Business News Europe Rates Magnit a Buy
Published December 17th, 2007 in krasnodar, retail. Tags: No Tags.Magnit: 11M07 trading update: Still on track
December 17, 2007
Revenue up 50%. Magnit (MGNT - Buy) this morning released a trading update for 11M07. Revenue increased by 49.2% YoY to $3,212 mln, in line with our expectations. The retailer opened 228 stores during the period, bringing its total store network to 2,121. Total selling space increased by 24.5% YoY to 618,759 sq m.
Strong 2007 results expected. The 11M07 operating data bodes well for strong 2007 financial results: We expect revenue to increase by 48.7% YoY to $3.7 bln, EBITDA to surge by 62.4% YoY to $199 mln, and net income to increase by 43.4% YoY to $82 mln. Magnit is generally on track to meet its 2007 new store rollout target; in a worst case scenario it may fall 15-20 stores short of the full-year target of 300 due to operational pressure from its hypermarket project. The launch of Magnit’s hypermarket project - last Friday it announced the opening of its second hypermarket and we expect to see at least 20 more in 2008 - heralds a new stage in its evolution.
Investment case intact. We continue to view the Magnit investment case as high quality and believe the stock offers the best exposure to food retail growth in the Russian regions. We rate Magnit’s execution risk as low given its solid track record of meeting aggressive organic growth targets. At a 2008E EV/EBITDA of 12.6, Magnit trades with a significant premium to emerging market peers; however, at a 2006-10E EPS CAGR of 43.7% and on a 2008E PEG of 1.0, it is undervalued to the emerging market peer average by almost two-fold. We reiterate our Buy recommendation on the stock.
