OREANDA-NEWS. August 25, 2011. X5 has released a strong set of 1H11 IFRS financials today (25 Aug) with a highlight being the company’s 1H11 EBITDA margin of 7.2%. This was achieved by X5 continuing to pass its costs onto consumers at the expense of traffic (gross margin still looks high), as well as keeping labour costs under control. The company’s labour costs net of ESOP costs as a percentage of revenue rose just 0.3% to 8.6% in 1H11 from 8.3% in 1H10 despite a larger labour force and the social tax increase. X5’s 2Q11 earnings were below our estimates as the company’s 2Q11 interest payments tripled YoY bringing its annualised effective interest rate to 7.5%, well above our annualised expectations.

Bottom line

X5’s 2Q11 results look stronger vs Magnit’s released yesterday in terms of EBITDA margin (Magnit posted 6.6%) which may support the share price in the near term. Longer term however we believe Magnit should outperform X5 as the latter looks sluggish if compared to Magnit in terms of selling space expansion.