Obzor lenty produktovyj retejler s bolshimi ambicijami e3b396a обзор «ленты»: продуктовый ретейлер с большими амбициями

Review of "Lenta": a grocery retailer with big ambitions

Обзор «ленты»: продуктовый ретейлер с большими амбициями

"Ribbon" (MCX, LSE: LNTA) - grocery retail network, the largest hypermarket operator in Russia with a constantly growing market share. The company was founded in 1993 year in St. Petersburg.

About company

By the end 1 quarter 2021 the network included 254 hypermarket in 89 cities of the country and 140 supermarkets in Moscow, St. Petersburg, Siberia, Central region and the Urals. The company is gradually increasing the number of both hypermarkets, and supermarkets, she owns approximately three quarters of the total retail space. The company also has 13 distribution centers and own logistics infrastructure.

Revenue is well diversified by regions of presence - only St. Petersburg and the Leningrad Region share a little more 20%.

Lenta has an extensive loyalty program: about 16 million participants, 97% purchases are purchases using loyalty cards, which helps the company understand the needs of its customers, use big data technologies for analytics and the formation of personal offers.

The company is also quite actively developing its own brands. (STM). it 13 food and non-food brands in all price categories: "365 days", Sweet Tree, Little Times, Home Club and others. Based on the results of 2020 the share of private labels in retail sales reached 14,7%.

Like other companies, "Lenta" began to actively develop online sales with the possibility of self-pickup or delivery by its own express delivery service "Lentochka" or partner services.

Revenue of the largest food retailers in Russia in 2020 year, billion rubles

X5 Retail Group: "Pyaterochka", "Crossroads", "Carousel", "Chizhik"1973
"Magnet"1510
"DKBR Mega Retail Group Limited": "Dixie", "Bristol", "Red and White", "Victoria", Megamart, "First thing"950
"Ribbon"438
Auchan retail Russia255
Metro Cash & Carry204
"Traffic light"189
Okay Group: "OK", "Yes!»173

X5

Share of the company in the hypermarket market by years

201618,7%
201721,9%
201824,5%
201925,0%
202028,0%

 

Number of company stores by type by year

HypermarketsSupermarkets
201723197
2018244135
2019249131
2020254139
2021254140

 

Share of the company's revenue by region for 1 neighborhood 2021 of the year

Saint Petersburg and Leningrad region21,5%
Siberia18,0%
Volga region13,0%
Moscow and Moscow region12,3%
South Region11,9%
Ural10,0%
central region7,6%
Northwest region5,7%

Change of ownership and its consequences

IN 2019 year, a very important event happened for the company: its controlling shareholder was replaced. It was the "Severgroup" of the richest Russian Alexei Mordashov, whose assets include significant stakes in the metallurgical company Severstal, travel company TUI, Platypus and many other companies.

Naturally, under the new owner, the company has undergone many changes. The composition of the board of directors and the management board has changed significantly: now there are many people with experience in Severgroup and Severstal. The general director was replaced - it was Vladimir Sorokin, previously worked as deputy head of Magnit, and even earlier, he led the Perekrestok network.

Company registration changed from British Virgin Islands to Cyprus, then re-domiciled to Oktyabrsky Island in the Kaliningrad Region, which will entail delisting from the Moscow Exchange of the company's depositary receipts in favor of its shares. This is a technical procedure, which should not cause concern among investors, especially since the company's depositary receipts will continue to be traded on the London Stock Exchange.

The company has published a new strategy with ambitious revenue growth plans in 2 times - up to a trillion rubles - to 2025 year. It is planned to achieve it through the active development of stores in the “near the house” format., purchases of competitors and development of online directions. "Lenta" indicates examples of many European countries, where the grocery retail market is quite consolidated: the share of the five largest players exceeds 50%, and that and 70% market. In Russia, according to the results 2020 year this figure was only 30%. The company predicts this share will grow to 40% to 2025 year and plans to actively participate in this.

In January 2021 of the year "Lenta" launched test discounter stores under the brand "365+". The company also actively began to conclude deals M&A: hypermarket "Karusel" in the Moscow region, the Semya chain in the Perm Territory and Billa in the Moscow region. Also "Lenta" has combined some business functions, in particular procurement, with a sister business - "Platypus".

Share capital structure of the company

"Severgrupp"77,99%
Quasi-treasury shares0,93%
Directors and management0,04%
Free float21,04%

«

Financial performance

Lenta's revenue is growing steadily, what can not be said about net profit: she is quite volatile, and in 2019 year the company even slipped into losses. At the same time, net debt in recent years has been kept in approximately the same range.

The revenue structure shows very clearly, that Lenta's core business is hypermarkets: they account for 90% proceeds.

