President Vladimir Putin has signed a decree extending Russian counter-sanctions for a year starting from 24 June 2015.
Russian counter-sanctions were introduced on 7 August 2014 and ban the import of key types of meat, fish and dairy products, as well as fruit and vegetables, from countries that placed sanctions on Russia (Australia, Canada, the EU, the US and Norway). The extension of the current regime is favourable for domestic meat producers and removes the uncertainties about what impact there might have been as a result of imports from the aforementioned regions being relaunched. Poultry and pork prices are still at relatively high levels (some RUB 100/kg) and allow modern industrial players to generate healthy margins (20-50% on the EBITDA level subject to the vertical integration in grain growing). As a result, the news supports our upbeat expectations for Rusagro’s and Cherkizovo’s financial performance in 2015 and our overall preference towards the former as the favourite exposure to the Russian agriculture sector.
The news is in line with our expectations for headline CPI (15% YoY in 2015F) and its food component (18% YoY). We note that YTD public food retailers have reported LFL ticket inflation below that of the consolidated countrywide numbers, with the key pressure from the generally softer consumption backdrop, trading down trends and active promotional campaigns. Our top line forecasts remain unchanged, with the growth leaders being Lenta (revenues up 35% YoY in 2015F) and Magnit (30%).