1Q15 review: Earnings ahead of SFC estimate by c.5%; Maintain Buy
`
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
1Q15 review: Earnings ahead of SFC estimate by c.5%; Maintain Buy
Rating Summary Recommendation
1Q15 net profit ahead of SFC/consensus estimate by c.5%: Herfy reported 1Q15
Buy
Target price (SAR)
140.0
Upside/ (downside)
11%
headline net profit of SAR55m (+12% qoq, +14% yoy) that has beaten SFC/consensus estimate by c.5%. While revenues of SAR265m (+9% qoq, +23% yoy) was c.5% ahead of
Stock Details
our estimate, EBITDA/EBIT was c.6%/7% higher meaning the earnings beat was primarily
Closing price* Market capitalization
topline driven whereas margins were largely in line.
SAR
126.0
SAR mn
5,821
Mn
46
Shares outstanding
Optimistic guidance on new restaurant openings: After a record of 52 new restaurants
52-Week High
SAR
127.5
(highest in previous 6 years) in 2014 (after a soft patch in 2013), Herfy opened 6 new
52-Week Low
SAR
89.0
restaurants in 1Q15. Furthermore, management guided to opening at least 12 more in 2Q15
Price chg. (3 months)
%
22.6
which will take the number of new restaurants to 18 for 1H15. This compares with our
EPS 2015E
assumption of 25 new restaurants for full 2015 meaning Herfy’s new restaurant openings
Ticker (Reuters/ Bloomberg)
could beat our full year forecast. Furthermore, in the longer run, management guidance calls
*Price as of April 19, 2015
SAR
4.89
6002.SE
HERFY AB
for a reasonable c.25 new restaurants/annum (majority of them larger sized standalone ones with higher yields) in 2015E-18E which could take the total restaurant count to a solid 357 by
Key Shareholding (%)
2018 (+c.40% from 2014E).
Ahmed Al Saeed
20.3
Savola Group
47.6
Herfy is a leader in KSA quick service restaurant sector; Expect 2014-16E earnings
Public
32.1
CAGR of c.15%: We see Herfy as a leader in KSA’s fast growing quick service restaurant
Source: Tadawul
sector with a solid grasp on local tastes. While its asset light model (most stores leasehold) leads to superior returns (c.30% RoE) and vertically integrated operations (c.70%/30%
Key Ratios 2015E
2016E
(although margins could fluctuate quarter to quarter), strong B/S and potentially strong FCF
P/E (x)
25.7
22.8
generation mean the company is well positioned for growth. Furthermore, new restaurant
EV/EBITDA (x)
20.5
18.2
openings are back on track in 2014 that should contribute to meaningful earnings growth
Dividend yield (%)
2.8
3.0
going forward. All in all, while we expect c.15% earnings CAGR in 2014-16E, investors
Source: Company, Saudi Fransi Capital analysis
meat/bakery production used for internal consumption) imply somewhat margin stability
should closely watch the progress on new restaurants as that would account for c.70% of the Stock price movement vs. TASI
170 150 130
1Q15A
1Q15E
%diff
Cons*
%dev
4Q14
%qoq
1Q14
%yoy
265
253
5%
243
9%
243
9%
216
23%
Gross Profit
87
78
11%
Na
Na
72
21%
71
22%
EBITDA (est)**
71
67
6%
Na
Na
62
12%
62
13%
EBITDA margin
26%
27%
Na
Na
26%
EBIT
56
52
7%
51
Na
47
19%
49
13%
Net Profit
55
52
5%
52
5%
49
12%
48
14%
SAR mn
Revenues
29%
Source: Company, Saudi Fransi Capital, * Bloomberg consensus, ** estimated from available disclosure
Herfy
Jan-15
Mar-15
Dec-14
Jul-14
Oct-14
Jun-14
Sep-14
Apr-14
Jan-14
Feb-14
Oct-13
70
Jan-13
90
rating with a revised target price of SAR140/share (from SAR132).
Nov-13
110
stable non-cyclical industry. All in all, post publication of 1Q15 results, we maintain our Buy
Jul-13
cheap but undemanding considering Herfy’s market positioning and growth prospects in a
190
Aug-13
25.7x (KSA Food & Agri 23.3x, EM peers 29.1x, DM peers 26.1x), which in our view, is not
210
Apr-13
stock price (vs. Tadawul Food & Agri c.6%, Tadawul c.13%), Herfy trades at 2015E P/E of
May-13
Trades at 2015E P/E of 25.7x; Maintain Buy: After an impressive c.30% Ytd increase in
Feb-13
earnings growth between 2014-16E.
