Metro AG Stock Drops as Citigroup Predicts Russian Risk

Metro AG, Germany’s biggest retailer, fell the most in more than three months in Frankfurt after Citigroup Inc. recommended selling the stock as Russia’s economic growth slows and its currency declines.

Metro slumped as much as 6.8 percent to 23.21 euros, the steepest intraday decline since March 4, and was trading down 4.9 percent at 5:03 p.m. Volume exceeded the three-month daily average by 63 percent. Russian business generated about 25 percent of Metro’s operating cash flow last year, Alastair Johnston and Pradeep Pratti, London-based analysts at Citigroup, wrote in a report today.

The central bank started buying rubles on May 29 to slow its slide. Bank Rossii, which reports currency intervention data with a delay and steps up interventions if the ruble weakens beyond certain levels, spent the equivalent of 6.17 billion rubles ($187 million) of foreign currency on June 18. The IMF cut its economic growth forecast for Russia on June 18, predicting gross domestic product will expand 2.5 percent this year and 3.25 percent in 2014.

“The focus should be on the implications of the declining ruble and weakening growth in this region and indeed the rest of Metro’s emerging-market operations,” Johnston and Pratti wrote. “The shares have barely begun to factor this.”

Sales in Russia rose “steeply” at the company’s wholesale Cash & Carry unit in the first quarter, Dusseldorf-based Metro said last month. The retailer plans to invest $750 million in five years in the country, adding outlets, while acquisitions in the market aren’t a priority, Chief Executive Officer Olaf Koch said earlier this month.

Reorganization Costs

The Citigroup analysts, who cut their recommendation on the retailer to sell from neutral, also said they view reorganization charges “as likely to recur as stores are closed and staff shed.” Asset sales “should not be considered a sustainable source of earnings, either,” they said.

Koch said when he took the CEO post at the beginning of 2012 that he would focus on Cash & Carry and the Media-Saturn electronics chain while cutting investment in Kaufhof department stores and Real grocery outlets.

Since then, he has agreed to sell Real stores in eastern Europe to Groupe Auchan SA, sold the Makro U.K. wholesale unit to Booker Group Plc and announced Media-Saturn is leaving China.

Before it's here, it's on the Bloomberg Terminal.