With this article, we begin a series of materials about public companies, controlled by the Gutseriev family. In it, we will consider "M.Video — Eldorado» (MCX: MVID).
About company
M.Video - Eldorado is one of the leaders in the Russian retail market in the field of household appliances, electronics and related services. The company is present in all federal districts. Based on the results of 9 months of 2021, it has 1,178 stores in 328 cities with a total area of more than 1.5 million square meters, 9 distribution centers and 58 regional multiplatforms.
Sales are carried out through two networks: M.Video and Eldorado. At the same time, the company does not distinguish them in the reporting as separate segments., vice versa, plans to increasingly closely integrate business processes in these retail chains.
The number of stores and the sales area of the company's chains is gradually growing. At the same time, M.Video - Eldorado declares, that plans to open another 500 stores in the next few years, expanding its presence in another 100 Russian cities. Growth will be mainly driven by Eldorado 250 small format stores.
Total turnover of goods (GMV) is growing rapidly and 9 months of 2021 approached 400 billion rubles. Online sales are still booming, reached 270 billion rubles for the same period. An important caveat needs to be made here., that the company quite peculiarly considers this indicator, including also sales, which are carried out by sellers in stores using a mobile platform - the seller's application.
Despite the good development of online channels, M.Video - Eldorado considers the hybrid model to be optimal, in which an extensive retail network and its developed logistics infrastructure are important parts of the business.
According to company data, only 15% customers purchase its products entirely online, the rest search and select and/or purchase offline. Besides, M.Video-Eldorado stores almost half of its inventory in stores, which allows you to simplify and speed up the delivery of goods to customers. Already at the end of 2020 34% goods available for delivery and pickup within 15 minutes after ordering, and 60% - on the same day.
A few years ago, M.Video - Eldorado presented a new business model for One Retail. The company considers this the next step in the development of omnichannel. Her concept is, that all interaction with the client goes through a single mobile platform and there is no longer a separate interaction of the client with the site, mobile application or seller.
The seller also has its own mobile application, by which he can identify the client, see his purchase history, add the required items to the cart, which the client can change or pay for. The company notes, that identified One Retail customers bring the company a higher average check. The company makes interesting price offers based on artificial intelligence for such customers., active loyalty program.
At the beginning of 2021, M.Video - Eldorado announced its main strategic goal - to reach 1 trillion rubles GMV by 2025, which is twice as much as in 2020. The company plans to achieve this through a range of measures:
- Expand the number of commodity items with 75 thousand to 250 thousand units, including using the marketplace model.
- Increase the share of premium and innovative products in the assortment, expand the list of services provided.
- Increase the number of stores and cities of presence.
- Significantly increase the share of One Retail customers with 42% in 2020 until 85% how to engage the audience, and by deploying the system in all stores.
- Increase the share of goods, available for delivery or pickup within 15 minutes, to 50% and higher, and on the same day 70%.
- Provide customers with many convenient ways to pay for the purchase, use financial services for lending and so on.
Representatives of the company also announced plans for a pilot expansion of the range into other segments: goods for cars, children's and sports goods.
M.Video - Eldorado acquires about 80% goods under direct contracts with manufacturers, and also provides an opportunity to purchase some goods directly from manufacturers' warehouses. Besides, 11 thousands of positions from the range of exclusive. The company also develops its own brands, planning in some future to bring their share to 15% assortment.
Worth mentioning, that the company owned a large stake in the goods.ru marketplace, but he was bought out by Sberbank for 4 billion rubles and renamed into Sbermegamarket. The company has a package 10%. And at the end of 2021, M.Video - Eldorado bought the Direct Credit credit platform from the parent holding Safmar.
Number of stores of the company's chains by years
| "M Video" | Eldorado | |
|---|---|---|
| 2017 | 424 | 415 |
| 2018 | 480 | 461 |
| 2019 | 532 | 506 |
| 2020 | 542 | 532 |
| 9м2021 | 563 | 615 |
Selling space of the company's chain stores by years, thousand m2
| "M Video" | Eldorado | |
|---|---|---|
| 2017 | 693 | 592 |
| 2018 | 758 | 633 |
| 2019 | 793 | 661 |
| 2020 | 810 | 665 |
| 9м2021 | 836 | 698 |
Total merchandise turnover and total online sales by year, billion rubles
| Total turnover of goods | General sales online | |
|---|---|---|
| 2017 | 234 | 37 |
| 2018 | 421 | 85 |
| 2019 | 437 | 144 |
| 2020 | 505 | 300 |
| 9м2021 | 393 | 270 |
Financial indicators
In recent years, M.Video-Eldorado's revenue has been growing at a good pace. Net profit grew at a slower pace, but also showed a stable positive trend. Based on the indicators for the first half of 2021, we can expect, that the final annual figures will also increase year on year.
