X5 Retail Group (MCX, LSE: FIVE) — Dutch holding, owning the largest grocery retailer in Russia by revenue. The company employs more than 335 thousand employees.
About company
X5 takes about 13% grocery retail market, gradually increasing its share in recent years. For the third quarter of 2021, the company manages 18 648 shops in 67 regions of Russia. The company's business consists of several retail chains of different formats and digital services.
"Pyaterochka". Network of convenience stores in the mass price segment. It is the largest network of the company with 17 600 stores. Pyaterochka is the main contributor to the group's revenue, with about 80%. The network has 46.4 million active loyalty cards.
"Crossroads". Supermarket chain in the upper part of the middle price segment. 980 stores of the chain are present in 45 regions of Russia. The chain has a daily audience of 1.8 million buyers, and the number of active loyalty cards is 14 million.
"Carousel". Network of hypermarkets in the mass segment. Back in 2019, X5 announced the transformation of the network, as hypermarkets go out of fashion. Part of the network's stores will be transformed into Perekrestki, some are sold to competitors. As a result, in the three quarters of 2021, the number of stores decreased from 56 to 34. Maybe, in the next few years the network will completely disappear.
"Chizhik". Discount chain, which opened in October 2020. In fact, it is in a pilot state and so far consists of several dozen stores, but X5 is betting quite heavily on it and plans to open 3,000 outlets in the next three years.
"Crossroads Forward". Online hypermarket with door-to-door delivery, which grew out of an online supermarket of the Perekrestok network and is gradually transforming into a marketplace. The assortment is 70 thousand commodity items, infrastructure includes 5 darkstores, and the service is carried out in 12 regions of the country.
Express delivery services. In 2020, amid the pandemic, X5 launched delivery services within 1-2 hours from "Pyaterochki" and "Perekrestki", and in the middle of the year - the aggregator of express delivery "About". The aggregator also works with third-party suppliers — in April 2021, they launched delivery from restaurants.
5Post delivery service. Delivery service from online stores and marketplaces to a network of parcel terminals or to the cash desks of Pyaterochka stores, and more recently, Perekrestok supermarkets.
Dark kitchen chain "A lot of salmon". Purchased in the first half of 2021, the fresh food delivery chain, Including 25 kitchens and four brands.
X5 Media. In July 2021, we launched our own food.ru media platform. This is an online food resource with a mobile application and a community in various social networks..
X5 Bank. In mid-November 2021, the company announced the launch of financial services under the brand "X5 Bank". Debit cards planned, combined with Pyaterochka and Perekrestok loyalty cards. Plans to expand the number of services in the future. The project is implemented by a separate company, co-founded by X5 and Alfa-Bank.
Due to new digital services, the company actually plans to build an ecosystem for its customers. And has already become the largest online retailer. Success continues in 2021: according to the results of the third quarter, the monthly number of active users of digital services increased by 37% and reached 17.3 million.
Naturally, such a huge company cannot exist without extensive infrastructure. The logistics infrastructure of X5 includes 43 distribution centers with a total area of 1.3 million square meters and about 4.2 thousand own trucks.
IT infrastructure is also actively developing: in 2020, a separate business unit "X5 Technologies" was created, which employs several thousand employees. The division develops and maintains hundreds of IT systems and implements many projects. Among the most notable are a single X5 ID for end-to-end customer identification in all company services, pricing and analytics systems using big data technologies, as well as pilot Pyaterochka #Naletu stores without salespeople.
The company is not only actively developing new digital services, but does not forget about traditional offline stores - the Pyaterochka and Perekrestok chains are actively developing on many fronts:
- both chains are actively increasing the number of stores. Expansion is carried out, including geographical: in November 2021, Pyaterochka opened stores in a new region for X5 – the Irkutsk Region;
- existing stores are gradually being converted to new concepts, including more pleasant premises for buyers with better repair, bakeries, cafe zones, self-service checkouts. According to the results of the third quarter of 2021, the number of converted stores reached 23%;
- comparable sales of the company are constantly growing;
- the range is changing by increasing both the share of own brands, and share of ready-to-eat products;
- the share of direct imports is increasing - in 2020 it reached 5,3% in the sales structure. To increase the efficiency of direct import, special teams were formed in Turkey, Serbia, China and South Africa.
X5 assumes, that the main drivers of revenue growth over the next few years will be LFL sales growth in existing stores, expansion of Pyaterochka and Chizhik networks, as well as the multiple growth of digital businesses.
X5's strategic goal is to reach 2023 15% grocery retail market, leadership in the field of digitalization in the industry and focus on ESG. Plans were also announced to enter the only federal district not yet covered by the company - the Far East.
