Page 109 - RusRPTNov18

X5 Retail Group has released robust the third quarter of 2018 financial results, featuring EBITDA and net income 1-6% ahead of our and the consensus forecasts. The EBITDA margin improved 37bp y/y as the increasing share of SG&A costs (up 50bp y/y to 12.8%) was offset by the gross margin build-up (90bp y/y to 24.6%). The company booked a minor RUB 97mn under the LTI, as the company has released the LTI provisions for participants who have left the company. Net debt/EBITDA went below 2x as of September, easing our concerns over next year’s dividend payout. The reported profitability strengthens management’s target of the annual EBITDA margin being north of 7%, and we reiterate our financial forecasts and 12-month Target Price of $39. The prime focus now switches to the strategy day in London tomorrow, at which we anticipate further details about next year’s rollout and capex programmes, the new revenue growth pillars, and the changing retail landscape, with an emphasis on digital instruments and e-commerce.
X5 Retail Group has reported a solid the third quarter of 2018 trading update , showing a 17.6% y/y increase of sales on the back of a 0.5% y/y LFL uptick and a 19.6% y/y selling space expansion. Store openings stood at 507 on a net basis, and as usual most were in the key convenience format. X5 is on track to meet our annual forecast of an 18.6% y/y increase of openings (2,500 on a gross basis). We believe the trading update posed no material downside risks to our the third quarter of 2018 EBITDA margin expectation of 7%. We reiterate our Buy recommendation, with a 12-month Target Price of $39 and ETR of 83%. The next data point for X5 is 24 October, when the company is to report its IFRS accounts; it plans to host an Investor Day on 25 October in London. Key trends in the third quarter of 2018 trading numbers. the third quarter of 2018 y/y sales growth of 17.6% is solid, in our view, but still showed a slight deceleration from the second quarter of 2018. The slowdown happened despite the fact food inflation jumped to 1.6% y/y in the third quarter of 2018 from 0.4% in the second quarter of 2018. The LFL basket improved from a -0.9% drop in the second quarter of 2018 to -0.4% in the third quarter of 2018, but traffic decelerated from 1.7% to 0.9% due to a less aggressive promotional activity. July was the strongest month in the third quarter of 2018, with 19.1% y/y sales growth, which slowed to 15.4% y/y in September. Net store openings for the third quarter of 2018 were 507 stores, broadly comparable to the previous two quarters. For 9mo18, store openings reached 1,564 stores. We believe that the company is on track to meet both our annual sales forecast of 18.6% and management’s guidance of 2,500 stores on a gross basis.
Russia's largest electronics retailer M.Video of billionaire's Mikhail Gutseriev's Safmar Group will develop a mini format m_mobile, which is in test mode at the moment, Vedomosti d aily reported citing the representatives of the retailer. m_mobile focuses on digital products, such as smartphones and accessories, and has an average shop floor surface of 200-300 square meters as opposed to the 1,000-2,000 sqm of the usual M.Video stores that also sell TV sets, household appliances, and other large consumer electronic products. m_mobile will be developed on the premises of ADG Group, which refurbished 39 Soviet cinemas in Moscow into commercial centres. Currently M.Video and ADG agreed on seven new locations to be opened in 2019-2020. m_mobile could also potentially serve as pick-up points for M.Video online sales. M.Video recently merged with Eldorado electronics retailer. Companies controlled by Russian Safmar Group of billionaire Mikhail
109 RUSSIA Country Report November 2018 www.intellinews.com