2023-08-03 06:05:29
When a company of this level gives a yield on bonds of 13-14% against the backdrop of a key 7.5-8.5% – these are “bells”. Let’s analyze the company’s statements, look at the debt, evaluate the prospects.
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M.video is the largest offline retailer of equipment and non-food products (including dishes and oven mitts). Online is inferior to Citylink and CSN. In 2018, the network merged with its key competitor, Eldorado, and also bought a TOP-5 player (Media Markt), effectively doubling its revenue.
CAGR (average annual growth rate) for 5 years – 6%, revenue decline in 2022 by 16% due to lower demand (the entire market showed negative dynamics), pressure from online competitors and new players working on parallel imports.
Long-term negative dynamics of all profitability indicators due to increased competition (pressure from online companies), industry risks (distributors leaving, increased logistics costs), and a decrease in real incomes of the population. The operating margin has been balancing at zero for the last 2 years. The company is unprofitable in terms of net profit.
For a long time, M.Video’s business was almost entirely financed by supplier deferrals: the distributor gave a delay of 120-180 days (as the largest chain of stores), M.video sold goods in 60-90 days, and placed money on deposits for the remaining time. Capital was not needed – almost everything was distributed through dividends. Now the share of capital is 2%. The assets have the potential to be written off (goodwill).
Supplier delays are now smaller. The debt burden is growing: debt exceeds capital by 15 times (excluding debt to suppliers).
Business stability is high: the company is a leader in its segment with high diversification. High recognition. M.video is a standard in terms of information disclosure and transparency for investors. Credit history is impeccable. Industry risks are associated with the departure of distributors, the replacement of the assortment, the deterioration of the conditions for deferrals, and the pressure from online competitors. Profitability indicators are deteriorating. Liquidity is low due to losses and declining equity. The debt burden is growing: already a quarter of annual revenue.
The company has 4 bond issues, 2 of which (MB FINANS-001R-02, and -03) with a yield of 13.8/12.8% per annum. Redemption mid-2024/25 – respectively. The liquidity of the issues is high: the turnover is more than 10 million rubles. in a day.
From the presentation for 2022
What is the result?
+ leader in its segment and TOP-5 player among all non-food retail companies;
+ maximum level of information disclosure to investors and a high level of confidence in reporting. Impeccable credit history and level of management;
~ increased industry risks: pressure from online competitors, new companies with parallel imports, lower household incomes, currency risks (70% of equipment is imported);
– Deterioration of the financial condition: growth of the debt burden, losses, reduction of equity capital to a critical level.
All in all, M.video is having a tough time, which is why it is given a high risk premium in bonds. The company will be able to cope with the difficulties by changing the approach to dividends (already stopped payments) and returning to profit.
The short-term issue of MB FINANCE-001Р-02 is included in the model portfolios of Kot. Finance with a share of 7-10%. The risk is justified for non-conservative investors.
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