Prior to the purchase of the Eldorado chain, the company had a negative net debt, in 2018 it went into the positive zone. In 2020, M.Video-Eldorado slightly reduced its net debt, and in 2021 increased again, in particular, by placing two bond issues on the Moscow Exchange.
Financial results of the company, billion rubles
| Revenue | Net profit | net debt | |
|---|---|---|---|
| 2017 | 198,2 | 6,95 | −17,8 |
| 2018 | 321,1 | 8,37 | 34,0 |
| 2019 | 365,2 | 11,2 | 44,7 |
| 2020 | 418,0 | 12,2 | 40,5 |
| 1п2021 | 212,8 | 8,8 | 64,0 |
History and share capital
The M.Video network was founded by Alexander Tynkovan, his brother Mikhail and Pavel Breev in 1993, when her first store opened in Moscow. In 2001, the company began to open stores in other regions. In 2007, the network expanded to 100 stores and entered the IPO.
The Eldorado network was founded in 1994 in Samara. She has grown and developed, and by 2011, the PPF Group holding received control over it. In 2013, M.Video planned to buy Eldorado and even received permission from the antimonopoly service, but the deal didn't go through..
In 2016, the Safmar holding, by that time, already owning the Technosila network, gained control in Eldorado and M.Video. Consolidation transactions continued in 2018: M.Video bought a stake 100% "Eldorado" at the expense of own and credit funds, and then the Russian business of MediaMarkt was acquired in exchange for 15% company shares, owned by Safmar holding.
In general, the shareholder structure has not changed much since then.: control in the united company is retained by the Gutseriev family, German Media-Saturn-Holding is a major minority shareholder. After the SPO in March 2021, when the structures of the Gutseriev family were sold 13,5% M.Video-Eldorado shares, free float amounted to about 24% share capital.
Share capital structure of the company
| Beneficiary | share | |
|---|---|---|
| Ericaria Holdings Limited | Said Gutseriev | 50,0% |
| Verridge Investments Limited | Said Gutseriev | 10,4% |
| Media-Saturn-Holding GmbH | Media-Saturn-Holding GmbH | 15,0% |
| LLC "MVM" | M.Video - Eldorado | 0,8% |
| Free float | – | 23,8% |
Dividends and dividend policy
In February 2021, M.Video-Eldorado adopted a new dividend policy. According to it, the company plans to pay dividends twice a year in the amount of at least 100% net income under IFRS, if the value of the net debt / EBITDA multiplier does not exceed 2. If exceeded, the recommendation on the amount of dividends will be at the discretion of the Board of Directors.
In fact, even before the adoption of the dividend policy, the company paid out a significant part of its net profit in the form of dividends.. The dividend yield of the payout ranged from 4 to 6,7%, while in 2019 the total amount was about 9,5%, and for the number 2021, probably, will be double digit.
History of the company's dividend payments
| Dividend per share | Profit share on dividends | Dividend yield | |
|---|---|---|---|
| 9m2019 | 33,37 R | 97,83% | 5,56% |
| 2019 | 30,00 R | 39,07% | 4,07% |
| 2020 | 38,00 R | 138,4% | 5,45% |
| 9м2021 | 35,00 R | 99,94% | 6,7% |
Why stocks can go up
A growing company in a growing sector.
M.Video – Eldorado is actively engaged in business development, And, if it succeeds in achieving the goals of its strategy, the company will be able to significantly increase it. The growth of the sector itself should also contribute to the growth of the M.Video-Eldorado business. In its reporting, the company cites the results of a GfK study., according to which the size of the Russian market of household appliances and electronics will grow from 2 trillion rubles in 2020 to 2.7 trillion in 2025.
Dividends.
The new dividend policy of the company is attractive due to the clear formula for calculating dividends and their expected size. And the Russian stock market is especially fond of dividends..
Improper multipliers.
M.Video-Eldorado has good multipliers: the company is inexpensive and shows good profitability. The only thing, what is not happy, is a serious increase in debt load in 2021. It is not easy to compare with competitors of M.Video - Eldorado: the company is the only public representative of the household appliances and electronics retail sector.
If we compare it with other public non-grocery retailers, one might say, that "M.Video - Eldorado" looks worthy: profitable, inexpensive, albeit a somewhat credited company.
Strong drop in stocks.
From all-time highs before the SPO in March 2021, quotes have already fallen by more than 50%, while the business continues to grow. Increasing dividend yield. Quite possible, that in some
Strong drop in stocks.
From all-time highs before the SPO in March 2021, quotes have already fallen by more than 50%, while the business continues to grow. Increasing dividend yield. Quite possible, that in some future this trend will be reversed - and the shares will again enter the growing trend following the growth of the M.Video-Eldorado business.
Why stocks might fall
The sector is not without problems.
Despite the fact that the home appliances and electronics retail sector is quite different from the food retail sector, their problems are similar.
