Russian second-tier retailer Lenta launched a 12-month GDR buyout programme worth RUB11.6bn ($177mn) or about of 10% of its freefloat, the company said on October 29. The buyout on the LSE will be managed by Credit Suisse.

Lenta joins a growing number of Russian companies that opt for buyouts as Russian equities came under pressure this year. Several energy majors have announced buyback plans, last week another retailer and shoemaker Obuv Rossii said it will buyout up to $14mn worth of its shares. 

"The company believes that its current valuation does not reflect its fundamental value. This forms attractive conditions for distributing fund to GDR holders through a buyback progamme," Lenta commented.

Earlier this year Lenta managed to deliver strong results under pressure in the first half of 2018, while another performance of its peer O'key discouraged analysts.

However, most recent third-quarter results showed that Lenta curbed to market pressure, showing a decline in revenue growth from 16.6% year-on-year seen in second-quarter of 2018 to 12.6% year-on-year in 3Q18.

In the third quarter Lenta's results were "primarily pressured by turned negative headline like-for-like  that saw 0.3% decline in ticket and similar traffic outflow," VTB Capital commented on October 29, noting that "Lenta highlights soft consumption backdrop and worsened of a late and brings lower number of items per check and less frequent visits to the store."

Specifically October also turned weak for Lenta and worsened prospects for seasonally strong 4Q18. The market leader X5 Group also experienced a slowdown in September (15.4% vs. 18.2% in August), but saw a rebound in October to 16% revenue growth, VTB reminds.

The analysts now expect the annual roll-out forecast at only five hypermarkets from the previously anticipated eighteen. Nevertheless, VTB maintained a Buy recommendation on Lenta's shares, but revised the target price downwards by 9% to $5, which translates into esimated total return of 39%. 

"Key downside factors include deterioration in consumption backdrop, lower profitability margins, lesser stock liquidity, and vague strategy over future accumulation of treasury shares [post buy-out]," VTB warns.

 

As analysed by bne IntelliNews, after a decade of growth, Russian supermarket chains are running up against the limits to growth – both in terms of saturation in local markets and market share limits imposed by the Federal Antimonopoly Services (FAS) – and are switching their focus to improving profits instead of opening more stores.

Lenta 1H18 Financial Results
RUB mn	1H17	2H17	1H18	HoH	1H18E Interfax	Actual vs. Interfax	1H18E Aton
Sales	163 531	201 647	193 220	-4,2%	193 215	0,0%	193 216
YoY, %	16,7%	21,3%	18,2%		18,2%		18,2%
Gross profit	35 534	42 701	42 319	-0,9%
YoY, %	15,9%	15,1%	19,1%
EBIT	10 880	14 696	11 027	-25,0%
YoY, %	8,0%	7,9%	1,3%
Adj EBITDA	15 623	19 871	17 112	-13,9%	17 170	-0,3%	17 107
YoY, %	14,2%	12,2%	9,5%		9,9%		9,5%
Adj EBITDAR	17 601	22 106	19 986	-9,6%
YoY, %	14,5%	13,6%	13,6%
Profit for the period	4 492	8 772	5 161	-41,2%	5 327	-3,1%	5 085
YoY, %	3,8%	27,6%	14,9%		18,6%		13,2%
Margins %
Gross	21,7%	21,2%	21,9%				21,3%
EBIT	6,7%	6,7%	5,7%				6,0%
Adj EBITDA	9,6%	9,9%	8,9%	-99,8	8,9%		8,9%
Adj EBITDAR	10,8%	11,0%	10,3%				10,3%
Net	2,7%	4,4%	2,7%	-167,9	2,8%		2,6%
Source: Company data, ATON Research