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instalments, equity settled share based payments, one off payments for managers who left the company in 2018, had Etalon's Ebitda slashed to RUB5.6bn in 2018 from RUB10.7bn seen in 2017. The miss on earnings and profit surprised the market, as both came in much below the Bloomberg consensus, BCS GM notes. However, a working capital release of RUB15bn had offset negative impact from lower operating profits, with the free cash flow remaining at "healthy" RUB14.4bn. Previously in 2019 the largest shareholder in Etalon, the Zarenkov family, said it will sell the majority of its 30.7% stake to Sistema in a two-step deal. In addition, according to the CFO of Etalon, despite zero earnings, 2018 dividends should be no less than 2017 dividends. BCS analysts expect dividends for 2018 at RUB3.55bn and overall see the news on Etalon as positive.
Etalon reported 1Q19 operating data and gave FY sales guidance on April 17, coming in strong on sales growth and the effect of consolidation. New contract sales in 1Q stood at 168th sqm and RUB19.9bn – up 25% and 47%, respectively. Etalon group standalone sales contracts were up in 27% in RUB- terms while Leader-Invest new sales increased 7%. Share of Lider-Invest in pro-forma contract sales stood at 13.5% Average price rose 23% y/y to RUB118,000/sqm, driven by both positive market environment and consolidation of Lider-Invest. Average price for Etalon standalone was RUB113,484/sqm (+12%), Leader-Invest – RUB169,368/sqm (+4%) Total cash collections increased 85% y/y to RUB23.6bn. As a result, Etalon’s net debt position fell to RUB4.5bn as of end-1Q from over RUB10bn after the acquisition of Lider-Invest in Feb 2019 Company gave FY contract sales guidance at 700,000 sqm (+11%), and RUB80bn (+16%), cash collections – RUB75bn (+19%). The growth of contract sales is mostly driven by consolidation of Lider-Invest, while for Etalon, standalone sales are guided at broadly flat levels
9.2.5 Retail corporate news
● Magnit
Russia's second-largest retailer Magnit reported a drop in net IFRS income of 52% year-on-year to RUB3.54bn ($54mn) in 1Q19, with Ebitda decline of 6% y/y and Ebitda margin decline by 110bp to 6%. Magnit reported weak 1Q19 IFRS and trading update, significantly missing BCSe and market expectations," BCS Global Markets commented on April 30. Company's revenue in the reporting quarter came in line with market expectations, rising 10% y/y, mainly driven by the store expansion program and growth in like-for- like (LFL) sales by 0.6% y/y in 1Q19. Higher costs drove Ebitda down and eroded the Ebitda margin. Higher interest expenses on increased debt have resulted in net profit missing expectations. BCS sees the results as negative and downgraded Magnit's shares to Sell at a target price of $13 per depository receipt in London and Hold at a target price of RUB4,000 per share in Moscow. Magnit's net debt increased by 32.5% q/q to RUB182.6bn as of 1Q19 compared, which was attributed to payments of dividends for 9 months 2018, completion of a buyback program, acceleration of redesign program and store openings. Magnit opened 875 stores in 1Q19, bringing total store base to 19,223 (+16% y/y) and increasing selling space by 15.2% y/y to 6.7mn square meters.
Russia's second-largest retailer Magnit plans to buy out RUB670mn ($100mn) worth of shares in the period from April 1 to April 5, the
115 RUSSIA Country Report May 2019 www.intellinews.com