Grocery retail in 2022 year: overview of the Russian market and analysis of the leading players X5 Group, "Magnet", Fix Price, "Tape" and "Okay

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X5 Group

X5 Group (MOEX: FIVE) — Russian grocery retailer, which is actively developing stores near the Pyaterochka house, Supermarkets "Crossroads", hypermarkets "Karusel", discounters "Chizhik", online hypermarket "Perekrestok Vprok", 5Post delivery service, express delivery of groceries from stores and a ready-made meal service “A lot of salmon”.

X5 Group в 1 half of 2022 showed strong results: total revenue increased by 18,8% — up to 1.25 trillion rubles due to the growth of digital businesses by 59% and confident sales of Pyaterochka, and also due to the growth of the average check by 9.2% across the entire group against the backdrop of accelerating inflation in Russia.

The main segment of X5 Group — Pyaterochka — increased by 19,5% due to the growth of the average check, which added 9,8%, and network expansion: in the first half of the year, the company opened 586 new stores, on 27 more, than last year.

The digital business has grown by 59% — up to 33.5 billion rubles — amid strong demand for express delivery services for groceries from Pyaterochka and Perekrestok, which grew by 70% year on year. But the results of the Perekrestok Vprok online hypermarket added significantly less - only 36% due to the reduction in real incomes of the population.

As for the current growth drivers of X5 Group, then all of them are connected with the further development of digital businesses and the Chizhik discounter, which in the medium term should grow at a faster pace against the backdrop of the transformation of the Russian food market.

Shareholders of the company will have to put up with the lack of dividends for some time due to the blocking of the European financial infrastructure for coupon and dividend money transfers.. X5 Group is registered in the Netherlands, so now payments are not possible due to technical reasons.

X5 Group results, billion rubles

	6м2021	6m2022	The change
Offline sales	1030	1210	+18%
Online sales	21	33,5	+59%
General Sales	1050	1250	+18,8%
LFL sales	3,1%	11,7%	+8,6 P. P.
Total average check	434 R	474 R	+9,2%
Total number of stores	18 324	19 779	+8%

"Magnet"

"Magnet" (MOEX: MGNT) — the second largest Russian grocery retailer in terms of market share, which develops a network of convenience stores, self-service stores, supermarkets and pharmacies. In mid-2021, the company acquired 2,612 Dixy stores and almost caught up with the sector leader.

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IN 1 in the first six months of 2022, Magnit managed to overtake its main competitor X5 Group in terms of growth rates: total revenue increased by 39%, up to 960 billion rubles, and excluding Dixy stores - by 19,8%. The main reason is the growth of the average check per 14,1% - against 9,2% in H5 Group.

Almost all key trends of the two leading players in the Russian food market are similar. The main segment of Magnit — convenience stores — also showed outperforming dynamics and grew by 20.9% due to an increase in the average check. During the reporting period, the company opened 750 new stores and closed 96 old Dixy stores.

The main difference between Magnit and X5 Group is the three-digit growth of the online segment, whose turnover in the first half of 2022 increased by 718% against 59% in H5 Group. The discrepancy is explained by, that Magnit entered online commerce at the end of 2020, and X5 Group at that time was already the market leader.

In 2022, Magnit may return to dividend payments, because the retailer closed its GDR program: 20 In May, the company's management sent J. P. Morgan Chase a notice of termination of the depositary agreement and announced its withdrawal from foreign stock exchanges. Now nothing prevents Magnit from paying net profit on ordinary shares, which are traded on the Moscow Exchange.

Magnit results, billion rubles

	6м2021	6m2022	The change
total revenues	800	1110	+39%
Online sales turnover	2,3	16,5	+718%
LFL sales	4,7%	13,1%	+8,4 P. P.
Total average check	342 R	390 R	+14,1%
Total number of stores	22 344	26 731	+19,6%

Fix Price

Fix Price (MOEX: FIXP) is an international retailer for the whole family with a wide range of household goods at low fixed prices. The company's network consists of more than 5250 stores in Russia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Latvia and Uzbekistan.

IN 1 H1 2022 Fix Price presented good results: the retailer's total revenue increased by 24,2% — up to 131.8 billion rubles — thanks to the expansion of the store network and the growth of the average check, which added 16,5% year on year on the back of strong consumer demand.

The total number of Fix Price stores increased by 363, which is fully in line with previous management forecasts: the company intends to open 750 new stores in 2022. EBITDA margin in the reporting period amounted to 19,2%. With revenue of 131.8 billion rubles, we get EBITDA, equal to 25.3 billion rubles, — against 15 billion rubles in the first half of 2021.

