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expansion to grab more market share to improving profitability and have even begun to close some of their more unprofitable stores. However, its hypermarket format remains promising, says Kolbina, with the prime focus being on a more extended offer beyond that of convenience stores, refurbishment, 2-3 store openings annually, and optimising selling space to 6,000-7,000sqm, 10% less than at present. The bigger format means discounters aim for more efficient operations with suppliers via a larger store base, and O’Key says it should have up to 30 new stores and breakeven by the end of this year. “Management guided for flat leverage at YE18 (3.1x net debt/EBITDA last year), with capex in 2019 comparable y/y (RUB 7bn), and also commented on tighter resources for dividend distribution. O’Key is down 40% in the last 12 months and now demands EV/EBITDA of 5.0x. Our 12- month Target Price of $2.10, which envisages the successful delivery of the aforementioned strategy, implies an ETR of 41%: Buy reiterated. We summarise management’s outlook below,” VTBC said in a note.
X5 Retail Group announced plans on February 19 to develop a parcel lockers network via a joint venture with Pickpoint, Russia's largest operator of parcel lockers and pick-up points. The ownership of the JV is to be 50/50, and its aim would be to install 1,500 parcel lockers throughout the year. X5 Retail Group already has over 1,700 lockers and pick-up points in its chains, most operated by Pickpoint throughout a unified sales network. Pickpoint operates 5,500 parcel lockers and pick-up points in over 540 cities in Russia. “The growing focus on e-commerce and the digital transformation of its business is upbeat for X5’s investment case. As of December 2018, X5 operated 14,431 stores and 42 DCs covering more than 1.1mn sqm of logistics space, being the second largest logistics operator in Russia, creating additional benefits for the development of a parcel lockers network,” Alexander Gnusarev of VTB Capital (VTBC) said in a note. “We see online trade increasing at a CAGR of 18% in 2018- 22F, to reach RUB3.3tn and 8% of retail turnover. Traditional retailers are focusing on soon-to-become obsolete measures and have overlooked the chance to form alliances with IT companies, credit institutions and online retailers that pose competitive threats to them, in our view. X5 Retail Group has a valuable asset base to fit into the ecommerce era and appears to be making the most tangible progress towards that among traditional food retailers,” Gnusarev added.
Lenta has released weak 2H18 IFRS numbers, underperforming the analysts’ consensus estimates by 7% on EBITDA and 20% on net income, VTB Capital (VTBC) said in a note. Lenta is in the second tier amongst Russia’s organised food retail chains and struggling to keep up with market leaders X5 Retail Group and Magnit. It has been closing its smaller stores and focusing on its hypermarkets. The explosive growth of Russia’s supermarket chains has come to an end as organised retail starts to run up against structural constraints. The leading chains have switched from expansion to grab more market share to improving profitability and have even begun to close some of their more unprofitable stores. Since cutting the organic pipeline, however, Lenta’s financials have taken a back seat to corporate updates on capital allocation and returns to shareholders, reports VTBC. “Lenta’s 2H18 IFRS results were hit by decelerating revenue growth (fell twice half on half to 9% y/y), losses associated with almost discontinued wholesale operations, 70bp higher shrinkages to 2.4%, and a less favourable allocation of selling, general and administrative expenses (SG&As) (up 90bp to 12.2% of the top-line). Thus, amid a 13% y/y higher FY18 top-line, EBITDA was flattish, while net income dropped 11% y/y,” VTBC’s Maria Kolbina said in a note. For this year the management guidance points to modest organic growth of about
116 RUSSIA Country Report March 2019 www.intellinews.com