Page 129 - RusRPTDec20

assortment had expanded to 55,000 SKUs from 5,000 SKUs as of
4Q19.
● Capital allocation. Management does not see any issues with dividend
payments given the company’s strong financial position. Detsky Mir’s leverage stands at an ND/EBITDA of 1.2x as of 9M20, which is substantially below the company’s target of “below 2.0x”. This may potentially justify a share buyback if market developments jeopardize the company’s dividends, although management does not see such developments as imminent threats.
● BoD composition. The company’s BoD has begun to search for candidates to fill its openings for four new independent directors, including a new BoD chairman. The company will focus on candidates with deep expertise in e-commerce and digital transformation. The new candidates are expected to be presented to shareholders by YE20.
9.2.6​ Agriculture corporate news
RusAgro's 3Q20 financial results are the first indication of improving fundamentals in the new farming year​. Revenues were up 11% y/y, while EBITDA doubled y/y and the EBITDA margin improved 11pp, matching our aggressive forecasts. The company benefited from the upbeat pricing environment (up 13-33% y/y), as supply-demand balances improve, exports are rapid, and the local currency is weaker. The release implies upside risks to our model, and we anticipate comments on the seasonally strong 4Q20 and the company’s trading approach in the farming division during the conference call today at 16.00, Moscow time. Rusagro is up 7% YTD and now demands 2021F EV/EBITDA of 6.5x, which we see as appealing, but it is likely to be pressured until early 2021 by the ongoing Federal Anti-Monopoly Service investigation into a sugar market cartel (for more details, see our Russian Agriculture - Sugar market cartel investigation , of 13 November).
· The company had already released its 3Q20 operating results, that saw upbeat pricing for key soft commodities (up 13-33% y/y). Lower sugar sales offset the trend and consolidated revenues added 11% y/y to RUB37.5bn.
· The vegetable oil sector was the prime driver behind the numbers, contributing 47% and 35% to total revenues and EBITDA, respectively. Its EBITDA margin was 17%, implying a record high in the last five years, and came notably above our mid-cycle assumption for high-single digit profitability.
· The release only partially captured the recovery in the sugar division. For Rusagro, prices were 14% y/y higher, while volumes lost 25% y/y towards the end of last season in August. IKAR
129 ​RUSSIA Country Report​ December 2020 www.intellinews.com