Page 156 - RusRPTSept21

During the conference call, the management commented that July had been a difficult month for trading given new Covid restrictions and hot weather, but August was shaping up to be strong thanks to state support measures (the government will be paying R10k to families for every child aged 6-18 between August and November) and sales in the back-to-school category. It expects double-digit top-line growth in 3Q21. Given that additional promotional and marketing expenses may be required and more stores will be opened in 2H21, it reiterated its full-year EBITDA margin guidance of around 10% (IAS 17) and capex guidance of R5.5bn.
X5 Retail Group reported robust 2Q21 IFRS results, with upbeat profitability trends.
The gross margin was stable q/q and y/y at 25.3% and close to the highest level in the last five years. The increasing operating leverage was able to slow the SG&As, and the EBITDA margin stood at 8.1%, a strong result that matched our and the consensus estimates, but featured a 30bp y/y slide from the elevated base. During the conference call, the company mentioned 3Q21 growth of 10.5% y/y so far, which is in line with the previous period. The full-year profitability guidance is now at least a 7.3% EBITDA margin, which would be flat y/y and imply moderate upside risks to our model (7.0% in 2021F), subject to the 2H21 trading environment. X5’s GDRs have lost 9% YTD and now trade on 2021F EV/EBITDA of 5.9x and a 12-mo dividend yield of 8%, which we think does not fairly reflect the company’s decent operating stance and rapid online roll-out.
2Q21 IFRS. The company had already released its 2Q21 trading results, with revenue growth of 10.7% y/y and an easing comparison base. The gross margin provided the key strength: it stood at 25.3% y/y, with steady improvements in the commercial margin on a stable level of promos (35% in the proximity format). Operating leverage was decent and allowed SG&A costs to add a modest 40bp y/y to 13.1% of sales. Thus, the EBITDA margin reached 8.1%, generally in line with us and consensus. Net income came flat y/y at RUB16bn and 3-4% ahead of the consensus and our estimates, with the net margin of 3.0% being broadly comparable y/y. In 1H21, net operating cash flow gained 7% y/y to RUB61bn while RUB43bn was employed in investment activities. Net debt remained comparable YTD at RUB253bn, for net debt/EBITDA of the 1.7x.
156 RUSSIA Country Report September 2021 www.intellinews.com