Page 110 - RusRPTNov18

Gutseriev combined in a mega-merger creating an unrivalled national retail champion as big as any company in the rest of Europe . Safmar also said it will acquire MediaMarktSaturn electronics retailer owned by the German economy .
German wholesaler Metro reported a decline in fourth quarter sales by 2.3% to $10.3bn , with the fall attributed to lower sales in its Russian business and the hypermarket format it is trying to sell. The Cash & Carry business in Russia was estimated at €4bn-7.5bn in 2014 when Metro had to call off its €1bn IPO , and has been in decline since. Together with French hypermarket major Auchan, this follows a general trend of local retailers catching up and pushing out foreign competitors, such as recent acquisition of German MediaMakrt by electronics retailer M.Video . Auchan continues to lose positions in Russia , once its second-largest market, as Dixie local chain now beats it in terms of turnover, Vedomosti d aily said on October 24 citing a market study by Infoline. Auchan is preceded by Dixie, Lenta, Magnit on the second place and market leader X5 Retail Group with Pyaterochka, Perekrestok, and Karusel formats.
Detsky Mir has published its the third quarter of 2018 operating results. Sales grew 14.9% y/y, accelerating from the second quarter of 2018 on the back of the base effect and the company preparing for the start of the school year in Russia. The company opened 16 outlets, bringing the total number of stores opened in 9mo18 to 44. The company also noted its plans to enter the pet products market (estimated by Rosstat at RUB 200bn in 2017,equivalent to 40% of the children's goods market), which we view as a niche sub-segment. Management also expects EBITDA to increase at least 32% y/y for 9mo18 (that implies EBITDA of RUB 8.4bn, with an 11% margin). We reiterate our 12-month Target Price of RUB 130, which implies a 53% ETR: Buy reiterated. In the third quarter of 2018, revenues grew 15.9% y/y to RUB 28.4bn, continuing the acceleration trend from the 14.6% y/y in the second quarter of 2018, amid the improving comparison base (20% y/y in 3Q17 vs. 21% y/y in 2Q17). LFL showed 3.7% y/y growth, because the company continues to attract new customers amid the weakening positions of its competitors (Detsky Mir’s market share in 2017 was 20%, while its closest rival had around 4%). In terms of organic openings, the company has delivered 44 stores since the start of the year, and we think it is likely to meet its annual guidance of 100 stores (it opened 65 stores in the fourth quarter of 2017 and we expect a similar trend in the fourth quarter of 2018).
Detsky Mir CEO Vladimir Chirakhov has given an interview to Vedomosti, with the key focus on new growth pillars . They include a increasing the Russian store count by 50%, more than tripling the store base in Kazakhstan, entering Belarus and launching the pet format. Detsky Mir remains one of the fastest growing chains in the Russian retail universe and we welcome the increased guidance on its expansion plans. As of September 2018, the chain in Russia covered 666 outlets, according to Vedomosti, and management anticipates 300 additional stores. We factor 922 outlets in 2022F and highlight the absence of a federal competitor as a strong tailwind. Given Kazakhstan’s macroeconomic situation and comparable shopping patterns, Detsky Mir is to accelerate its rollout and targets a store base of 75 outlets, implying a three-fold increase from current levels. Belarus is to become a new geography for the company, and successful trading there could mean the company considering entering Poland. The pets format in Russia is RUB 200bn, in comparison with RUB 500bn in children goods. The category offers comparable shopping patterns and demand resilience to Detsky’s core format,
110 RUSSIA Country Report November 2018 www.intellinews.com