Russian retailer X5 to list in Moscow

By Ben Aris in Berlin July 26, 2017

Russia’s leading supermarket chain X5 Retail Group intends to list shares on the Moscow Exchange (MOEX) as GDRs in the autumn, the company said on July 26.

The company said its key goal was to be included in the MSCI Russia Index, a leading international index.

Presently it is not clear which share type will be placed on the Russian stock exchange: part of its existing GDR programme, a new share issue, or the sale of shares by one of the controlling shareholders.

X5 will list its GDRs on the Moscow Exchange, but analysts say this is simply to give a wider pool of investors access to the stock.

“We see a move as a rather technical one at the moment with a purpose to improve stock accessibility for the local investors. We see this news as neutral in short-term. With the liquidity improvement on the local market, we believe this action could help X5 to get access to a new investor base and would be positive for the company,” Alexandra Melnikova of Alfa Bank said in a note.

X5 over took its main rival Magnit at the end of last year in terms of revenues but still lags behind it in terms of Ebitda margins. Magnit has long been considered one of the best companies in Russia and an investors’ darling for years.

However, its share price performance stalled last year, ending 2016 more or less flat on the start of the year. X5 shares, on the other hand, more than doubled in 2016. Currently Magnit GDRs are down 20% YTD and its ordinary shares are down 11%, while X5 GDRs are up 13% YTD as of June 26.

“This is good news for the company. X5 Retail Group trades at a discount to Magnit despite demonstrating stronger operating results, and one of the main reasons is its lack of an MSCI Russia Index listing,” Aton said in a note.

Russia’s equity market is becoming more interesting for foreign investors who are starting to put their toes back in the water. The RTS index gained 52% in 2016 but has sold off in the first half of this year on renewed fears of more US sanctions and the end of the “Trump bump”.

Russian indices have started to recover somewhat more recently and some analysts are predicting a 15-20% gain through to the end of this year on the back of Russia’s economic recovery. Currently the ruble denominated Moscow Interbank Currency Exchange (MICEX) is down 14% YTD while the dollar denominated Russia Trading System (RTS) is down by 12%. But the argument is that Russian stocks are now so cheap it is worth cherry picking amongst the best names.

There is still no generic “Russia story” to invest into, and the politics remain horrible, but at a microeconomic level the same theme of leading companies to consolidate their market position and concentrate on improving their efficiency and margins continues to throw up interesting opportunities. And increasingly the improvement is showing up in the sector stories too.

The transport sector has been booming this year with its stocks up 27% YTD, making it the only sector to put in positive gains this year, and over 100% over the last 12 months. The consumer and retail sector has been doing less well with its stocks down collectively by 2% YTD, but up 6% over the last 12 months.

The consumer sector has not performed particularly well compared with the other sectors over the last 12 months where it was also outperformed by metals & mining, chemicals and utilities, but it has made a return. The only sector to still be in the red after 12 months is telecoms, down by 2%.

 

RTS sector indices, USD                
  Value  1D, %  1W, %  1M, %  3M,%  YTD, %  12M,%  52wk low  52wk high 
RTS  1,010 -0.4 -2.7 2 -10 -12 9 903 1,196
Oil & Gas  153 -0.7 -2.1 0 -11 -16 6 138 188
Metals & Mining  185 0.4 -3.7 6 -6 -3 24 149 212
Chemicals  245 -0.6 -0.3 5 -5 -1 11 222 269
Transportation  95 0.1 -2.6 5 5 27 117 43 102
Consumer & Retail  247 -0.2 -0.7 2 -3 -2 6 227 266
Financials  202 -0.4 -2.4 0 -16 -15 2 192 251
Telecoms  81 0.7 -0.5 -4 -18 -9 -2 73 102
Electric Utilities  77 0.2 -1 3 -9 -6 32 58 96

X5 Retail Group 1Q17 financial highlights
  1Q16 2Q16 3Q16 4Q16 1Q17
Revenues 231,611 251,633 256,247 294,176 293,078
% Chng, YoY 26.80% 25.90% 30.70% 27.80% 26.50%
Gross profit 56,191 59,807 62,554 71,433 70,612
Gross margin, % 24.30% 23.80% 24.40% 24.30% 24.10%
SG&A -30,684 -30,157 -32,432 -37,133 -36,735
as % of revenue 13.20% 12.00% 12.70% 12.60% 12.50%
EBITDAR 25,507 29,650 30,122 34,300 33,877
EBITDAR margin, % 11.00% 11.80% 11.80% 11.70% 11.60%
EBITDA 16,493 20,006 19,863 19,906 22,168
EBITDA margin, % 7.10% 8.00% 7.80% 6.80% 7.60%
EBIT 11,406 14,459 13,274 6,493 14,460
EBIT margin, % 4.90% 5.70% 5.20% 2.20% 4.90%
Profit for the period 5,054 7,951 6,870 2,417 8,356
Net margin, % 2.20% 3.20% 2.70% 0.80% 2.90%

Source: Company data, VTB Capital Research * Interfax as of 26 April 2017

 

Magnit IFRS highlights
RUB mn 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
Revenue 218,756 236,052 235,634 260,171 255,303 266,225 268,609 284,675 266,983
% Chng, YoY 33.40% 27.60% 21.70% 17.80% 16.70% 12.80% 14.00% 9.40% 4.60%
Gross profit 59,116 67,934 68,316 75,446 65,036 77,027 75,368 78,328 71,887
Gross margin, % 27.00% 28.80% 29.00% 29.00% 25.50% 28.90% 28.10% 27.50% 26.90%
SG&A -32,211 -32,578 -33,873 -38,072 -36,227 -35,875 -36,889 -40,505 -40,266
as % of revenue 14.70% 13.80% 14.40% 14.60% 14.20% 13.50% 13.70% 14.20% 15.10%
EBITDAR 26,905 35,356 34,442 37,374 28,809 41,152 38,479 37,823 31,621
EBITDAR margin, % 12.30% 15.00% 14.60% 14.40% 11.30% 15.50% 14.30% 13.30% 11.80%
Rent -6,510 -7,151 -7,957 -8,575 -9,019 -9,343 -9,825 -10,284 -10,626
as % of revenue 3.00% 3.00% 3.40% 3.30% 3.50% 3.50% 3.70% 3.60% 4.00%
EBITDA 20,395 28,204 26,485 28,798 19,789 31,809 28,654 27,539 20,995
EBITDA margin, % 9.30% 11.90% 11.20% 11.10% 7.80% 11.90% 10.70% 9.70% 7.90%
Depreciation -5,001 -5,050 -5,477 -5,570 -5,970 -6,133 -6,824 -6,900 -8,085
as % of revenue 2.30% 2.10% 2.30% 2.10% 2.30% 2.30% 2.50% 2.40% 3.00%
EBIT 15,395 23,154 21,009 23,228 13,820 25,676 21,830 20,639 12,910
EBIT margin, % 7.00% 9.80% 8.90% 8.90% 5.40% 9.60% 8.10% 7.20% 4.80%
Net income 9,478 15,748 17,988 15,593 8,243 17,862 14,816 13,485 7,543
Net margin, % 4.30% 6.70% 7.60% 6.00% 3.20% 6.70% 5.50% 4.70% 2.80%
Source: Company data, VTB Capital Research *Consensus provided by Interfax as of 22 April      

 

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