Magnit Chief Hits Out at ‘Crazy’ Market Following Share Decline

The billionaire owner of OAO Magnit criticized a share selloff that followed a slowdown in monthly sales growth and said Russia’s largest retailer will adopt a focus on dividends and profitability.

“The market is so crazy that I have to exonerate myself for excellent results,” Chief Executive Officer Sergey Galitskiy said on a conference call today.

He was speaking after Magnit posted record profitability for 2013 and said it will boost the dividend this year. That fuelled a slight rebound in the shares, which before today had fallen 19 percent in 2014 after slower December sales growth.

The stock, which rose 65 percent last year, has also been unsettled by concern that investors may choose to reinvest some money in competitor Lenta Ltd. Controlled by U.S. leveraged buyout firm TPG Capital, Lenta plans to sell shares in London next month, according to two people familiar with the matter.

“If you are tired of an old wife, you may buy a new one, but let’s see what happens,” Galitskiy said on the call in reference to Lenta.

Magnit rose 0.7 percent to $54.10 at the close of trading in London, where the stock has its main listing.

The retailer’s Ebitda margin widened to a record 12.5 percent in the fourth quarter of last year, the company said today, beating the 11.7 percent average estimate of seven analysts compiled by Bloomberg. The improvement was probably driven by improved terms with suppliers, Mikhail Terentiev, an analyst at Otkritie Capital, said in a note.

“Magnit definitely remains the best retailer in Russia,” Ivan Kushch, an analyst at VTB Capital, said by phone.

Narrower Margin

The margin this year will narrow to about 10.5 percent from 11.2 percent in 2013, Magnit said. The retailer lowered its revenue guidance for 2014, indicating a gain of 22 percent to 24 percent, compared with a previous signal of 25 percent growth. One of the reasons is that Russian government lowered its inflation forecast by 1 percentage point, Galitskiy said.

“The difference between their earlier and new guidance is actually the inflation difference,” VTB Capital’s Kushch said.

Magnit will spend about 40 percent of net income this year on dividends, the CEO also said on the call. In 2012, about 16 percent of profit was paid as dividends, according to data compiled by Bloomberg.

Sales in January are doing better than in December as customers stay with convenience stores, Galitskiy said.

Magnit plans to improve purchasing terms by about 1 percent this year and may study acquisitions as tougher competition pushes smaller retailers to seek buyers, he also said.

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