Highlights
PJSC Detsky Mir1 is a Russian company, which is engaged in the children products retail
sector. The Company’s Detsky Mir chain comprises of over 570 stores located at the
territory of the Russian Federation and Kazakhstan, as well as of more than 40 ELC
stores. The average store size is 1.4 k sqm and has 20-30k SKUs2. Its product portfolio
consists of toys, fashion products, newborns goods, stationary, large items and others.
We initiate our coverage of Detsky Mir with BUY recommendation and the 12M
target price 133.4 RUB per share, showing a strong price upside at 33.6% from the
current share price. We believe that the Company demonstrates strong business and
financial performance.
Strong standing on the market …show more content…
We also add 2.5% liquidity premium. After tax cost
of debt is estimated at 9.0% based on relevant interest-bearing liabilities. We use
thecapital structure of 30% of debt and 70% of equity that was suggested by
management. WACC equals to 15%.
During periods of economic stagnation, consumers tend to be more be more price-
sensitive, that force the Company to offer lower prices and reduce its profitability. Overall,
as retail sector is highly dependent of overall country’s economic situation, this
stagnation in economic situation can limit opportunities to further company’s
development.
Monte-Carlo Simulation. We performed a Monte Carlo Simulation to understand the
sensitivity of our model to variations in our adopted assumptions – terminal growth rate,
weighted average cost of capital, the number of new stores launched, Like-For-Like
growth, Rent expenses and Profit margin. The executed simulation suggests more than
20% upside in 64% simulation and the 10% probability that the price will go down lower
current share price. According to the simulation, the most sensitive variables in our
70
103 100
90
65 65 65
40
30
12.0
16.0
13.0 13,0
13.8 14.3
14.8
15.4
16.1
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4 …show more content…
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20
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120
2014 2015 2016 2017F 2018F 2019F 2020F 2021F 2022F
Number of new stores Capex per new store
Projections
RUB mln 31 Dec 17 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21 31 Dec 22 31 Dec 23 31 Dec 24 31 Dec 25
EBITDA 10,519 13,408 15,836 18,145 20,388 22,524 23,876 24,592 25,084
EBITDA growth 27% 18% 15% 12% 10% 6% 3% 2%
EBIT 8,637 11,201 13,331 15,388 17,369 19,338
Less: Tax on EBIT (1,883) (2,442) (2,906) (3,355) (3,787) (4,216)
Plus: D&A 1,882 2,207 2,505 2,757 3,018 3,186
Less: CapEx (3,082) (3,306) (3,433) (3,722) (3,636) (3,667)
Less: Inc in OWC (853) (3,132) (1,344) (1,278) (1,242) (1,183)
FCF 4,701 4,529 8,153 9,791 11,724 13,458 14,669 15,403 15,711
FCF gorwth -4% 80% 20% 20% 15% 9% 5% 2%
Discount Factor 0.93 0.81 0.70 0.61 0.53 0.46 0.40
DCF 7,602 7,936 8,261 8,244 7,812 7,131 6,323
Free Cash Flow Calculation
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3
6
PJSC Detsky Mir1 is a Russian company, which is engaged in the children products retail
sector. The Company’s Detsky Mir chain comprises of over 570 stores located at the
territory of the Russian Federation and Kazakhstan, as well as of more than 40 ELC
stores. The average store size is 1.4 k sqm and has 20-30k SKUs2. Its product portfolio
consists of toys, fashion products, newborns goods, stationary, large items and others.
We initiate our coverage of Detsky Mir with BUY recommendation and the 12M
target price 133.4 RUB per share, showing a strong price upside at 33.6% from the
current share price. We believe that the Company demonstrates strong business and
financial performance.
Strong standing on the market …show more content…
We also add 2.5% liquidity premium. After tax cost
of debt is estimated at 9.0% based on relevant interest-bearing liabilities. We use
thecapital structure of 30% of debt and 70% of equity that was suggested by
management. WACC equals to 15%.
During periods of economic stagnation, consumers tend to be more be more price-
sensitive, that force the Company to offer lower prices and reduce its profitability. Overall,
as retail sector is highly dependent of overall country’s economic situation, this
stagnation in economic situation can limit opportunities to further company’s
development.
Monte-Carlo Simulation. We performed a Monte Carlo Simulation to understand the
sensitivity of our model to variations in our adopted assumptions – terminal growth rate,
weighted average cost of capital, the number of new stores launched, Like-For-Like
growth, Rent expenses and Profit margin. The executed simulation suggests more than
20% upside in 64% simulation and the 10% probability that the price will go down lower
current share price. According to the simulation, the most sensitive variables in our
70
103 100
90
65 65 65
40
30
12.0
16.0
13.0 13,0
13.8 14.3
14.8
15.4
16.1
--
2
4 …show more content…
8
10
12
14
16
18
--
20
40
60
80
100
120
2014 2015 2016 2017F 2018F 2019F 2020F 2021F 2022F
Number of new stores Capex per new store
Projections
RUB mln 31 Dec 17 31 Dec 18 31 Dec 19 31 Dec 20 31 Dec 21 31 Dec 22 31 Dec 23 31 Dec 24 31 Dec 25
EBITDA 10,519 13,408 15,836 18,145 20,388 22,524 23,876 24,592 25,084
EBITDA growth 27% 18% 15% 12% 10% 6% 3% 2%
EBIT 8,637 11,201 13,331 15,388 17,369 19,338
Less: Tax on EBIT (1,883) (2,442) (2,906) (3,355) (3,787) (4,216)
Plus: D&A 1,882 2,207 2,505 2,757 3,018 3,186
Less: CapEx (3,082) (3,306) (3,433) (3,722) (3,636) (3,667)
Less: Inc in OWC (853) (3,132) (1,344) (1,278) (1,242) (1,183)
FCF 4,701 4,529 8,153 9,791 11,724 13,458 14,669 15,403 15,711
FCF gorwth -4% 80% 20% 20% 15% 9% 5% 2%
Discount Factor 0.93 0.81 0.70 0.61 0.53 0.46 0.40
DCF 7,602 7,936 8,261 8,244 7,812 7,131 6,323
Free Cash Flow Calculation
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3
4
3
6