Overview of Russian retailers. What to choose as a retail investor
Let's analyze Russian retailers using the example of its seven main representatives, which are traded on the Moscow Exchange.
Key players
Х5 Group (MOEX: FIVE) Is the largest Russian food retailer, which consists of the following brands: shops near the house "Pyaterochka", supermarkets "Perekrestok", hypermarkets "Karusel", hard discounters "Chizhik", online hypermarket "Perekrestok Vprok", last mile delivery service 5Post, own aggregator "About", Media platforms Food.ru, financial service "X5 Bank" and ready-made food service "A lot of salmon".
"Magnet" (MOEX: MGNT) Is the second largest Russian grocery retailer by market share, which is also the leader in terms of the number of stores and the geography of their location. The company operates within a multi-format model, which includes convenience stores and drogerie stores, supermarkets and pharmacies. As of 31 December 2020 of the year "Magnit" owned 21 564 store in 66 regions of Russia.
Fix Price (MOEX: FIXP) is an international chain of stores for the whole family with a wide range of home goods at low fixed prices. The retailer network consists of more than 4750 stores in Russia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Latvia and Uzbekistan.
"Child's world" (MOEX: DSKY) is the largest Russian retailer of children's goods in Russia, Kazakhstan and Belarus, which works in the middle price segment. The company develops the following formats: large area shops "Detsky Mir", online store and marketplace detmir.ru, ultra-small store "Detmir" and a chain of goods for pets "Zoozavr".
"Ribbon" (MOEX: LNTA) is a major Russian retailer, based in 1993 year in St. Petersburg. The company operates the largest hypermarket chain in the country, which has 255 stores. Beyond hypermarkets, Lenta operates in the supermarket segment, develops online sales, and also recently entered the convenience store market with its own brand "Mini Lenta".
"M Video" (MOEX: MVID) Is a leading Russian chain of stores in the field of e-commerce and retail of electronics and household appliances. The retailer's business is based on two brands - "M-video" and "Eldorado". The company occupies about a quarter of the Russian household appliances market, and is among the world's top ten largest players in its segment in terms of sales.
"OK" (MOEX: OKEY) is a Russian retail chain, which specializes in the food trade. The company works with three formats: O'KEY hypermarkets, discounters "Yes!» and an online store, which ensures the delivery of products to the door of the buyer.
Key financial indicators of companies
| X5 | Magnet | Fix Price | DM | ribbon | M Video | OK | |
|---|---|---|---|---|---|---|---|
| Number of stores, PCS. | 18 648 | 25 315 | 4753 | 1014 | 674 | 1178 | 206 |
| total area, thousand. м² | 8212 | 8723 | 1022 | 1179 | 1726 | 2081 | 605 |
| Capitalization, billion rubles | 651 | 675 | 517 | 100 | 108 | 106 | 12,4 |
| How much is the chain store priced, million rubles | 34,9 | 26,7 | 108,8 | 98,6 | 160,2 | 90 | 60,2 |
| How much revenue per year brings the store, million rubles | 114 | 67,9 | 46,7 | 159,3 | 683 | 387,7 | 882 |
Market
Consider three markets: baby goods, where "Children's World" works, household appliances and electronics, whose main player is M-video, and a food market with five issuers.
Children's goods market. Its leader is "Children's World", he takes a share 22% on the entire Russian market and share 64% in the online sales market among online stores of children's goods. IN 2020 the presence of equally strong offline- and online sales channels helped the retailer show an increase in financial results, even taking into account the, that some of the chain's stores were closed due to quarantine restrictions.
Household appliances market. Its leader is M-video with a share 27%. According to the retailer, the entire Russian market of consumer electronics is valued at more than 25 billion US dollars, with an average annual growth rate over the past five years 10%. At the same time, in 2020 year, the market grew stronger 22%, due to increased customer demand.
Food market. The total market volume is estimated at 16,4 trillion rubles. Market leader — Х5 Group with shares 12,8%. The attractiveness of the Russian grocery retail market lies in its scale, it also has significant growth and consolidation opportunities for major players: total market share of the ten largest retailers in total 37%.
The online sales segment has the greatest growth potential in the Russian grocery market, which up 2023 year should grow by more than 4,5 times from the current values in 155 billion rubles to 704 billion rubles. Of the five grocery stores presented, only one company is included in the top ten largest online retailers - X5 Group, which also occupies a leading position in this sales channel.
Russian food market in shares
| 2020 | 2019 | |
|---|---|---|
| Х5 Group | 12,8% | 11,5% |
| Magnet | 8,8% | 7,6% |
| Red & white | 6,6% | 5,7% |
| ribbon | 2,7% | 2,5% |
| Auchan | 1,5% | 1,5% |
| Traffic lights | 1,3% | 0,7% |
| Underground | 1,2% | 1,1% |
| OK | 1,1% | 1% |
| Coin | 0,8% | 0,7% |
| Vkusville | 0,8% | 0,6% |
10 leading grocery online retailers in Russia
| Market share in 2020 year | Market share in 2019 year | |
|---|---|---|
| Х5 Group | 12,6% | 10,2% |
| Sbermarket | 11,2% | 3,7% |
| Vkusville | 9,4% | 0,5% |
| Wildberries | 9% | 4,7% |
| Platypus | 9% | 19,5% |
| Ozon.ru | 8,1% | 12,8% |
| Yandex shop | 6,7% | 0,7% |
| Kick scooter | 5,8% | 0,9% |
| iGooods | 4,3% | 5,3% |
| alphabet of taste | 2,3% | 4% |
Transformation of the Russian food market in shares
| 2019 | 2020 | 2021 | 2023 | 2030 | |
|---|---|---|---|---|---|
| Online | 0,3% | 0,9% | 1,7% | 4% | 11% |
| Convenience stores | 27% | 29% | 30% | 32% | 35% |
| Supermarkets | 22% | 21% | 20% | 19% | 15% |
| Hypermarkets | 13% | 11% | 10% | 9% | 5% |
| Hard discounters | 2% | 3% | 3% | 4% | 5% |
| Other formats | 12% | 14% | 16% | 16% | 20% |
| Traditional formats | 24% | 21% | 19% | 16% | 9% |
Growth Drivers
Х5 Group. The company has two main growth factors. The first is the IPO of the online segment: it can take place in 2022-2023 after attracting a strategic partner. According to the media, valuation of this X5 digital business will be in the range from 3 billion to 4,5 billion dollars, which corresponds to 32-48% of the company's current capitalization. The second factor is organic growth., which will lead to an increase in financial performance and dividends. The retailer intends to open more than 7 thousand new stores, current number of X5 stores - 18 648.
