Analysis of Magnit

Company: Magnit

ISIN US55953Q2021 | WKN A0MVY2

Business: A Russian retail chain that are being called the Wal-Mart (see analysis of Wal-Mart) of Russia and is currently the largest retail chain since it went passed the X5. The have four store formats convenience store (8143 of them), hypermarket (181 of them), "Magnit Family" stores (76 of them) and cosmetics stores (1000 of them). From what I have understood then each new built store is paid back in full after 3 years and to protect themselves against corruption they perform lie-detector tests on employees.

Active: Russia, mainly in the western parts but growing quickly towards the east.

P/E: 31.6 (crazy high for a Russian company today!)

Comment: The analysis is based on the equivalent of GDR stocks. One of the biggest investors, besides from the founder Sergey Nikolaevich Galitskiy with 40%, is OppenheimerFunds, Inc.

The P/E of Magnit is far, far too high for me with 31.6 and the P/B is also too high with 7.1 which in total gives a no go from Graham. The earnings per sales are fully acceptable with 5% and the ROE is spectacular with 22.4%. The book to debt is also great with a ratio of 0.9.
In the last five years they have had a spectacular yearly revenue growth of 27,7%! This then gives us a motivated P/E of 45 to 55 which means that Magnit is today undervalued on the market.
They pay a tiny dividend of 0.9% (but they increase the dividend like mad each year!) which on the other hand only represented 28% of their earnings so there is room for improvement especially considering their spectacular growth.

Conclusion: Graham says no to Magnit and I am uncertain. When I bumped into Magnit due to a documentary on TV then I must say that I got a bit of Primark and ABF feeling about it... so a typical Peter Lynch growth stock. I could almost manage to convince myself to buy it by looking at the running earnings for 2014 since then the P/E is getting closer to 20 but in the end I find it to be too expensive and especially since I never managed to dig out how many customers they serve today. So P/E and P/B are too high, the ROE is however excellent but also the dividend is too tiny for my liking. My problem is that I get a feeling that I will hate myself for not investing in this extreme growth company...

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