Russia Retail Industry Growth to Accelerate to 14%, RenCap Says

Russia’s retail sales growth may accelerate to 14 percent this year, according to Moscow investment bank Renaissance Capital, which raised its price forecasts for the country’s two largest food retailers.

Renaissance raised its price estimate for X5 Retail Group NV (FIVE), Russia’s largest food retailer, by 21 percent to $46.70 per global depositary receipt, and for OAO Magnit (MGNT), the second- biggest, by 25 percent to $24.30. It reiterated “buy” ratings for both companies and raised the rating on smaller rival OAO Seventh Continent to “hold” from “sell.”

Growth will accelerate from a 4.3 percent increase in 2009, when consumers cut purchases amid the global credit crunch, analysts led by Natasha Zagvozdina wrote in a report dated today. Retail sales of non-food items, the category in which sales fell the most last year, will increase 17 percent in 2010, outpacing a 10 percent gain for food retail, the analysts said.

“Looking at 2010 as a year of economic recovery, non-food retail growth should be stronger, relative to food,” Zagvozdina and Ulyana Lenvalskaya said in the report. “We also expect a slowdown in food-price inflation in Russia in 2010 versus 2009, in large part due to a stronger ruble.”

Russia’s economy may expand 4.2 percent this year while real wages will increase 1.2 percent, Renaissance forecasts. Nominal spending per person will surge 14 percent to 160,074 rubles ($5,299), according to the bank.

X5 Retail may boost revenue 24 percent this year as sales at its supermarkets and superstores will improve “towards the year-end on recovery in incomes,” the analysts said. Discount- store operator Magnit, “the fastest-growing and the most profitable company” in the industry, is the bank’s “preferred exposure” to Russian food retailing, the analysts said.

The economic recovery should benefit Seventh Continent’s supermarkets, Zagvozdina and Lenvalskaya said in the report. Most of the company’s stores are in Moscow.

X5 rose 0.5 percent to $33.65 and Magnit fell 0.8 percent to $18.10 at 10:44 a.m. in London.

To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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