"Magnet". The main driver is network growth. As part of the strategy to 2025 year, the company plans to open convenience stores per year - 1000-1500, cosmetics stores - 750-1000, supermarkets and superstores - 5-15.
Fix Price. Key message is double-digit growth in financials, his company plans to achieve by increasing its network to 15 500 stores, now on the net 4753 the store. The company also plans its growth by increasing the Russian market for goods at low prices., whose annual CAGR is up to 2025 year will be 20%.
"Child's world". The most important factor in the growth of the company is the development of online- and offline segments, at which the retailer will continue to show growth in financial performance by 10-15% and a double-digit dividend yield. "Children's World" 2024 plans to double its store network and increase the share of online sales in overall results to 45% against the current 27%.
"Ribbon". The main growth driver is the new dividend policy. The company will pay more 100% FCF, if the multiplier is "net debt / EBITDA will be below 1.0×, to 100% FCF, if this ratio is from 1.0× to 1.5×, no more 50% FCF, if more than 1.5 ×.
Big payouts to investors should be expected only after 2023 of the year: now "Lenta" is holding M&A-transactions, that eat up the whole FCF. For example, this year FCF for 9 months is negative and equals -13.6 billion rubles against the background of the acquisition of two networks for more than 20 billion rubles, and in 2022 And 2023 the retailer plans to consider new mergers and acquisitions.
"M Video". The main idea in the shares of the company is dividends, the large payout of which is protected by the fact, that the main owner of the retailer M. Gutseriev needs money to reimburse the Central Bank. To 2024 year, the M-video majority shareholder must return Otkritie and Trust banks about 2 billion dollars.
"OK". The key growth factor is the development of the Da!»: on the horizon of four years, their share in the total indicators of the retailer should increase from the current 19% to 50%. This will happen due to the growth of the network of discounters - up to 2024 year "OK" plans to open 200 new stores Yes!», currently stores 129. Current network cost "Yes!» 44,5 billion rubles on average. This is more than three times the current capitalization of the entire “Okay”.
Profit distribution
Russian retailers are trying to distribute all earned net profit for dividends.
Х5 Group. The retailer plans to maintain payments at the level of at least annually for the next three years. 2020 year is 50 billion rubles, as a maximum - to increase dividends on 10% in year. For 2021 year the company expects to return to shareholders 50 billion rubles, what corresponds to the payment 184,135 Р на 1 GDR and 7,5% dividend yield.
"Magnet". In the dividend policy, the retailer does not have a fixed rate of profit distribution, at the same time, the company has been trying for the last three years to pay its shareholders the maximum possible dividend, which sometimes exceeds 100% earned net profit.
Fix Price. The retailer distributes profits on a semi-annual basis: for the first half and second. Target level of payments - not less 50% net income under IFRS, but the de facto norm is 100% net profit amid low debt burden.
"Child's world". The children's goods store returns profits to shareholders twice a year: behind 9 And 12 Months. According to the dividend policy, the company must pay at least 50% net income under IFRS, but management distributes more - 100% net profit under RAS.
"Ribbon". The retailer has never paid a dividend in its history., but management wants to fix it. In November 2021 the company adopted a new dividend policy, which will distribute to 100% free cash flow.
"M Video". The company's dividend policy is focused on distribution 100% consolidated net profit under IFRS, provided, that "net debt / EBITDA" less than 2.
"OK" - the retailer does not have a fixed rate of profit distribution, therefore, each year the board of directors itself determines, what dividend the company will pay to its shareholders.
Financial results
Russian retailers have shown double-digit growth rates over the past few years. Fix Price and Detsky Mir show the strongest dynamics among the companies represented, and the weakest - "OK" and "Tape".
Comparison by multipliers
| EV / EBITDA | P / E | P / S | net debt / EBITDA | |
|---|---|---|---|---|
| X5 Group | 5,76 | 16,16 | 0,31 | 1,50 |
| Magnet | 7,41 | 13,99 | 0,39 | 1,92 |
| Fix Price | 17,64 | 28,95 | 2,49 | 0,68 |
| Child's world | 6,34 | 7,74 | 0,63 | 1,18 |
| ribbon | 4,79 | 7,98 | 0,24 | 1,69 |
| M Video | 6,29 | 8,21 | 0,24 | 2,33 |
| OK | 3,16 | Otric. | 0,07 | 2,32 |
What's the bottom line?
Preference should be given to companies, that suit your investment style:
- If you are looking for the strongest business in Russian retail, then your favorite is X5 Group.
- If you are interested in big dividends, then you should choose between "M-video", "Magnet" and "Children's World".
- If you only invest in growth stories, then it will suit you or Fix Price, or "Children's world".
- If you are a Value Investor, then your choice is "OK", "Ribbon", M-video and X5 Group.
