Magnit Review: grocery retailer, who fights for leadership

Обзор «магнита»: продуктовый ретейлер, который борется за лидерство

"Magnet" (MCX, LSE: MGNT) — the largest by the number of stores and the second largest grocery retailer in Russia. The company is one of the largest private employers in the country with more than 300 thousand employees.

About company

Magnit's business is present in all federal districts, except Far Eastern. It has the widest territorial coverage among competitors: Clients of Magnit — 85% Russian families from more than 3800 settlements.

The company is constantly expanding its network of stores, by the end of the 1st half of 2021, their number reached 22 344, and retail space — 7.75 million square meters. Under the umbrella brand "Magnit" there are several formats of stores:

  1. "At home" - shops within walking distance with an assortment of about 6.5 thousand commodity items. This is the most numerous format on the network.
  2. "Family" - supermarkets of a much larger area with an assortment of almost 14 thousand commodity items.
  3. "Extra" - superstores, in fact, these are converted hypermarkets, in which the assortment exceeds 25.5 thousand commodity items.
  4. «Cosmetics» — drogeri, that is, shops with non-food products, such as cosmetics, hygiene products, household goods. Assortment — about 10 thousand commodity items.
  5. "Pharmacy" - stores with medicinal and non-medicinal products with about 4.8 thousand commodity items.

Moreover, the company is testing several new formats:

  1. "My price" - discounters with a small assortment of about 1750 commodity items.
  2. "City" — shops with a café area and an assortment of 3200 commodity items, mostly consisting of takeath meals. These stores are designed for major cities.
  3. GO is a good old kiosk format with 300 items.

"Magnet" introduces clustering: key clusters include the metropolis, town and village. The essence of the innovation is to customize the assortment in stores of the same format, depending on the location: eg, in the stores "Cosmetics" for the metropolis a wider range of cosmetics and perfumes, and in shops for the village - goods for the home and for children.

The company has an extensive logistics infrastructure: 39 distribution centers with a total area of 1.7 million square meters and almost 4.4 thousand trucks.

Magnit calls itself the only grocery retailer with vertical integration: it has 17 own production of food and agricultural products. This is the largest mushroom complex in Russia, confectionery factories and other. for example, the company covers 88% domestic demand for nuts and dried fruits due to its own production. In total, the assortment of "Magnit" is about 2.5 thousand items of goods of its own brands (STM), which give about 10% retail revenue. The company plans to increase the share of STM to 25% by 2025.

Moreover, Magnit is actively working with suppliers – for example,, concludes contracts for more profitable, direct import. The share of direct import goods in retail revenue is 7%.

The company supported the market trend and began to develop e-commerce: launched its own delivery service and entered into partnerships with Delivery Club, "Yandex-food" and Wildberries. Delivery is carried out as from existing stores, and from specially opened darkstores. According to the results of the first half of 2021, delivery is available in 106 cities from 62 regions of Russia, on average fulfills 15 thousand orders per day.

43 million people are registered in the company's loyalty program, 70% purchases are made using loyalty cards. This helps to better understand customer needs, predict demand. The company also launched partnership projects with Tinkoff banks, VTB, "Post Bank" for the issue of co-branded cards with increased bonuses when shopping in the stores of the network.

"Magnet" does not stop there and tries to build an ecosystem around the client: you plan to create a super application, unifying loyalty program, purchase history, delivery and additional services. One of the first steps on this path was the launch of the Magnit Pay payment service., according to the results of the first half of 2021, 5 million virtual cards of the service have already been issued. Recently launched a credit broker.

The retailer invests a lot in development - what is called, on all fronts: except for the opening of new stores, many old ones are being redesigned, digital transformation is actively underway, even created a business accelerator MGNTech.

