Sistema is one of the largest Russian public investment companies.
📌 Share capital structure (total outstanding shares: 9.65 billion)
59.2% - V. p. Yevtushenkov-a well-known Russian entrepreneur who founded the company in 1993.
9.3% - management, subsidiaries of the System and companies in which the System invests.
10.3% of the program of the GDR.
21,2% - free-float.
Have a AFK system there are a few portfolio companies that generate revenue directly. There are also several funds with a primary focus on venture capital investments. Let's focus on portfolio projects. We have already reviewed MTS, so you can read more about the company directly in the review.
📞 MTS. The effective share is 50.01%. Revenue from 2018 to 2019 increased by 5.5%, while operating profit increased by 7.5%.
🧸 Children's world. Most recently, Sistema ceased its participation in Children's world capital through a public offering. Before its listing, the investment company's share in the retailer was just over 20%. The system received about 16.9 billion rubles, which is planned to be spent "for General corporate purposes, including debt repayment." As a result, Detsky Mir became a 100% private company, but the System retained several places in the SD through indirect ownership.
🏗 ETALON GROUP. Another major developer of the Russian Federation (TOP 2 reliable developers according to Forbes). The system owns a 25% stake. The market value of assets is 188 billion rubles, 33 projects are under construction and design, 40% of the current portfolio will be implemented without escrow accounts, the preferred markets are Moscow and St. PETERSBURG.
From 2018 to 2019, revenue - +16.6% to 84.3 billion rubles, EBITDA - +45.4% to 8.9 billion rubles, operating profit - +102.4%, PE = 3.1 billion rubles against a loss of 700 million rubles a year earlier.
Segezha GROUP is a dynamically developing Russian timber industry holding with a vertically integrated structure and a full cycle of logging and deep processing of wood. The System's Share Is 98.3%.
The total leased area of forest and 7.4 million hectares, 1 in Russia and 3 in the world in terms of production of sack paper (packets at McDonald's), 1 in Russia and 2 in Europe in terms of production of paper bags, 5 place in Russia on manufacture of birch plywood, 1 place in Russia in terms of gross production of softwood lumber, 1 in Russia in production of prefabricated houses from glued beams.
Revenue - + 1.0% to 58.5 billion rubles, operating profit - +1.9% to 8.3%, PE in the share of the System - +9272.1% to 5 billion rubles.
MEDSI IS the country's largest Federal private network of health care facilities that provides a full range of services for the prevention, diagnosis and treatment of diseases, as well as rehabilitation services for children and adults. The System's Share Is 96.9%.
Revenue structure by asset type:
27.9% - Clinical diagnostic centers (CDC) in Moscow;
33.3% - primary care Clinics in Moscow and the Moscow region;
34.8% - Clinical hospitals in Moscow and the Moscow region;
4.9% - other.
From 2018 to 2019: revenue - +25.8% to RUB 22.3 billion, Oper. profit - +311.1% to 2.8 billion rubles, PE in the share of the System - +175.3% to 2.9 billion rubles.
Степ STEP ' AGROHOLDING is one of the largest players in the agricultural sector of the Russian Federation, with a diversified portfolio of assets with a land Bank of 527 thousand hectares. The System's Share Is 84.6%.
Activities: crop production, horticulture, vegetable growing, dairy farming, agrotrading and logistics, sugar and grocery trading. The goal is to increase the land Bank, build new dairies, and create transshipment and logistics facilities.
From 2018 to 2019: revenue - +28.5% to RUB 31.0 billion, Oper. profit -30% to 2.3 billion rubles, PE in the share of the System -153.3% to 584 million rubles.
📌 Other assets of the company:
Oz Ozon is a diversified online marketplace for millions of consumers, including online retailer Ozon, the Ozon Agency.Travel, electronic library Liters, as well as various financial services for clients and partners. The leader of the range of products, online traffic and brand awareness. The System's Share Is 42.999%.
