Equity Analysis /
Russia

Russian Retail: Recommencing Coverage. Magnit a bargain amid macro challenges

    Olesya Vorobyeva
    Olesya Vorobyeva

    Analyst, TMT, Agro and Retail

    Evgeniy Kipnis
    Evgeniy Kipnis

    Senior Banking/Consumer Analyst

    Alfa
    16 September 2019
    Published by
    We recommence coverage of the Russian retail sector. We anticipate sales densities to bottom-out in 2019-20, supported by softer store openings and food inflation. We conservatively model further margin declines as competition will likely keep retailers in price investment mode while SG&A optimization opportunities are more and more limited. That is already priced-in by the market, we believe, seeing 2-32% upside potential in our coverage universe. We rate Magnit O/W, seeing value in working capital optimization boosting FCF. We continue to believe in the ability of X5 (E/W) to maintain a 7%+ EBITDA margin in the medium term, but we would prefer a more attractive entry point on valuation grounds. For Lenta (E/W), we believe negatives are largely priced-in, but upside is unclear until the new strategy is announced. Detsky Mir’s (E/W) stock performance is capped by Sistema-related overhang risk.