The main strategic goal of the company is to strengthen leadership in the segment, with increasing market share while maintaining profitability. Recently, Magnit has been doing it.: market share is growing, comparable sales came out of the red. Moreover, in the summer the company concluded one of the largest deals M&A in the retail market - bought a network of "Dixie" from almost 2.5 thousand stores and 5 distribution centers for 97 billion rubles. This will allow Magnit to further increase market share., including seriously - in strategically important metropolitan regions.

The company does not lag behind global trends: in the summer of 2020, presented a strategy for sustainable development until 2025. Its main directions: reduction of greenhouse gas emissions, water and energy consumption, increasing the percentage of recyclable packaging used, Increase employee engagement and reduce turnover.

Market share of the largest grocery retailers in Russia in 2020

X5 Retail Group: "Pyaterochka", "Crossroads", "Carousel", "Chizhik"12,8%
"Magnet"10,9%
"DKBR Mega Retail Group Limited": "Dixie", "Bristol", "Red and White", "Victoria", Megamart, "First thing"6,6%
"Ribbon"2,7%
Auchan Retail Russia1,5%
"Traffic light"1,3%
Metro Cash & Carry1,2%
Okay Group: "OK", "Yes!»1,1%
«Coin»0,8%
«Tasteville»0,8%

12,8%

Company's market share by year

20168,1%
20179,0%
20189,1%
20199,4%
202010,9%

8,1%

Number of company stores by year

201716 298
201818 348
201920 725
202021 564
1п202122 344

16 298

Number of stores of the company by type according to the results of the 1st half of 2021

At home: "At home", City, "My price"15 348
Drogheri6527
Supermarket: "Family", «Extra»469

15 348

Indicators of comparable sales of the company by year

LFL salesLFL traffic
2017−3,0%−3,1%
2018−2,5%−2,6%
20190,4%−2,3%
20207,4%−5,9%
1п20215,2%10,0%

Share of own production in domestic demand of some categories of goods

Macaroni13%
Tomatoes22%
Cucumbers22%
Leaf salads43%
Cupcakes51%
Rolls74%
Mushrooms85%
Nuts and dried fruits88%

13%

Обзор «магнита»: продуктовый ретейлер, который борется за лидерство

Financial performance

Magnit's revenue is growing, but net profit gradually decreased until 2019, after which it resumed growth. Net debt, on the contrary, grew until 2019, then decreased, but over the past six months, it has grown somewhat again.

More than two-thirds of the company's revenue comes from the most numerous and popular formats of convenience stores among customers., what distinguishes "Magnet" from "Lenta", the basis of the business of which is the hypermarkets that are losing popularity.

Revenue, net profit and net debt by years, billion rubles

RevenueNet profitNet debt
2017114335,5108,1
2018123733,6137,8
2019136917,1175,3
2020155433,0121,4
1п2021822,222,9136,1

Revenue by store type for Q2 2021

At home: "At home", City, "My price"76,5%
Supermarket: "Family", «Extra»12,1%
Drogheri8,3%
Wholesale2,5%
Other formats0,6%

76,5%

History and share capital

"Magnit" traces its history back to 1995, when businessman Sergey Galitsky founded JSC "Tander", engaged in wholesale sales of household chemicals and perfumes. A few years later, the company changed the concept and began to engage in grocery retail.. In 2000, the brand "Magnit" appeared, meaning "low fare store", in 2006 the company became public. Magnit actively developed and in 2013 became the leader of the grocery retail market, overtaking the revenue and number of stores of the main competitor - X5 Retail Group, in 2014, capitalization exceeded a trillion rubles.

The company of the second half of the 2010s is a very instructive story about, that even an industry leader can go limp if he stops meeting investors' expectations., then stock prices can fall greatly. Moreover, pressure on quotations was exerted by the sale of most of the stake by the head of the company Sergey Galitsky to VTB Bank. In turn, the bank sold a large stake in Magnit to the investment company Marathon Group businessman Alexander Vinokurov, which gradually increased its share to 16,7%. These two companies remain the largest shareholders of Magnit., and the volume of shares in free float is 63% as of mid-September 2021.

