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Lenta Ltd: Billa Russia acquisition – NEUTRAL-TO-POSITIVE

  • Lenta announced an agreement to acquire Billa Russia GmbH (“Billa Russia”) for EUR215mn (c.RUB19.4bn) in cash
  • Lenta agreed to acquire the supermarket business of Billa Russia, managing 161 stores,for EUR215mn (c.RUB19.4bn) in cash
  • Deal rationale: quick expansion in supermarket format in lucrative Moscow region

Lenta (LNTA LI: O/W; TP $3.2/GDR) announced an agreement to acquire Billa Russia GmbH (“Billa Russia”) for EUR215mn (c.RUB19.4bn) in cash, expecting the deal to close this summer. We think the transaction coincides well with Lenta’s strategy of expansion into smaller store formats (supermarkets and proximity) and potentially brings some synergies on purchasing. There is 9% and 11% respective upside to Lenta’s selling space and revenues stemming from the transaction. At the same time, the deal valuation is not cheap, in our view, considering that store rebranding capex might be required going forward. While Lenta utilizes its balance sheet capacity (which became much stronger recently with 1.5x net debt / EBITDA at YE20), the stock is unlikely to enter the “high dividend yield group” in the near term.

Deal details. Lenta agreed to acquire the supermarket business of Billa Russia, managing 161 stores, for EUR215mn (c.RUB19.4bn) in cash. The deal is subject to FAS approval and is expected to be closed in summer 2021. Lenta is going to integrate the newly acquired supermarkets, supply chain infrastructure and Billa Russia employees into the Lenta retail network. The newly acquired stores are going to be converted into the Lenta brand.

Billa Russia business overview. Billa currently operates 161 supermarkets with total selling space of 138,051 sqm, majorly located in Moscow and the Moscow region (155 outlets), as well as a distribution center in Bykovo (Moscow Region). According to RBC, in 2020 company had RUB48bn revenue and RUB1.7bn net loss.

Deal rationale: quick expansion in supermarket format in lucrative Moscow region. With average selling space of ~ 860sqm per store, Billa stores are a good fit for Lenta’s supermarket business, in our view. The deal suggests that Lenta's presence in Moscow city and the region could expand from the current 51 to 206 supermarkets (vs. 300+ supermarkets by X5). Thus, according to the company’s estimates, Lenta will have a total food retail market share of approximately 3% in Moscow and the Moscow region. The implied sales per sqm is at<s> </s>~RUB348k, which is comparable to Lenta’ supermarkets’ sales density (RUB335k in 2020) and accretive to Lenta’s blended sales density (RUB290k in 2020). The transaction would add 9% to Lenta’s total selling space and 11% to revenue (based on 2020 data), with potential synergies on purchasing.

Valuation: not cheap. The indicated deal price of EUR215mn (c.RUB19.4bn) suggests c.0.4x EV/Sales valuation (Alfa-Bank estimate based on RUB48bn 2020 revenue according to RBC). That is on par with Lenta’s current trading multiple of 0.4x EV/Sales 2021F. At the same time, if we assume Lenta bringing the newly acquired stores at its standard EBITDA margin of 8%+, we estimate the transaction multiple at nearly 4.9-5x EV/EBITDA, which is above 4.5x EV/EBITDA 2021F, where Lenta currently trades. While it might be reasonable considering the primarily Moscow-based locations, we note that some additional capex might be required for Billa stores rebranding to the Lenta format going forward.


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The contents of this document have been prepared by Joint Stock Company “Alfa-Bank” ("Alfa Bank") as Investment Research within the meaning of Article 36 of Commission Delegated Regulation (EU) 2017/5...

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