OREANDA-NEWS. December 22, 2009. Russia's Duma approved the Retail Law in its third reading on Friday. The law takes effect on 1 February 2009, and contains 3 key provisions that will adversely impact food retailers, reported the press-centre of OTKRITIE FC.
 
It places limits on payment terms to suppliers by product category

It preserves the maximum restriction on the market share for a city or town at 25%

It caps the maximum bonus at 10%.

View: We believe the maximum negative short-term impact on 2010 EBITDA will be 5%. Food retail stocks dipped 5-6% (MGNT LI -6.34%, FIVE -4.5%) over past few trading sessions following approval the second reading of the Retail Law, which implies that near-term negatives are already priced in. In terms of valuation, we still see Russian food retailers trading at a discount to their peers, even if we factor in the worst case scenario (a 10% decline in EBITDA in 2010E). Dixy remains the most undervalued Russian food retailer, and the Retail Law should have only a minimal impact on the company's valuation.

Valuation: X5 currently trades on a EV/EBITDA 2010 of 9.5x, which is a 16% discount to EM peers (7% discount in worst case scenario, as seen in the table below), Magnit trades on a EV/EBITDA 2010 of 9.8x, which is 13% discount to EM peers (in line with EM peers in worst case scenario). Dixy currently trades on an EV/EBITDA 2010 of 6.7x, implying a 41% discount to EM peers (34%in the worst case scenario).

Action: We advise  clients to use further weakness in the stocks as a buying opportunity.