Magnit shares have fallen 16% since Friday

Magnit shares, which fell by 10.2% on Friday after the publication of poor annual reports, continue to fall in price today - at 14.30 the fall is 6%. The last time Magnit was this cheap was in 2012.

• On Friday, Magnit's shares collapsed after the publication of its annual report for 2017: the network's net profit fell by 34.7% to 35.53 billion rubles. EBITDA margin fell from 10% to 8%. Magnit's revenue for 2017 grew by only 6.4% - to 1.14 trillion rubles, which turned out to be lower than the Interfax consensus forecast and investor expectations.

• As a result, at the end of 2017, Magnit for the first time in many years lost in total revenue to its main competitor X5 Retail Group (Pyaterochka, Perekrestok, Karusel chains). Magnit gave leadership in the food retail market to X5 back in 2016. X5's revenue in 2017 increased by a quarter to RUB 1.28 trillion.

• The lag forces Magnit to invest all its resources in development. Last week, the retailer said it would not pay dividends in 2018, after previously paying out 60%-70% of annual net profits to shareholders. In November 2017, the main owner of the chain, Sergei Galitsky, sold a 7.5% stake in Magnit and invested 43 billion rubles in the company. X5 Retail Group, on the contrary, begins paying dividends to its shareholders.

• The rapid decline in Magnit shares began last fall, when it became clear from the company’s reporting that its growth was rapidly slowing down. The company explained the poor performance by high operating costs - the opening of new stores, renovation of old ones and the construction of a mushroom growing complex in the Krasnodar region.
• Since September 2017, Magnit has fallen in price by half - from 1 trillion rubles to 530 billion (current capitalization on the Moscow Exchange).
• In 2017, according to Rosstat, retail trade turnover increased by 1.2% to 29.8 trillion rubles. In 2016, this figure fell by 5.2%.

What's in it for me?

It is difficult to say whether Magnit's shares have found the bottom, but the decline in the company's profits must stop at some point: its main reason is the redesign of stores, with which X5 was ahead of its main competitor. At the same time, the market is growing, and Russians do not want to spend less.

Marina Bocharova, The Bell