VTB mulls buying more "undervalued" Magnit shares, believes in retailer's future
MOSCOW. Dec 20 (Interfax) - VTB , which invested in Magnit almost two years ago, believes in the Russian retailer's transformation program, which has not yielded clear positive results yet, the state bank's first deputy CEO, Yury Solovyev said in an interview with Interfax.
"As for Magnit's prospects, we are still confident in our investment and believe that the company is significantly undervalued. It is going through a difficult period of business transformation and, yes, in general the whole sector is in a downward trend, both in terms of traffic and in terms of tickets. Despite market trends, Magnit has managed to increase shopper traffic and the average ticket in the past year," Solovyev said.
Magnit, Russia's largest retailer by number of stores, saw like-for-like sales slump 0.7% in the third quarter of 2019 after three consecutive quarters of growth. LfL traffic fell 3.4% while the average ticket rose 2.8%. In the first nine months of 2019 overall, Magnit's LfL revenue was up 0.5% thanks to a 3.7% increase in the average ticket.
The VTB Group acquired a 29.1% stake in Magnit from the retailer's founder Sergei Galitsky for 138 billion rubles in early 2018. VTB subsequently sold 11.8% of Magnit to Marathon Group, reducing its stake to 17.3%. VTB head Andrei Kostin told Interfax at the time that VTB might buy more shares in Magnit on the market, not raising its stake above 20%.
Solovyev said that Magnit is now "focused on increasing internal efficiency and challenges related to increasing traffic - solving problems with goods on shelves, their availability, composition, speed of delivery and quality."
"There is a whole range of programs aimed at increasing sales density [at the chain's stores]. It's not right if sales density per square meter at hypermarkets is higher than at convenience stores like Magnit. We're working on this. There are also programs to reduce costs and digitize the company itself. We hope that our efforts will bring results," Solovyev said.
"We're seriously considering this issue," Solovyev said, commenting on the possibility of buying more shares in Magnit considering that they are now far from their peak value.
Magnit, which has seen several major changes in senior management since the change of ownership, has been headed by former Lenta CEO Jan Dunning since June 2019. Solovyev said Magnit will see further new appointments.
"We will continue to strengthen the team. I am now devoting a lot of working time now to soccer [as chairman of Moscow's Dinamo Football Club] and will draw the following analogy. As the owners of Dinamo, we set three transfer windows for ourselves in order to try to arrive at the ideal composition of the team. With Magnit it's the same thing, we're also building a highly effective team of like-minded people who will be united and motivated by the same goals, who will have a high level of professionalism in order to achieve greater teamwork, in order to understand one another with half a word and speak the same language," Solovyev said.
There will "certainly be" appointments, he said, adding that the company, considering the scale of its business and impact on the Russian economy, "must be managed by first class managers."
"In any case, this is a long-term project for us, so we're not counting on fast results," Solovyev said.