Tadawul Food & Agri
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
1Q15 review: Earnings ahead of SFC estimate by c.5%; Maintain Buy
Rating Summary Recommendation
1Q15 net profit ahead of SFC/consensus estimate by c.5%: Herfy reported 1Q15
Buy
Target price (SAR)
140.0
Upside/ (downside)
11%
headline net profit of SAR55m (+12% qoq, +14% yoy) that has beaten SFC/consensus estimate by c.5%. While revenues of SAR265m (+9% qoq, +23% yoy) was c.5% ahead of
Stock Details
our estimate, EBITDA/EBIT was c.6%/7% higher meaning the earnings beat was primarily
Closing price* Market capitalization
topline driven whereas margins were largely in line.
SAR
126.0
SAR mn
5,821
Mn
46
Shares outstanding
Optimistic guidance on new restaurant openings: After a record of 52 new restaurants
52-Week High
SAR
127.5
(highest in previous 6 years) in 2014 (after a soft patch in 2013), Herfy opened 6 new
52-Week Low
SAR
89.0
restaurants in 1Q15. Furthermore, management guided to opening at least 12 more in 2Q15
Price chg. (3 months)
%
22.6
which will take the number of new restaurants to 18 for 1H15. This compares with our
EPS 2015E
assumption of 25 new restaurants for full 2015 meaning Herfy’s new restaurant openings
Ticker (Reuters/ Bloomberg)
could beat our full year forecast. Furthermore, in the longer run, management guidance calls
*Price as of April 19, 2015
SAR
4.89
6002.SE
HERFY AB
for a reasonable c.25 new restaurants/annum (majority of them larger sized standalone ones with higher yields) in 2015E-18E which could take the total restaurant count to a solid 357 by
Key Shareholding (%)
2018 (+c.40% from 2014E).
Ahmed Al Saeed
20.3
Savola Group
47.6
Herfy is a leader in KSA quick service restaurant sector; Expect 2014-16E earnings
Public
32.1
CAGR of c.15%: We see Herfy as a leader in KSA’s fast growing quick service restaurant
Source: Tadawul
sector with a solid grasp on local tastes. While its asset light model (most stores leasehold) leads to superior returns (c.30% RoE) and vertically integrated operations (c.70%/30%
Key Ratios 2015E
2016E
(although margins could fluctuate quarter to quarter), strong B/S and potentially strong FCF
P/E (x)
25.7
22.8
generation mean the company is well positioned for growth. Furthermore, new restaurant
EV/EBITDA (x)
20.5
18.2
openings are back on track in 2014 that should contribute to meaningful earnings growth
Dividend yield (%)
2.8
3.0
going forward. All in all, while we expect c.15% earnings CAGR in 2014-16E, investors
Source: Company, Saudi Fransi Capital analysis
meat/bakery production used for internal consumption) imply somewhat margin stability
should closely watch the progress on new restaurants as that would account for c.70% of the Stock price movement vs. TASI
170 150 130
1Q15A
1Q15E
%diff
Cons*
%dev
4Q14
%qoq
1Q14
%yoy
265
253
5%
243
9%
243
9%
216
23%
Gross Profit
87
78
11%
Na
Na
72
21%
71
22%
EBITDA (est)**
71
67
6%
Na
Na
62
12%
62
13%
EBITDA margin
26%
27%
Na
Na
26%
EBIT
56
52
7%
51
Na
47
19%
49
13%
Net Profit
55
52
5%
52
5%
49
12%
48
14%
SAR mn
Revenues
29%
Source: Company, Saudi Fransi Capital, * Bloomberg consensus, ** estimated from available disclosure
Herfy
Jan-15
Mar-15
Dec-14
Jul-14
Oct-14
Jun-14
Sep-14
Apr-14
Jan-14
Feb-14
Oct-13
70
Jan-13
90
rating with a revised target price of SAR140/share (from SAR132).
Nov-13
110
stable non-cyclical industry. All in all, post publication of 1Q15 results, we maintain our Buy
Jul-13
cheap but undemanding considering Herfy’s market positioning and growth prospects in a
190
Aug-13
25.7x (KSA Food & Agri 23.3x, EM peers 29.1x, DM peers 26.1x), which in our view, is not
210
Apr-13
stock price (vs. Tadawul Food & Agri c.6%, Tadawul c.13%), Herfy trades at 2015E P/E of
May-13
Trades at 2015E P/E of 25.7x; Maintain Buy: After an impressive c.30% Ytd increase in
Feb-13
earnings growth between 2014-16E.
Tadawul Food & Agri
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Herfy Food Services (Herfy) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
