Magnit PJSC

Weekly Valuation  – Valutico | 29 July 2022

Click here for the detailed valuation: link

Magnit is a Russian food and pharma retailer headquartered in Krasnodar. According to the company, it has around 260,000 employees and operates more than 5,500 supermarkets, over 100 hypermarkets and nearly 500 drugstores in a total of over 1,500 locations in Russia. The company is dual listed on the London and Moscow stock exchanges.

When Russia invaded Ukraine, the share prices of many Russian companies tanked. On the day of the invasion and the days that followed, massive panic selling occurred and Magnit was not spared. It declined by ~99% in value to close at $0.012 per share in London before trading was suspended. 

This represents a market capitalisation for the entire company of $6 million. Analysts forecast that Magnit is expected to generate free cash flow of about $500m this year, giving the company a free cash flow yield of 8.333% (!!). On the Moscow Stock Exchange, where share trading subsequently resumed, Magnit is trading at levels close to its pre-invasion share price, resulting in a of roughly $7bn for the company and a free cash flow yield of ~10%. While there is some suggestion that the price has been artificially inflated politically, as foreign investors cannot yet participate in the market, there can be no denying that a good volume is being traded between willing domestic buyers and sellers. 

Valutico has analysed whether the London price (that Magnit is worth basically 0) or the Moscow price (that Magnit is worth ~$7bn) is correct, or whether the answer lies somewhere in between. We have set 31 December 2021 as the valuation date in order to leave politically influenced fluctuations out of the equation and have come to a surprising conclusion:

The market cap at the end of 2021 was $9 billion (RUB 533 billion). Our DCF WACC delivers a valuation of $10.8 billion (RUB 639 billion). Trading multiple valuations based on peers also make these results plausible. All in all, we estimate a valuation range of $ 9. billion (RUB 557 billion) and $ 12 billion (RUB 688 billion). The company could therefore have been considered undervalued at the time. 

With the war in Ukraine creating so much uncertainty it is incredibly difficult to make accurate earnings predictions, however defensive industries such as food retailing typically survive such conditions. We, therefore, consider Magnit to be massively (in London) to slightly (in Moscow) undervalued. 

Click here for the detailed valuation: link