Обзор «магнита»: продуктовый ретейлер, который борется за лидерство

Share capital structure of the company

VTB17,3%
Marathon Group16,7%
Gordeychuk V. E.1,1%
Top Management0,2%
Lavreno Limited0,2%
Other shareholders1,5%
Free float63,0%

17,3%

Dividends and dividend policy

The company has a dividend policy, but for the investor it is quite useless, since it does not have a specific formula for calculating dividends. In reality, Magnit regularly pays dividends, increasing them from year to year and providing a fairly attractive yield. But the problem is, that in recent years the payments exceed the net profit of the company, which is not very good, and it is unlikely that it can last that long.

Dividends, dividend yield and profit share, payable in the form of dividends, "Magnet" by year

Dividend per shareDividend YieldShare of profit on dividends
2016278,13 Р2,5%48%
2017251,01 Р4,0%70%
2018304,16 Р8,7%92%
2019304,19 Р8,9%181%
2020490,62 Р8,9%152%

Why stocks can go up

Leadership and expansion. Magnit is one of the leaders of the grocery retail market, but the company does not stand still, expanding your business and increasing market share. In addition, soon the results of the absorbed Dixie will begin to consolidate in the reporting., which will further increase financial performance, and this can become the foundation for the growth of the company's stock prices.

Defense sector. Stock indices - as in Russia, and in other countries - take historical highs against the background of almost continuous growth over the past year and a half. In such a situation, many investors are afraid of correction and choose to invest in protective sectors., to which, certainly, the sector of essential goods also applies.

Improper multipliers. Magnit has pretty decent multiples.: it seems, the company managed to reverse the unsuccessful trend, increased profitability and reduced the debt burden compared to 2019. Yes, "Magnet" is not cheap on the multiplier P / E, but such a price seems justified relative to public competitors.

Why stocks might fall

Sector so-so. In the review of "Tape" we have already discussed in detail, that the grocery retail sector is not the most attractive: incomes of the population are falling, the state is trying to intervene in pricing, and the competition is huge.

The Costs of the Leadership Battle. Magnit is trying to fight for leadership in the industry with X5 Retail Group, because of which the company has to bear large capital costs, as well as significantly spent on M transactions&A. We'll see, how against the background of rising interest rates in the economy, the company will be able to service the debt, which will have to increase significantly due to the purchase of "Dixie". Moreover, Magnit may have problems with the integration of a former competitor into its business. And in general, the purchase may be ineffective and, on the contrary, start pulling "Magnet" down.

Обзор «магнита»: продуктовый ретейлер, который борется за лидерство

Magnit multipliers by year

P / EROENet debt / EBITDA
201718,213,7%1,18
201810,713,2%1,53
201920,49,1%2,03
202017,018,0%1,11
1п202113,123,5%1,04

Multipliers of public grocery retailers for the 1st half of 2021

P / EROENet debt / EBITDA
X5 Retail Group19,337,5%1,00
"Magnet"13,123,5%1,04
"Ribbon"8,6112,7%2,31
"OK"LesionLesion2,33

What is the bottom line

Magnit is a grocery retailer, who is trying to catch up with the market leader. The company is actively developing as intensively, and extensively: opens new stores, tries new formats, engaged in digitalization, tries to create an ecosystem and buys competitors. All this allows you to increase financial performance and market share.

"Magnit" managed to reverse the negative trend of financial indicators of the late 2010s, but big deal M&A can bring as positive, and negative consequences. And the sector of grocery retail, although it is considered protective, but with a lot of problems and a lot of competition.

Moreover, some concerns are caused by the dividends of "Magnit". One side, they are attractive to investors for their profitability, but, with another, in recent years exceed the net profit of the company. In the future, this may create problems or in the form of an increase in the debt burden., or due to the sale of the company's shares, which investors can arrange, dissatisfied with dividends with reduced yields.

Scroll up