Number of company stores by federal districts for 3 Quarter 2021
| "Pyaterochka" | "Crossroads" | "Carousel" | |
|---|---|---|---|
| Central | 6385 | 547 | 22 |
| Volga | 4671 | 140 | 7 |
| Northwestern | 1816 | 148 | 3 |
| Southern | 1813 | 60 | 1 |
| Ural | 1568 | 76 | 0 |
| Siberian | 994 | 0 | 0 |
| North Caucasian | 353 | 9 | 1 |
Distribution centers of the company by federal districts for 3 Quarter 2021
| Quantity | Area, thousand m2 | |
|---|---|---|
| Central | 14 | 561 |
| Volga | 9 | 230 |
| Northwestern | 6 | 150 |
| Southern | 5 | 143 |
| Ural | 7 | 157 |
| Siberian | 2 | 70 |
Number of company stores and their sales area by years
| Number of stores | Retail space, million m² | |
|---|---|---|
| 2017 | 12 121 | 5,5 |
| 2018 | 14 431 | 6,5 |
| 2019 | 16 297 | 7,2 |
| 2020 | 17 707 | 7,8 |
| 9м2021 | 18 648 | 8,2 |
Structure and estimated revenue of the company
| 9м2021 | Forecast of 2024 | |
|---|---|---|
| "Pyaterochka" | 81,0% | 71,1% |
| "Crossroads" | 15,3% | 13,6% |
| "Carousel" | 1,6% | 0,0% |
| Digital Services | 2,1% | 4,9% |
| "Chizhik" | 0,0% | 9,5% |
| New services | 0,0% | 0,9% |
Market share of the largest grocery retailers in Russia in 2020
| X5 Retail Group | 12,8% |
| "Magnet" | 8,8% |
| "DCBR Mega Retail Group Limited" | 6,6% |
| "Ribbon" | 2,7% |
| "Auchan Retail Russia" | 1,5% |
| "Traffic light" | 1,3% |
| Metro Cash & Carry | 1,2% |
| GC «Okey» | 1,1% |
| «Coin» | 0,8% |
| «Tasteville» | 0,8% |
12,8%
Market share of the largest grocery online retailers in Russia in 2020
| X5 Retail Group | 12,6% |
| "Sbermarket" | 11,2% |
| «Tasteville» | 9,4% |
| Wildberries | 9,0% |
| "Platypus" | 9,0% |
| Ozone | 8,1% |
| "Yandex-shop" | 6,7% |
| "Kick scooter" | 5,8% |
| iGooods | 4,3% |
| "Alphabet of taste" | 2,3% |
12,6%
Company like-for-like sales growth
| 2017 | 5,4% |
| 2018 | 1,5% |
| 2019 | 4,0% |
| 2020 | 5,5% |
| 9м2021 | 3,7% |
5,4%
The share of expected drivers of the company's revenue growth until 2024
| Like-for-like sales growth | 35% |
| Increasing the retail space of the Pyaterochka chain | 27% |
| Increase in the sales area of the Chizhik chain | 25% |
| Digital businesses | 10% |
| Other new services | 3% |
| Increasing the retail space of the Perekrestok chain | 3% |
| Reduction of the retail space of the Karusel chain | -3% |
35%
Financial indicators
X5's revenue has been growing steadily in recent years and, quite possibly, by the end of 2021 will exceed 2 trillion rubles. Net profit from 2018 to 2020 was at the same values - below the profit for 2017. But the profit for 9 months of 2021 exceeds even it - we'll see, what will be the results of the year.
net debt, as well as revenue, growing steadily, in 2021, there is a slight decrease in it. Also worth noting, that the entire debt of X5 is denominated in rubles, which reduces the impact of a possible devaluation.
Financial results of the company, billion rubles
| Revenue | Net profit | net debt | |
|---|---|---|---|
| 2017 | 1295 | 33,8 | 166,7 |
| 2018 | 1533 | 28,6 | 183,4 |
| 2019 | 1734 | 29,7 | 209,3 |
| 2020 | 1978 | 28,3 | 241,9 |
| 9м2021 | 1597 | 35,9 | 230,0 |
Share capital
X5 has two main shareholders: CTF Holdings и Axon Trust. CTF Holdings is part of Alfa Group. Businessmen Mikhail Fridman, German Khan and Alexey Kuzmichev are the main beneficiaries. Axon Trust beneficiaries are the founders of the Pyaterochka network. In free circulation is more than 40% share capital.
Share capital structure of the company
| CTF Holdings S.A. | 47,86% |
| Intertrust Trustees (Axon Trust) | 11,43% |
| X5 directors | 0,09% |
| Treasury shares | 0,01% |
| Free float | 40,61% |
47,86%
Dividends and dividend policy
X5's dividend policy is to pay dividends based on operating cash flow when net debt/adjusted EBITDA is below 2×. The company also plans to increase the absolute amount of dividends year by year.. In November 2020, management changed its dividend policy to include interim dividends, which announce after the results for the third quarter.