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The main growth driver of Fix Price should be considered a long-term business plan of management, according to which the retailer intends to open at least 15 500 stores in Russia and the CIS, and from 2023, the growth dynamics of the network should increase from 750 to 800 new stores per year.

Regarding the dividend issue, then the company has an identical situation with X5 Group: management is unable to pay out net income on GDRs, as the payment will be blocked by European regulators. Fix Price has a permanent registration in the Republic of Cyprus.

Fix Price Results, billion rubles

	6м2021	6m2022	The change
total revenues	106,1	131,7	+24,2%
EBITDA margin	14,1%	19,2%	+5,1 P. P.
EBITDA	14,98	25,3	+68,8%
LFL sales	11,9%	13,5%	1,6 P. P.
Total number of stores	4585	5267	+14,8%

"Ribbon"

"Ribbon" (MOEX: LENT) - grocery chain, which operates hypermarkets, supermarkets and convenience stores under the Mini-Lenta brand, and also develops online sales. At the beginning of 2022, the company acquired the Utkonos online retailer.

Tape in 1 half of 2022 showed mixed performance: On the one side, revenue increased by 20,3% — up to RUB 262 billion — through mergers, acquisitions of other small companies and development of small formats, On the other hand, EBITDA and net income decreased by 12 and 37%, respectively, due to increased operating costs.

"Lenta" opened 62 new and closed 10 old shops. However, the retailer's network almost doubled year-on-year, mainly due to acquisitions by other retailers - in 3 quarter of 2021, Lenta bought out regional competitors: Semya group of companies and Billa Rossiya supermarket chain.

The company has two main growth drivers. The first is the development strategy, within which the retailer plans to double its revenue by 2025 and reach the mark of a trillion rubles. The second is a new dividend policy, under which the company intends to pay all free cash flow in the medium term. But for the 2022 dividend, probably, will not, according to management forecasts.

Lenta results, billion rubles

	6м2021	6m2022	The change
Revenue	218	262	+20,3%
EBITDA margin	8%	5,9%	-2.1 p. P.
EBITDA	17	15	−11,8%
Net profit	5,36	3,35	−37,4%
LFL sales	−0,7%	5,2%	+5,9 P. P.
Total number of stores	406	809	+99,3%

"OK"

"OK" (MOEX: OKEY) - retail network, which specializes in the food trade. The company works with three formats: hypermarkets "OK", discounters "Yes!» and an online store with delivery.

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"OK" in 1 half of 2022 presented good results, increasing your revenue by 10,4% — up to 96.8 billion rubles — thanks to the impressive performance of the Da!», whose sales increased by 63%. The main segment of hypermarkets performed much worse, its results decreased by 1% year-on-year due to a strong drop in the number of buyers.

Based on current results, the company successfully continues its transformation, within which management wants to rebuild its business through the development of discounters — in the reporting period, management opened 13 new stores: 12 discounters "Yes!"and hypermarket" Okay ".

With regard to dividends, the company recently announced a payment for 1 half year 2022 in the amount 0,03159 € per share. Current dividend yield - 6,6%. The register for this payment is already closed, so new investors can't get it.

Results of the network "Okay", billion rubles

	6м2021	6m2022	The change
Hypermarkets "OK"	72,061	71,3	−1,1%
Discounters "Yes!»	15,63	25,51	+63,2%
total revenues	87,69	96,81	+10,4%
LFL sales	0,5%	4,8%	+4,3 P. P.
Total number of stores	199	243	+22%

What's the bottom line?

All representatives of retail are interesting in their own way:

"Magnet" is the safest option, as the company may return to dividend payments this year. The negative side is the fact, that the value of shares practically did not fall on the Moscow Exchange.
X5 Group is the most balanced option with good growth potential, but no dividend. The retailer not only leads the Russian offline market, but also among the top 3 leading players in the online grocery industry.
Fix Price is the fastest growing business, which for a while, as well as X5 Group, will not be able to pay dividends. The retailer's current growth rate is 25-30% versus 10-20% for other companies.
Lenta is an inexpensive business with an ambitious business plan. The retailer intends to increase its revenue from 483 billion rubles to a trillion by 2025. In this case, the average annual growth rate will be 20%.
Okay is the cheapest asset in the sector, which is in the process of transformation due to the opening of new discounters.

Retailer results in 1 half of 2022

	Revenue dynamics	LFL sales	Network Growth	Dividend restrictions
"Magnet"	39%	13,1%	+654 the store	Not
Fix Price	24,2%	13,5%	+363 the store	Yes, sanctions
"Ribbon"	20,3%	5,2%	+52 the store	Not, but payments in 2022 are not planned
Х5 Group	18,8%	11,7%	+658 stores	Yes, sanctions
"OK"	10,4%	4,8%	+13 stores	Yes, sanctions, but the company announced them anyway