Research Notes

M.Video, one of the biggest players on the Russian consumer electronics market, is scheduled to hold an initial public offering (IPO) in late October. The company’s shareholders are looking to place some 52.5 mln common shares (35% of the current charter capital), expecting to net roughly $315-420 mln.

As M.Video is a frontrunner in the consumer electronics segment of the Russian stock market, and we expect investors to take keen interest in the offering. Among the factors driving the company’s investment appeal we would like to highlight the following:

• M.Video ranks second domestically in terms of turnover on the consumer electronics market. As of January 1, 2007 the company commanded over 12% of the market, trailing behind Eldorado with 28%. The electronics retailer’s strong positions in the regions, as well as its new-store-opening strategy will help it to strengthen its market positions. As of July 1, 2007 the company controlled 13.1% of the market in monetary terms.
• Robust expansion of the consumer electronics market on the back of growing household income and also the rollout of modern retail trade models. Over the past 2 years the consumer electronics market has grown at an average pace of some 11% a year. An additional driver ensuring strong consumer demand is the promotion of advanced information technologies and, consequently, faster deterioration of household appliances and electronics.
• M.Video operates around 109 stores in 40 Russian cities, with 66 of them situated in the regions. Concerted efforts to expand into the regions in the future, in our opinion, will be accompanied by the dynamic opening of new sales outlets thanks to format unification and the proven strategy of rolling out stores at leased premises. An additional factor for the successful execution of the expansion program is the company’s strong brand recognition, which gives it the status of a preferable anchor lessee in big city stores.

According to our estimates, the fair price of M.Video’s common shares is $6.70. As the fair price we calculated falls within the IPO range, we recommend investors to take part in the company’s IPO at a price not less than $6.70.

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Sergey Filchenkov

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