Facts: 6.5 thousand partners (Ozon sells both its own products and those of partners), 32.3 million delivered goods, 40% of the population has access to next-day delivery, a twofold increase in warehouse space in 2019 to 200 thousand square meters, 16.7 thousand pick-up points.
Ozon also has an Ozon Premium subscription to save on delivery and receive bonuses (in 2019, subscribers bought 6.2 million orders), a cashback Bank card, and the Ozon crowdfunding platform.Invest.
Al Alium is a vertically integrated full-cycle pharmaceutical company that develops drugs, manufactures and distributes products to distributors and pharmacy chains. More than 200 drugs on the market, more than 50 in development. It is at one of the plants of this company that the world's first coronavirus vaccine is produced. the Effective share of the System is 24.9%.
From 2018 to 2019: revenue - +10.3% to RUB 7.6 billion, Oper. profit -25.9% to 1.4 billion rubles, PE in the share of the System -51.6% to 0.7 billion rubles.
Синтез Sintez is one of the largest pharmaceutical companies in Russia. 300 drugs in the portfolio, 30 in development, the leader in the volume of production of antibiotics on the Russian market. The System's Share Is 46.5%.
From 2018 to 2019: revenue - +23.7% to RUB 9.2 billion, Oper. profit - +19.7% to 1.8 billion rubles, PE in the share of the System -13.4% to 0.8 billion rubles.
Космос Cosmos Hotel Group LLC is one of the largest hotel management companies on the Russian market, providing a full range of hotel development services: from project consulting and hotel preparation to cost optimization and asset capitalization increase. The System's Share Is 100%.
The number of rooms under management is 4122 units in Russia, Italy, Nambia, and the Czech Republic. 19 hotels under management, the foreign segment accounted for 21.8% of revenue for 2019, the average occupancy is 66% (but the coronavirus will spoil the statistics). We will not mention finances, because they are no longer representative due to the pandemic.
🔌 JSC "Bashkir electric grid company" — the largest electricity distribution company in Russia. The network length - 86,5 thousand km, the Share of the System - 91%.
Activity-management of companies that carry out the transit of electricity between the Central part of Russia and the Urals via main networks, transmission of electricity to end users in Bashkortostan via distribution networks, reconstruction of power facilities.
From 2018 to 2019: revenue - +9.4% to 20.9 billion rubles, Oper. profit -8.7% to 3.5 billion rubles, PE in the share of the System -7.9% to 2.7 billion rubles.
Системы the system also Has a number of other companies, which we will not discuss in detail due to the small amount of information. For example, the company "BUSINESS real estate" (the largest owner of real estate in Moscow), RTI (manufacturer of radar equipment), element (the largest manufacturer and developer of microelectronics), a retail company in the field of clothing sales, as well as Kronshtadt and Aeromax - manufacturers of unmanned vehicles, including drones.
📌 The company also has several venture funds:
SISTEMA VENTURE CAPITAL-invests in high-tech companies at the stage of growth in Russia and Europe (80% of the System);
S SISTEMA CAPITAL PARTNERS GROUP-scalable investments in capital-intensive assets in the European markets (49% of the System);
S SISTEMA ASIA FUND-specializes in investments in high-tech companies in India and Southeast Asia (83% of the System);
СИСТЕМА SISTEMA CAPITAL MANAGEMENT COMPANY is a professional participant in the securities market who has been working in the field of asset management since 2001. Since 2014, the value of assets under management has increased 9 times. (70% for the System).
❗️Financial analysis❗️
First of all we would like to draw your attention to the analysis of revenue growth and net profit👇
📌NWC
201️⃣6️⃣: (-59.259)
201️⃣7️⃣: (-148.104)
201️⃣8️⃣: (-100.402)
201️⃣9️⃣: (-194.501)
Net working capital is getting worse every year. The system increases short-term liabilities in a huge proportion.
📌Current ratio
201️⃣6️⃣: 0,85
201️⃣7️⃣: 0,71
201️⃣8️⃣: 0,82
201️⃣9️⃣: 0,61
The company's current liquidity is at a very low level, which indicates a precarious financial position.
