Page 172 - RusRPTMay21

shrinkages and transportation on greater utilisation of warehouse space while the store count was growing.
Last year’s stockpiling also reversed working capital (RUB5bn investment in 1Q21 vs. the RUB15bn gain last year) while net debt/EBITDA remained flat y/y at 1.6x. X5’s GDRs are down 13% YTD and demand 2021F EV/EBITDA of 5.7x, with a 12-mo dividend yield of 7.8%, which we see as appealing.
Resilient profitability. In order to support profitability at a time of slowing sales growth (8% vs. 13% in 4Q20), the company lowered price investments, allowing the gross margin to gain 90-140bp q/q and y/y to 25.2%, at the upper boundary of the last ten years (22.8-25.3%). Operating leverage was hit across all SG&A lines and as a% of sales added 110bp y/y to 14.2%. Thus, the EBITDA margin was flat y/y but up 70bp q/q at 6.9%, implying a robust level and tight cost control for the volatile quarter.
The company noted a 63bp y/y pick-up in the proximity format profitability (no absolute figure given) and a negative impact of some RUB1bn from the digital business (19bp of sales). Net income was RUB9.2bn in 1Q21 vs. the RUB8.4bn anticipated by us and RUB8.8bn by consensus (higher by 4-9%).
Cash flow management. The switched base impacted working capital, that saw de-stocking last year (a RUB15bn gain in 1Q20) but a reversal to the normalised trend this year (RUB5bn investment). This was a prime driver for the net operating cash flow decline of 39% y/y, from RUB40bn to RUB24bn.
Capex remained comparable y/y, at RUB18.7bn. As a result, net debt increased 26% y/y to RUB235bn while leverage was comparable at 1.6x net debt/EBITDA. In our model, we factor the annual dividend up moderately from a base case assumption of RUB50bn in 2021F for a five-year average yield of 8.3%, while leverage is capped below 1.5x
X5 Retail Group reported 1Q21 Trading update. Retail sales rose 8% y and LfL sales rose 2.1% y/y. Food inflation increased to 7.4% from 5.8% y/y in 4Q20, peaking at 7.7% y/y in February. Consumer demand continued to recover and reached -1.1% y/y in 1Q21 vs -3.8% y/y in 4Q20.
· Net retail sales growth decelerated to 8% y/y in 1Q21 vs +12.7% y/y in 4Q20, due to 9.9% y/y growth at Pyaterochka (vs +15.7% y/y in 4Q20), +10.6% y/y at Perekrestok (vs +17.1% y/y in 4Q20) and a -45% y/y decline at Karusel (vs -47% in 4Q20) driven by downsizing as part of the format's transformation program
· Revenue from digital businesses surged 363.5% y/y to Rb10.5bn
172 RUSSIA Country Report May 2021 www.intellinews.com