Page 121 - RusRPTFeb19

use the channel. “Openings being pushed back into 2019 did not come as a surprise, since the stance on an organic roll-out has cooled. The released numbers imply marginal downside risks to our model, but do not materially change our view. We await the 2019 guidance on 22 February and note that the company is continuing with its RUB 11.6bn buy-back. Our 12-month Target Price of $5 implies a 45% ETR: Buy reiterated,” Maria Kolbina of VTB Capital (VTBC) said in a note. In 4Q18, revenues grew 6.6% y/y to RUB 119bn, which was only about half the increase in the previous quarter. The growth in retail operations slowed to 11% y/y (from 13% y/y in the previous quarter) while wholesale dropped by half y/y, reflecting an impasse in cooperation between Lenta and the suppliers of FMCG goods. Like-for-like (LFL) sales accelerated to 2.1% y/y, from negative 0.6% y/y in 3Q18, with key support coming from ticket growth on flat traffic. The company opened 13 hypermarkets (net) vs. 18 in our model, but the underperformance is not surprising as organic growth is no longer a priority. The poor results and it position outside of the top of the table have hurt Lenta’s share price which has lost 50% in the last twelve months and now demands 2019F EV/EBITDA of 5x. The company is trying to regroup and has a new CEO that gave his first conference call this week. “This call was the first time that new CEO Herman Tinga had communicated with the market. He does not plan to change the strategy for the hypermarket format and sees the supermarkets undergoing a strategic revision before the roll-out is accelerated,” Kolbina reports. For 2019, the company envisages new openings slowing down and no rebound in wholesale operations (RUB1bn turnover guided for 1Q19 vs. RUB 5bn a year ago). The loss of wholesales is to have a negative impact of RUB200mn on 2H18 EBITDA, representing 10bp of the EBITDA margin. Lenta has guided for stable y/y net debt (RUB 92.8bn as of YE17) while total debt is going up with the attempt to secure financing at fixed rates prior to the uplift in the interest rate environment. The buyback has covered RUB350mn out of the RUB11.6bn approved. The company is considering other options to return cash to shareholders, and a tender offer could be one of them (although this has not yet been discussed by the Board of Directors) while dividends represent the least likely scenario, Kolbina says.
The main owner of multi-industry investment holding AFK Sistema Vladimir Yevtushenko confirmed negotiating the sale of Detsky Mir children’s goods retailer to Safmar Group of billionaire Mikhail Gutseriev, Interfax reported on December 7. Previous reports claimed that Sistema could sell a controlling stake in Detsky Mir to the Safmar in a widely anticipated deal. The retailer recently added a second new format this year, which could increase the valuation of the asset. No other details were yet provided.
The agricultural holding of Russian AFK Sistema multi-industry investment conglomerate, has established a federal brand Steppe for reselling vegetables and other produce, Vedomosti daily and Tass reported citing the general director of the holding Andrei Neduzhko. AFK Sistema is planning a sale of one of its anchor assets Detsky Mir and its oil asset Global Petroleum Group, as it aims to cut its debt of RUB213bn ($3.2bn) to RUB150bn by the end of the year, and believe needs cash for new investments. This year Sistema continued expanding its investment in agriculture and healthcare/pharmaceuticals, established a high-tech venture fund, and was reportedly considering acquiring real estate developer Etalon. In 2018 the share of agricultural produce of Sistema sold under the Steppe brand tripled to 90%, and now the product mix will be expanded with vegetables. In November Steppe also acquired Investprom-Opt wholesaler that sells sugar and grains, which will also be included under the Steppe brand umbrella. Steppe will distribute to Russia's largest retailers X5 Group, Lenta, Metro,
121 RUSSIA Country Report February 2019 www.intellinews.com