Page 109 - RUSRptSept18

though they may have a limited effect on the stock due to its poor liquidity," the bank commented. Aton Equity on August 28 noted that M.Video also indicated that it may pay out 50% of net income for 2018 in dividends as soon as in 2019 (approximately 5% dividend yield according to current Bloomberg consensus). Aton also stressed that the lack of stock liquidity may inhibit the strong results being reflected in the stock performance.
One of Russia's leading retailer Magnit said it will buy back 3.8% of its shares for up to RUB16.5bn ($243mn) over a 6-month period and direct the shares for a management incentive program. The buyback would remove 13.7% of company's freefloat in Moscow. Magnit is staging a comeback as Russia's biggest retailer, lagging behind X5 Group, and has recently revamped its management team , included hiring the former CEO of X5’s Pyaterochka supermarket chain , Olga Naumova, as Executive Director of Magnit. "Given that the buyback will be carried out over 6-month period this would imply rather limited impact on the market price from technical standpoint," BCS Global Markets commented on August 22. However, BCS analysts still believe that "the share component of the management incentive program should expectedly increase the motivation of the management to deliver strong results and increase the market capitalization of the company which should be welcomed by the market." Aton Equity views the buyback news as positive, noting that "the premium of 20% that the maximum purchasing price implies to the Monday session's closing price suggests that management and the board consider Magnit's stock undervalued at present."
Detsky Mir published its the first half of 2018 financials that were in-line with the company’s previously stated guidance: profits up in 2H18 and for EBITDA to grow 38% y/y to RUB 4.1bn. Amid decelerating revenue growth, to 14.3% y/y, from 24.8% y/y in 1H17, the EBITDA margin improved 150bp y/y to 8.6%. The key improvement was in rent expenses (down 100bp y/y as percentage of revenue, to 9.9%) as the company was able to improve terms across the majority of its lease contracts. Although the first half of 2018 is seasonally low for cash flow management, leverage remained at a manageable 1.6x net debt/EBITDA, and we anticipate the next BoD recommendation for 9mo18 dividends in November, while our 12-month forecast is a 10%yield. We reiterate our Buy recommendation, with a 12-month Target Price of RUB 130 and ETR of 62%.Strong profitability build up. Detsky has previously reported revenue trends that saw a growth deceleration to 14.3% y/y, from 24.8% y/y in 1H17, and 21.9% y/y for financial year 2017 . The decline of gross margin by 40bp y/y was fully offset by the improvement in SG&As and rent. The latter was a prime component and saw 100bp y/y optimisation, as the company was able to improve terms for the majority of its contracts in early 2018, representing one of the most desired tenants in the children’s goods category for shopping malls. Thus, the EBITDA margin improved 150bp y/y to 8.6% in the first half of 2018, while EBITDA growth of 38% y/y to RUB 4.1bn was fully in-line with the previously stated management target. Cash flow and debt. In the first half of 2018, Detsky invested RUB 733mn in net operating cash flow (RUB 3.4bn investment 1H17) and employed capex of RUB 686mn (RUB 506mn). Although the first half of 2018 is seasonally slow for cash generation, the leverage remained manageable at 1.6x net debt/EBITDA, and we anticipate a continuation of robust dividend payouts from the company – roughly matching the free cash flow generation in our model (RUB 5.5bn for 2018). Per our forecast, the company’s 12-month dividend yield is 10%. The stock lost 10% YTD, and now demands 2018F EV/EBITDA of 6.3x, which we consider appealing. For 2018-22F, our model returns sales CAGR of 12% and a blended dividend yield of 13%, one of the most attractive balances between the organic growth and dividends in our coverage. The conference call is scheduled for 16.00 Moscow time at +7495 646 93 15 (pin 22 20 27 94#). We intend to focus on the the second half of 2018 revenue trends, the competitive landscape, and management’s comments on its dividend recommendation, which we anticipate to come in November for 9mo18.
109 RUSSIA Country Report September 2018 www.intellinews.com