Lenta IPJSC

Lenta IPJSC (LON: LNTA) is a multi-format food and FMCG retailer based in Russia. It operates supermarkets, hypermarkets, and has a proximity store, called “Mini Lenta”.

It expects to provide the next trading update on 25 January 2021.

Rationale for Valuation – BUY at USD 2.550

• Acquisition: On 16 December 2021, Lenta acquired the online-retailer Utkonos, to become one of Russia's Leading E-grocery Platforms. It also has recently completed the acquisitions of Semya Group business and Billa Russia supermarket business. Both the acquisitions likely to generate multiple synergies going forward.
• Online Growth: The online sales grew 237% year-on-year to RUB 4.4 billion, following the 231% year-on-year growth in online orders.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~33.78) is still close to the oversold zone, while the stock price is hovering around the lower Bollinger Band.
• Undervalued Multiples: In terms of valuation multiples on a forward 12-month basis – Price/Earnings, EV/Sales, and EV/EBITDA multiples are undervalued against the median of the Consumer Non-cyclical sector.

Key Risks

• Coronavirus: The new Omicron variant can impact shopper behaviour or footfall.
• Sluggish Retail Growth: The persistent supply shortage is topping new records and capping the growth of the retail sector.

Recent News

Listing: On 30 November 2021, Lenta announced that it will commence the trading of Ordinary shares on Moscow Exchange (MOEX) from 1 December 2021. The global depositary receipts (GDRs) will be delisted from MOEX in the first half of 2022. However, GDRs will continue to be listed and traded on the London Stock Exchange.

Q3 FY21 Operational and Financial Highlights (for the quarter ended 30 September 2021, as on 25 October 2021)

 (Source: Company Website)

• Top-line Growth: During Q3 FY21, the retail sales surged by 13.5% year-on-year to RUB 116 billion in Q3 2021.
• Selling Space: With opening of new stores, selling space grew by 16% year-on-year in Q3 FY21.
• Financial Position: At the end of Q3 FY21, the Net Debt to EBITDA (LTM) ratio stood at 1.9x.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

 Conclusion 

The acquisition of Utkonos will enable Lenta unique competencies and competitive advantages in the Moscow online market. Moreover, Fitch Ratings upgraded Lenta's credit rating to 'BB+' with a Stable Outlook. As the stock is still trading close to its 52-week low with decent fundamentals, it is giving a lucrative opportunity for value investing. The stock made a 52-week High and Low of USD 3.74 and USD 2.50, respectively. 

Based on the roust online sales growth, strategic acquisitions, launch of new Mini store, and favourable valuation conducted above, we have given a “BUY” stance on Lenta IPJSC at the closing market price of around USD 2.550 (as on 30 December 2021), with lower double-digit upside potential based on 9.058x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

ThinkSmart Ltd

ThinkSmart Ltd (LON: TSL) is a FTSE AIM All-Share listed specialist digital payments platform business.

Investment Rationale – SPECULATIVE BUY at GBX 53.00

• Clearpay UK ESOP and Consideration Shares: On 21 December 2021, TSL clarified it will receive 1,650,000 Afterpay shares in consideration for the sale of its Clearpay holding, and the Company has no obligations to share any of the Consideration Shares under the ESOP. The Board see continued long term value accretion with this outcome.
• Growth Driver: The increased adoption of 'buy now pay later' and credit cards shall further benefit the Company.
• Dividend: During FY21, TSL delivered a special dividend and capital return of A$6.5 million.
• Technical Indicator: From a technical standpoint, 14-day RSI (~18.03) indicates an oversold position, while the price is trading close to the lower standard deviation of the Bollinger bands.

Key Risks

• Covid-19 Pandemic: The ongoing threat related to the Omicron variant can lead to another set of restrictions and exacerbate inflation and supply chain issues.
• Inflationary Pressure: British consumer price inflation surged to its highest in more than 10 years in November, jumping to 5.1% from October's 4.2%.

2021 AGM Statement and Business Update (as on 10 November 2021)

• Value Accretion: FY21 delivered significant value accretion for shareholders. Moreover, the Company's 10% shareholding in Clearpay UK helped them get the benefit of rapidly expanding consumer finance space.
• Financial Position: As on 14 October 2021, TSL reported a net cash of nearly AU$13 million.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY22) (Illustrative) 

Conclusion 

In FY21, TSL’s profit after tax jumped 35% year-on-year to £71.7 million, and the Group's retained 10% shareholding in Clearpay. On 10 December 2021, the Board also confirmed the return of capital of 4.4618 cents per share, while the shareholders also approved the special dividend of 0.7874 cents per share. It is reflecting confidence in the outlook. 

Notwithstanding, TSL is trading as a penny stock with small market capitalization. Therefore, investors should gauge upon their risk-return profile before punting on this stock. The stock made a 52-week High and Low of GBX 115.00 and GBX 50.25, respectively.   

Based on the increased profitability, shareholders return, coupled with the favourable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on ThinkSmart Ltd at the closing market price of GBX 53.00 (as on 30 December 2021) with lower double-digit upside potential based on 28.56x EV/Sales (approx.) on FY22E Sales (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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