Page 124 - RusRPTNov19

room for dividends. Analyst have the stock Under Review as there is still poor visibility over the medium-term scale of the business, the acceleration in discounters and cash flow management.
9.2.6 Agriculture corporate news
RusAgro has released mixed 3Q19 operating results, reflecting surging volumes but a soft pricing environment . Total revenue increased 1.8x y/y to RUB37bn, reflecting the consolidation of sales from the company’s recently acquired assets in the oil and fats division, as well as destocking in sugar prior to the launch of the new season. The contribution of the lower-margin vegetable oil segment doubled to 42% of the total. Prices for core commodities declined 5-20% y/y due to the high base, the y/y harvest recovery, and the potential oversupply of sugar. The latter is a prime concern for the upcoming marketing year, and were the market to see oversupply upon the completion of beet harvest in November, our forecasts could see downside risks. Our 12-month Target Price of $14.50 offers an ETR of 45%, thus justifying a Buy recommendation; however, we believe the stock will require a clearer view on sugar supply-demand and progress over company’s strategic objectives on the Far East projects and exports. Total revenues surged 1.8x y/y to RUB37bn, although 70% of the performance was driven by the oil and fats division, which benefited from the consolidation of volumes from recently acquired assets. Sugar volumes accelerated to 17% y/y growth, reaching 274,300t, due destocking prior to the new season, launched in September. Prices were under pressure for all Rusagro’s segments as the supply-demand balances were looser for the new season. We estimate beet sugar production up to 6.5mnt vs. consumption of 6.1mnt, adding negatively to the elevated existing stocks. The grain harvest recovers 8% y/y in Russia to 122mnt, while exports are 7% y/y lower in current season due to declining FOB quotes. Rusagro saw a 6% y/y decline in sugar prices in 3Q19 while beet lost 22% y/y on the strong production. We believe the latter is better reflective of market expectations for the new season as the harvest kicked off in late August. Farming and meat products saw a blended 10% y/y and a 15% y/y correction in prices, seeing a strong comparison base, and the aforementioned pressure on balances. The oil & fats division demonstrated the most resilient trends, with mid-single digit price corrections due to the stronger focus on ultimate consumer products.
9.2.7 TMT corporate news
Russia’s largest bank and tech giant wannabe, Sberbank has announced that it has signed a non-binding agreement to acquire from Gazprombank a 35% stake in MF Tekhnologii, the owner of a 58.3% voting interest in Mail.ru. If the deal is complete then Sberbank would take control of 20.6% of voting rights and 1.8% of the economic interest in Mail.ru. Sberbank was intending to tie up with Russia’s tech leader Yandex , but the deal quickly fell to pieces and ended in divorce after only a year due to reported clashes between the management of the two organisations. Russian newswire Interfax reports the stake is valued at $170mn (RUB11bn). Gazprombank acquired its stake at $157.5mn, so the reported price is 8% higher, and double the implied market price. The deal follows the earlier JV between Sberbank and Mail.ru in O2O services, and in the context of the failed discussions between Sberbank and Yandex, earmarks Mail.ru as Sberbank’s partner of choice, with the bank likely to participate in Mail.ru’s business more actively than Gazprombank has done.
124 RUSSIA Country Report November 2019 www.intellinews.o