X5 complies with dividend policy and regularly raises dividends. The yield in recent years was 5-6%, which is a bit by Russian standards, but worthy for a growing company.
History of the company's dividend payments
| Dividend on GDR | Dividend yield | Profit share on dividends | |
|---|---|---|---|
| 2017 | 79,5 R | 3,7% | 64% |
| 2018 | 92,06 R | 5,3% | 87% |
| 2019 | 110,47 R | 5,2% | 101% |
| 2020 | 184,13 R | 6,7% | 177% |
| 9м2021 | 73,65 R | 3,1% | 57% |
Why stocks can go up
Sector Leader. In recent years, X5 has not just been a sector leader, but also grew faster than the market. The main thing is that the company does not rest on the laurels of leadership, and actively developing on all fronts: launches many digital services, enters the segment of discounters, develops and optimizes its traditional offline networks.
The geography of presence in the richest regions also has a positive effect: 28% in St. Petersburg and the Leningrad region and 17,5% in the Moscow region at the end of 2020. An additional driver for the growth of X5 depositary receipts in the medium term may be the IPO of digital services over the next few years.
Something about the defense sector. In articles about other representatives of food retail, For example, in the review of "Tapes", we have already considered, that representatives of the product sector are obvious candidates for inclusion in the conservative part of the investor's portfolio.
Improper multipliers. X5 has good multipliers: low debt burden, unusually high return on equity for a retailer, while growing. According to the multiplier P / E company is valued more expensive than competitors, but it's logical: a more profitable industry leader should cost more than less efficient and large competitors.
Why stocks might fall
The sector is not without cons. Traditional grocery retail is not a very marginal sector in itself, since its main essence is the resale of products of other manufacturers with significant costs for stores, personnel and logistics. And the government is trying to intervene in pricing against the backdrop of inflation and falling incomes of the population. Besides, now many retailers incur significant costs for the development of digital services - mainly online delivery.
Another feature of the sector is great competition.: many players in the market, at the same time, most of the large ones are actively investing, opening many new stores, investing heavily in this. And in the wake of digitalization, competitors have increased in the face of marketplaces, like Ozon, Wildberries and new ecosystems of the giants of the Russian economy: "Yandex" and "Sbera". This was even noted by CEO X5, calling the pressure from marketplaces and ecosystems unprecedented. Where is the big competition?, costs are rising and margins are falling.
Escalation of the struggle for leadership. In the review of "Magnet" we have already discussed, that the X5's main competitor is "back in the game": like-for-like sales started to rise again, and the acquisition of Dixie should seriously increase financial performance. Quite possibly, that the X5 will have to pay back for an expensive acquisition of a competitor, to keep the status quo.
Besides, X5 growth rates gradually decreased and in 2020 caught up with the average of the top 10 players in the market - a slowdown in growth is obvious.
All these factors have not gone unnoticed by investors.: if the quotes of Magnit over the past year have grown by about 20%, then X5 quotes, vice versa, fell on 20%, and in mid-October 2021, the capitalization of Magnit for the first time in several years exceeded the capitalization of X5. If X5 loses sector lead, then its capitalization may decrease even more.
Problems with registration. The denunciation of the tax treaty with the Netherlands may result in additional costs for the company, especially since she is not going to change jurisdiction yet.
Growth rate of the company's revenue
| X5 Retail Group | Top 10 players | Market | |
|---|---|---|---|
| 2016 | 28% | 18% | 2% |
| 2017 | 25% | 9% | 5% |
| 2018 | 18% | 10% | 4% |
| 2019 | 13% | 10% | 7% |
| 2020 | 14% | 14% | 2% |
Company multipliers
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| 2017 | 17,5 | 21,3% | 1,68 |
| 2018 | 16,4 | 17,3% | 1,67 |
| 2019 | 19,5 | 25,5% | 0,97 |
| 2020 | 26,4 | 29,8% | 0,99 |
| 9м2021 | 17,3 | 37,1% | 0,89 |
Multipliers of public food retailers for 1H2021
| P / E | ROE | Net debt / EBITDA | |
|---|---|---|---|
| X5 Retail Group | 19,3 | 37,5% | 1,00 |
| "Magnet" | 13,1 | 23,5% | 1,04 |
| "Ribbon" | 8,61 | 12,7% | 2,31 |
| "OK" | Lesion | Lesion | 2,33 |
Eventually
X5 Retail is the leader in the grocery retail sector, actively expanding and transforming its business. The company discovers new formats, develops many digital services for both clients, as well as for internal needs, does not forget about the organic growth of traditional offline networks.
In recent years, the X5 has grown faster than the market, but growth is slowing down, and competitors are not asleep — in particular,, "Magnet" comes on heels again. Investors got nervous and sold the company's securities - the price fell by about 20% for the year. Maybe, this is a good entry point, but worth keeping in mind, that the loss of leadership in the sector could cause an even more serious drop in quotes.