📌Quick ratio
201️⃣6️⃣: 0,31
201️⃣7️⃣: 0,22
201️⃣8️⃣: 0,32
201️⃣9️⃣: 0,24
The rapid liquidity indicator is at extremely low levels. In the event of force majeure (as in the case of Bashneft), the System will have difficulty paying off its debts, which will affect the company's operating activities.
📌Debt ratio
201️⃣6️⃣: 0,80
201️⃣7️⃣: 0,89
201️⃣8️⃣: 0,96
201️⃣9️⃣: 0,95
The debt ratio is at extremely high levels. The company is financially unstable.
📌Net debt/EBITDA
201️⃣6️⃣: 2,29
201️⃣7️⃣: 2,54
201️⃣8️⃣: 2,43
201️⃣9️⃣: 2,52
At the same time, the System will be able to repay its loans and borrowings in 2.5 years. However, the lack of a positive trend is a bad sign.
📌Growth of revenue
201️⃣6️⃣: 0,30%
201️⃣7️⃣: 3,48%
201️⃣8️⃣: (-11,29)%
201️⃣9️⃣: 5,09%
📌Growth of net income
201️⃣6️⃣: (-80,25)%
201️⃣7️⃣: (-826,37)%
201️⃣8️⃣: (-42,42)%
201️⃣9️⃣: (-250,50)%
📌Profit margin on sales
201️⃣6️⃣: 1,35%
201️⃣7️⃣: (-9,44)%
201️⃣8️⃣: (-6,13)%
201️⃣9️⃣: 8,77%
Revenue growth remains minimal, while the company suffers losses. Initially, we thought that the problem was illiterate cost management and the number of projects. However, as it turned out, the System has an interesting article as "limited use of funds". In simple words, this means that the System has government orders from the Ministry of Defense. What these funds are spent on, of course, is not disclosed. Nevertheless, 5 billion rubles are involved in this project. We will try to find out what the funds can be used for in the following posts🔜
📌Payout ratio
201️⃣6️⃣: 161,87%
201️⃣7️⃣: -
201️⃣8️⃣: -
201️⃣9️⃣: 2,25%
The System does not have a clear dividend policy. This is why there is such a spread of dividends. Although given the fact that the System periodically suffers losses, the preparation of a dividend policy is definitely not in the foreground.
📌ROA
201️⃣6️⃣: 6,86%
201️⃣7️⃣: 8,14%
201️⃣8️⃣: 8,34%
201️⃣9️⃣: 6,33%
📌ROE
201️⃣6️⃣: 4,22%
201️⃣7️⃣: (-54,17)%
201️⃣8️⃣: (-60,77)%
201️⃣9️⃣: 87,65%
Return on assets is stagnating at a low level, while return on equity is changing erratically due to losses.
📌FCF
201️⃣8️⃣: 77.425,40
201️⃣9️⃣: 206.124,60
A good signal for investors is an increase in free cash flow more than twice. This means that it is possible to invest in additional projects.
📌SGR
201️⃣6️⃣: (-2,61)%
201️⃣7️⃣: (-55,06)%
201️⃣8️⃣: (-62,51)%
201️⃣9️⃣: 85,68%
Over the past year, the sustainable growth rate has shown a very high value. The system can be developed without external sources of funding by 85%. However, the lack of dynamics does not give us reason to insist that this indicator will remain at least positive next year.
📌WACC=8,26%
WACC>ROA, which indicates the inefficiency of the company.
📌Q ratio=3,26
The Tobin coefficient is higher than one. This means that the System is fairly priced.
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📌E(M)=0,23%
📌st=5,42%
The average weekly return is at the market level, while the risk is almost 2 times higher than that of other stocks.
📌beta=1,52
A beta above 1 indicates that with the market growing by 1%, the System's shares are growing by as much as 1.5%.
📌correl=0,51
Correlation analysis showed a low dependence of stock dynamics on the Moscow Exchange index.