Financial performance of the company, billion rubles

RevenueNet profitNet debt
2017365,213,392,8
2018413,611,893,3
2019417,5−2,877,1
2020445,516,591,6
2021218,15,193,7

 

Revenue by business segment for 1 neighborhood 2021 of the year

Hypermarkets90%
Supermarkets9%
Wholesale1%

Hypermarkets
90%

Supermarkets
9%

Wholesale
1%

Why stocks can go up

Growing company. Lenta's business has grown gradually in recent years, and now the company plans to grow much more intensively. If it all works out, then its revenue will double in the next few years, what will be the fundamental driver for the growth of stock quotes.

Defense sector. Grocery retail is a traditionally defensive sector, since he trades in essential goods. That is why its representatives are obvious candidates for inclusion in the conservative parts of investor portfolios.. Now the demand for security papers may increase even more.: due to increased inflation, the growth of interest rates in Russia has already begun, it can start in the West too, and this, in turn, could provoke a correction in the stock markets.

maybe, due to these expectations, investors will be more willing to invest in companies from defense sectors.

Improper multipliers. Lenta has good multipliers in dynamics, and in comparison with competitors: Yes, it is somewhat less efficient and more leveraged, than bigger competitors, but it is also estimated by the market much cheaper, as seen from its P / E.

Possible start of dividend payments. The company plans to 2021 to approve the dividend policy, and with 2022 year to start payments. Dividends are especially popular in Russia, so their appearance could make Lenta much more attractive to investors.

Why stocks might fall

Sector specifics. Grocery retail is not a fast growing sector, it is very tied to the level of income of the population, and he recently, Unfortunately, falls. At the same time, the sector is extremely competitive: there is a huge number of both traditional players on the market, and actually IT companies, engaged in the digitalization of this area: Ozone, Wildberries, Yandex. And the higher the competition, the more costs and less profit.

Amid falling incomes and rising inflation, the government is trying to regulate food prices, which is hardly profitable for retailers: in December 2020 signed a number of regulations to stabilize food prices, in July 2021 discussions began on reducing the mark-ups on essential goods, and Lenta's competitor Magnit, as part of the approval of the Dixy consolidation deal, was ordered to make a zero mark-up on several basic food products for a whole year.

Hypermarkets problems. In the review of "Okey" we have already talked in detail about, that hypermarkets are a somewhat fading retail format in Russia, Nowadays, convenience stores and discounters are becoming more and more popular. At the same time, hypermarkets are the backbone of Lenta's business., so the company kind of swims against the tide. And although she rather succeeds, it is not easy.

Lack of dividends. The company plans to start paying dividends, but so far she has not paid them even once in her entire public history, what distinguishes it not for the better from public competitors in the sector.

Potential Growth Problems. The company plans to actively grow - both by opening new stores and developing the online segment, and buying up competitors. But all this requires money - and a lot. And the options, where to get them, limited quantity. Most likely, the company will increase the debt - and it is already rather big - and then it will have to be serviced and paid off. maybe, the company will resort to an additional issue of shares, which is also not very good for shareholders, as their share in the business will erode.

Обзор «ленты»: продуктовый ретейлер с большими амбициями

Lenta's multipliers by year

P / EROENet debt / EBITDA
201712,318,5%2,61
20188,8314,3%2,58
2019LesionLesion1,95
20207,0617,5%2,04
20219,0112,7%2,31

P / E

2017
12,3

2018
8,83

2019
Lesion

2020
7,06

2021
9,01

ROE

2017
18,50%

2018
14,30%

2019
Lesion

2020
17,50%

2021
12,70%

Net debt / EBITDA

2017
2,61

2018
2,58

2019
1,95

2020
2,04

2021
2,31

Multipliers of public grocery retailers for 2020 year

P / EROENet debt / EBITDA
X5 Retail Group22,429,8%0,99
"Magnet"15,818,0%0,68
"Ribbon"7,0617,5%2,04
"OK"LesionLesion1,93

P / E

X5 Retail Group
22,4

"Magnet"
15,8

"Ribbon"
7,06

"OK"
Lesion

ROE

X5 Retail Group
29,8%

"Magnet"
18,0%

"Ribbon"
17,5%

"OK"
Lesion

Net debt / EBITDA

X5 Retail Group
0,99

"Magnet"
0,68

"Ribbon"
2,04

"OK"
1,93

Eventually

Lenta is a large grocery retailer, who wants to get even bigger: significantly increase revenue, increase market share and start paying dividends. Assuming, that the company will succeed, possibly, now is a good moment, to become its shareholder. But don't forget, that along the way, Lenta will face high competition, high cash costs and not the best conditions in the retail sector in general and in the hypermarket subsector in particular.

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