Briefly, then retail is not too marginal, at the same time, marketplaces developed great activity in it, not particularly striving for profit, their main goal is to increase revenue at almost any cost.
An additional concern for companies in the sector should be, that the competition included giants building ecosystems, such as Yandex and Sber, whose financial possibilities by Russian standards are practically unlimited.
The strategy raises some questions.
The strategic goals of M.Video – Eldorado are ambitious and attractive, but when analyzed, one gets the impression, that they are formulated in the style of "for all the good, against all the bad.
The company plans to simultaneously maintain and expand its extensive store network and logistics infrastructure., double the turnover of goods, but with all this, pay out all net profit in the form of dividends, maintain an acceptable debt burden no higher than 2 at a net debt / EBITDA ratio and incur moderate capital expenditures, not exceeding 2% from the turnover of goods per year.
If we analyze the dividend policies of companies from the Moscow Exchange index, then many of them pay dividends based on 50% net income under IFRS - implied, that the other half stays in the company, in particular for investment in further development. Some companies even pay dividends out of free cash flow., which already contains, remaining after capital expenditures.
In both cases it is clear, where do companies get the money to invest, in the case of M.Video - Eldorado, this is not entirely clear. And the debt load, in the first half of 2021 already exceeded the company's target, limits the ability to develop in debt.
Even if we discard these reflections and trust the leadership of M.Video - Eldorado in that, what does it understand, where to get money for capital expenditures, it is worth noting: there are still risks in the company's strategy, what, while it spends heavily on its vast chain of stores, mobile platform development, Huge range of products and fast delivery options, buyers will look only at the price - after all, real disposable incomes of the population are falling. And they will massively begin to acquire equipment from ecosystem players, offering discounts for subscriptions, or, vice versa, in small online stores, selling from a warehouse and thereby having the opportunity to sell goods cheaper due to lower transaction costs.
"Something Wrong in the Kingdom of Denmark".
M.Video - Eldorado has been a clear leader in the sector for the past few years, but, according to InfoLine, according to the results of the first half of 2021, the leadership was intercepted by the DNS network.
And in early 2022, there was a sudden leadership reshuffle.: head of the company Alexander Izosimov, who has not worked even a year and a half in M.Video - Eldorado, left office, and his place was taken by Enrique Fernandez, already managed the company for several years before the arrival of Alexander Izosimov.
One can only speculate about the reasons for these changes.. Undoubtedly, they can be personal, but also possible, that recently something has gone wrong in the company under the leadership of Alexander Izosimov. The result of this may be disappointing reports of M.Video - Eldorado at the end of the year. Besides, the return of the former leader may be a reflection of some internal confrontations within the board of directors or major shareholders of M.Video - Eldorado.
General market risks.
In addition to the risks of the company itself, its shares may fall along with the whole market. Firstly, in the first half of January, we saw a significant drop in Russian indices against the backdrop of geopolitics, and it's hard to say, How will this topic be developed further?.
Secondly, against the backdrop of inflation in the US, reached unseen beyond 40 years of values 7%, FED still plans to tighten monetary policy in 2022. This should have a negative impact on risky assets - stocks in general and emerging markets in particular..
Multipliers of public non-food retailers for the first half of 2021
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| M.Video - Eldorado | 7,05 | 40,4% | 2,34 |
| "Child's world" | 10,2 | — (negative equity) | 1,27 |
| Ozone | Lesion | Lesion | 3,75 |
Company multipliers by years
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| 2017 | 10,7 | 30,0% | −1,51 |
| 2018 | 8,81 | 27,1% | 1,64 |
| 2019 | 8,34 | 34,8% | 1,67 |
| 2020 | 10,5 | 32,4% | 1,42 |
| 1п2021 | 7,05 | 40,4% | 2,34 |
The share of the largest players in the home appliances and electronics market in Russia in the first half of 2021
| DNS | 23,6% |
| M.Video - Eldorado | 23,0% |
| "Citylink" | 6,3% |
| "Connected" | 5,6% |
| MTS | 3,4% |
23,6%
Market size of household appliances and electronics in Russia by years, trillion rubles
| 2019 | 1,7 |
| 2020 | 2,0 |
| 2021 | 2,1 |
| 2022 | 2,2 |
| 2023 | 2,3 |
| 2024 | 2,5 |
| 2025 | 2,7 |
1,7
Eventually
M.Video – Eldorado is one of the leading retailers in the household appliances and electronics market. The company is actively developing a mobile platform and other digital technologies, but does not plan to abandon the development of its extensive network of stores, seeing its advantage precisely in the combination of online and offline.
The M.Video-Eldorado strategy is ambitious, but raises some questions, since it implies the simultaneous rapid development, reducing the debt burden and paying out all net profit in the form of dividends.
The company's shares have already fallen in price twice from the historical highs of the spring of 2021, and there are many arguments for continuing their fall, and for a trend reversal up.