📌Min=7,65
📌Max=25,13
📌CurrP=24,96
In the last six months, the System's shares have set new highs for the past 4 years. However, even 3 years ago, securities were worth less than 10₽.
📌TSR=63,52%
📌km=(-9,43)%
Over the past 3 quarters, the System's share yield was 63%, which is almost 75% more than the market.
📌MAR
201️⃣7️⃣: 59,24%
201️⃣8️⃣: 62,05%
201️⃣9️⃣: 143,48%
202️⃣0⃣: 180,54%
Only in 2 out of 4 years did Sistema's shares outperform the market. Moreover, in the first 2 years of the period under review, the System's shares lost almost 2 times.
It is also worth noting that this growth is mainly caused by news about the Sputnik V vaccine, which is currently produced and already sold by one of the controlled companies of the System.
✅ Advantages for the company and its strengths:
🎛 A wide range of multi-industry assets. We have already run through the system's portfolio companies, so you have seen the heterogeneity of assets. This includes agriculture, telecommunications, retail, hotel business, and much more. Having such a large set of different investments, sooner or later any one is simply bound to shoot. In General, this is what happened. SEGEZHA GROUP with Ozon are going for an IPO, and the pharmaceutical industry has flourished in covid times.
🦠 Coronavirus. There are a lot of companies affected by the pandemic in the world; there are a few who were indirectly helped by it (the IT sector), and very few who directly benefited from the virus. We think you've already figured out what we're getting at. Alium, one of the System's portfolio companies, is currently producing the first coronavirus vaccine. Moreover, the company's plant also creates a medicine for the virus, which is included in the special list of the Ministry of health.
Its name is Azithromycin. However, Forbes writes that the drug can cause a heart attack when used together with other means. In addition to medicines, the Alium holding plants will produce rapid COVID tests that have 85% accuracy and do not give false negative reactions.
🧪 Powerful biopharmaceutical assets. Alium and Sintez are the two companies on which the System's activities in this area are based. If we take into account that the System is rather politicized, and in Russia recently genetics and biotechnologies are given an important place, we can assume that the company is involved in any government projects, may receive subsidies or surprise us with a new drug.
💶 Investments abroad. In addition to companies on the Russian market, the System has several funds invested in foreign companies. Basically, these are high-tech companies that will continue to gain their capitalization.
💰 Access to the cache. The system has been recruiting projects for a long time that may fire in the future. Now they are stronger and represent a confident, strong business that generates high profits. On the other hand, the System has a high debt load and almost zero dividends. Most likely, in the near future, the company will reduce its share in stable projects to cover the debt. This is evidenced by the sale of all shares of Detsky Mir, the withdrawal of MTS shares from collateral (which may indicate an early sale). There are also inexhaustible opportunities to earn money by bringing your projects to the stock exchange, IPO. We may also see more attractive dividends soon.
💸 Dividends. Although payments from the company are small, they have a big advantage - you don't need to pay 13% tax on them.
📛 Problems and triggers of the company:
📉 High debt load. Firstly, the company itself looks unstable, and secondly, it is difficult to expect good dividends yet. After all, interest on loans eats up a lot of profit, which could be sent to us in the form of dividends.
Politicization. We have already written that we found money in the reports that goes to fulfill some defense orders. I wonder which company is engaged in such activities? In addition, almost 60% of the company's shares are held by its founder - E. Yevtushenkov. The West already wanted to impose sanctions against him, but then abandoned the idea. A return to this idea in the future may affect the mood of investors in both the System and its subsidiaries (such as MTS).
By the way, MTS is the only Russian operator that served subscribers in Crimea.
In addition, we are a little concerned about the role of certain personalities in the companies of the System. You can start with the son of Yevtushenkov-Felix. In the noughties, he was in real estate. As Forbes writes (https://www.forbes.ru/kompanii/289925-prints-sistemy-zaimet-li-syn-milliardera-evtushenkova-mesto-ottsa)he did a lot for the company, but "stumbled" about the crisis in 2008. Gradually, his father's assets are being transferred to him: Yevtushenkov Sr. transfers a block of his shares. Felix has a wife and a sister - both hold important positions in the holding.
