Baltika’s future plans include investments in the retail business and expansion of oth- er segments. As the loan burden has been driven lower and Baltika is expected to remain profitable, the company should also be able to contribute its own resources to the expansion.
Concerning the retail business, Baltika is planning to open 25 stores by 2015. In 2013, the number of new openings is expected to reach to 10, with stores likely to be opened in Latvia, Russia and Ukraine. New stores take one to two seasons to achieve solid sales efficiency figures, according to the CFO. Additionally, the compa- ny is launching its new-concept Monton and Mosaic stores in 2013 (20 renovations all together). New store openings and renovation costs are expected to amount EUR 3m in 2013. Baltika has estimated its capex at EUR 5m for the years up to 2015, with EUR 3m financed by loans (EUR 2m already been received, EUR 1m likely to be re- ceived in Q2 2013) and its own resources of EUR 2m.
Special attention will be paid to increasing wholesale, franchise and e-store sales starting from 2013. Based on management’s comments, Baltika is targeting 5-10 franchise agreements in 2013. The company is also considering the possibility of en- tering into franchising agreements for the sale of new brands in its current market. However, all of these sales are expected to give a boost to Baltika’s top line with a delay, starting from H2 2013, at the earliest.
Overall, 2013 seems promising. February’s retail sales efficiency kept its increasing trend, expanding by 8.8% y/y while operating on 22,134 m2 in total. Recall that in January, the sales efficiency increased by 8.3% y/y while operating on 22,210 m2 in total.
Taking all this into consideration, we expect revenue to grow by 11.5% y/y in 2013. We expect sales efficiency to keep increasing but more slowly compared to previous years, as new openings are pressuring total sales efficiencies. We also have as- sumed upside pressure on costs, led by salaries, for all target countries, starting from 2013. We have raised 2013e EBITDA to EUR 4.15m, which causes net profit to more than double its value in 2013 compared to 2012. Furthermore, we note that 5 million convertible bonds (H-bond) are likely to be subscribed between May 11, 2013 to May 10, 2014, with the right to subscribe to one share with a nominal value of EUR 0.20 and the subscription price set to EUR 0.30. Due to this, we have taken the dilution effect into account when calculating our target price. We raise our target price to EUR 0.66 per share (0.55), but keep our Sell recommendation in place, as we do not find that the current share price corresponds to our future expectations concerning Balti- ka. Baltika is trading at 2013e EV/EBITDA of 8.7x, P/E of 17.9x and P/BV of 2.3x, while the peer group is trading at 8.8x, 18.1x and 3.1x respectively.
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