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This $25 Billion Russian Consumer Company Returned 10,000% Over 8 Years

There's More To Russia Than Oil and Gas
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This post first appeared on Russia Insider

How does a stock market return of 10,500% over 8 years sound? That would have been the return on your investment (not including dividends) if you had bought shares in Russian retailer Magnit just after their IPO in the summer of 2006.

But of course, you say to me, that was then in a fast growing Russia - it is not the case today.

<figcaption>Shopping on the micex is actually a pleasant experience</figcaption>
Shopping on the micex is actually a pleasant experience

Fast-forward to the depths of the financial crisis and Magnit was on offer for 300 Rubles a share and would have presented a modest 3316% return over 5 years. But ofcourse, you say to me that is just bottom picking.

Fast-forward even further to January 2012, Magnit shares start the year at 2,800 and close the year out at 4,800 - a 71% return for the year. The Russian economy that year grew a meagre 3.4%. 

Then to last year, Magnit shares closed the year at 8,900 - a 85% return on the year. Russian economic growth collapsed to 1.3%. 

Finally, in 2014, Russian growth will come in at around 0.5% amidst a falling currency, sanctions, higher interest rates, inflation and a hate of Russian equities.

Magnit's return? - a cool 15% at today's 10,250. Meaning that had you but Magnit during these past three years of dramatically slowing economic growth your return was (not including dividends); 266%.

Image icon magnit.png
Blockbuster Returns

The investment story is very simple. Today, Magnit is the leading supermarket retailer in Russia but only has 6% market share. In developed countries usually the top retailer has about 20-40% market share. Modern retailing simply is still developing in Russia (on a national level). This is why Magnit even today during this crisis announced revenues which for the 9 months of 2014 are up 30%.

So, you say, well Magnit is not a big company so it doesn't matter.  Wrong.  Magnit's market capitalization today is 980 billion Rubles or 25 billion dollars. By comparison, Megafon the largest telecoms company in Russia is 15 billion, some of Russia's biggest miners such as Norilsk Nickel or Rusal don't make 10 billion or VTB Russia's second largest bank is only 12 billion. 

So, then you say, Magnit is a one off and there are not any companies like them. Wrong again. One can buy other supermarket players in Russia such as O'Key, Dixy, X5 and Lenta. By the way, Lenta IPO'd just a few weeks before Crimea on the London Stock Exchange for 10 dollars a share. Today, 6 months later, the company has risen in value by 10%. Their growth is even more impressive with 38% revenue growth for 2014. 

Please note that I hold positions in Magnit, Dixy and Lenta. Although the purpose of this article is to show you the history rather than make an investment case; keep in mind those famous words "historic performance is not an indicator of future performance". 

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