If you move away from the family, then the personalities of Yumashev, Ernst and Chubais are also interesting. The first two are members of the MTS Board of Directors, with Yumashev as an independent (non - Executive) Director. We will not dwell on it in detail, but it is worth saying that Yumashev is one of the main behind-the-scenes players in Russian politics, who climbed to the "very top" under Yeltsin. Chubais and at all entered the SD of the System itself.
Ernst joined the MTS SD only recently. I wrote about this Nesigur (https://t.me/russica2/28872) back in may of this year. Channel One has long had financial problems that the management could not solve. Just a few months after Ernst joined MTS, the company (MTS) stated (https://tass.ru/kultura/9442627), which is going to start direct investment in Russian cinema. It turns out to be an interesting coincidence...
All these facts indicate that the System is becoming increasingly "rustic" and politicized. Famous people are sent to senior positions, probably at the go-ahead from above, either "to retire" or to supervise any "important" projects from the point of view of the state. This creates risks to good corporate governance for the benefit of shareholders.
Dependence on telecommunications. More than half of the holding's total revenue is generated by MTS. The next 3 companies in terms of revenue are rapidly increasing their returns, but it is too early to talk about diversification. The system will be very bad if something happens to MTS.
Losses of some projects. As you saw in the first posts, a number of companies in the System showed negative revenue and profit growth in 2019. For example, the agricultural holding "Step" with an increase in output and revenue drove net profit to a loss (-153% yoy)
We also prepared a technical analysis with all the illustrations in our Yandex.Zen (https://zen.yandex.ru/media/id/5ec281568600f212158d48d8/afk-sistema-tehnicheskii-analiz-5f8aa4c74ab7c3765a98af35)where you can also find full reviews of all companies .
🧿 🧪 🌳What should I do with the system?
Once again, Sistema is an investment company, which means that its projects should be evaluated first of all. However, this is not so easy to do. Yes, the company has a number of successful projects that were worth their investment. These are, for example, Detsky Mir, MTS, which provides most of the revenue, Segezha and Ozone.
On the other hand, there are also a number of projects that, although they look attractive, generate either losses or small profits. In any case, we must pay tribute to the fact that the asset portfolio is diversified by industry. In case of further growth of projects, the System can significantly increase its profit.
Today, we like the business of the companies described above, as well as the biotechnological block. The agro-industrial segment is also pleased with the growth of output (although this is not true about Finance).
Unfortunately, in the past, the System faced a number of failures, most likely for political reasons (the Bashneft case), which slowed down the growth of quotations. Therefore, the main trigger for the company is not the lack of project growth, but the possibility of any new political problems. However, if the circumstances are favorable, you can expect a good growth of quotations in the future.
Financial analysis has shown that the System has serious financial difficulties. The company is under-liquid and over-leveraged. The system works inefficiently and systematically suffers losses from year to year. Nevertheless, this year's sale of Children's world and the production of the vaccine and related products are likely to generate high net profit at the end of this year. But the question remains: was the System able to increase profits without the support of the state, and what is the state order from the Ministry of Defense for the direct investment Fund❓
Private equity Fund = p/e fund=private equity fund is a financial company that buys large shares in companies (usually more than 20%), "nurtures" this company, makes it effective and consistently profitable, and then sells it at a higher price. These include the AFK System. And as you remember, this year Detsky Mir was sold, and MTS is already making a little bit of backbacks, and Ozon and Segezha are already preparing to launch an IPO.
The analysis of the security showed far from outstanding characteristics. The high beta is caused only by the last year. But it is worth noting that in the last 1.5 years there has been a positive trend of increasing profitability.
Technical analysis showed that the uptrend continues in all periods. The oscillator indicates overheating, but based on all the indicators, we concluded that the System's shares will not change the trend in the near future.