of top-ten at 50%), and the target’s leverage. Rusagro is yet to disclose the terms of the deal, but we would not anticipate the company’s leverage going above the YE18 figure (RUB 54bn net debt; 3.3x net debt/EBITDA). Meanwhile, Rusagro is gaining a favourable position to further increase its stake in one of the country’s most modern domestic pork producers. Rusagro’s focus remains on rapid volume growth and consolidation of each sector in which it is represented, mostly targeting leadership (it is currently top-three in sugar, pork, oil crushing, and land bank). Agro-Belogorie operates modern farms in geography already covered by Rusagro and two companies could find a number of synergies in operating costs, procurement, meat processing, and sales.
9.2.7 TMT corporate news
X5 Retail Group and Yandex.Market are to partner to build a delivery infrastructure at outlets. The plan is for 1,000 pickup points at the cash desks and lockers of shops. E-commerce is a rapidly evolving channel in Russia and our forecast is for turnover to increase at a CAGR of 16% in 2019- 23F so that it accounts for 6% of retail turnover vs. current 4%. Offline retailers offer vast infrastructure that can fit well with the ongoing disruption, playing a vital role in the delivery stage. X5 Retail Group is making the greatest effort in this area and has established several notable partnerships, including with Ozon, Pickpoint and Sovcombank for a total of 10,150 lockers and pick-up points by 2025. In addition to its growing presence and participation in this emerging channel, we see X5 benefiting from incremental traffic to stores and the provision of a more uniform service to clients, as well as potential rental and logistics services income. The alliances among leading IT players, large credit institutions and global retailers have started to play a more notable role in the sector. The online marketplace of Yandex Market – Beru already has 12,000 pick-up points and since April has been developing its own network of
106 RUSSIA Country Report September 2019 www.intellinews.com