2Q15 review: Earnings beat SFC estimate
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Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 2015
2Q15 review: Earnings beat SFC estimate: Maintain Buy
Rating Summary Recommendation
2Q15 net profit ahead of SFC and broadly in line with consensus: Othaim reported 2Q15
Buy
Target price (SAR)
135.0
Upside/ (downside)
23%
net profit of SAR56m (+8% yoy, +14% qoq) that has beaten SFC estimate by c.10% and came broadly in line with consensus. While revenue of SAR1,726m (+14% yoy, +21% qoq)
Stock Details
was c.10% ahead of SFC est., operational performance was also stronger than expected
Closing price*
with gross profit/EBITDA/EBIT c.8%/9%/14% ahead of our forecasts. Consequently EBITDA margin came in at c.4.6%, in line with our estimate. Although seasonality leads to EBITDA margin volatility on a qoq basis, second quarter’s in-line EBITDA margin provides us with
SAR
110.0
SAR mn
4,950
Mn
45
52-Week High
SAR
116.2
52-Week Low
SAR
95.6
Market capitalization Shares outstanding
comfort on our full year earnings estimates after a margin miss (and consequently earnings
Price chg. (3 months)
miss) in 1Q15.
EPS 2015E
New stores hold key to mid-term growth while a fast growing fragmented industry
Ticker (Reuters/ Bloomberg)
offers opportunities: We see Othaim as a play on KSA’s organized food & grocery retail potential. While the broader industry is growing at a reasonably fast c.8%/year with shopping habits shifting to supermarkets/hypermarkets, the market still remains highly fragmented
%
-0.2
SAR
5.29
4001.SE
AOTHAIM AB
*Price as of July 14, 2015 Key Shareholding (%)
(unorganized retail c.75% share). This in our view creates a fertile ground for an organized
Al Othaim Holding Co.
player with a solid B/S, strong FCF and extensive distribution network like Othaim to invest in
Abdullah Bin Saleh Ali Al Othaim
growth and increase market share (c.4% now after Panda c.10%). All in all, while we forecast
Public
2014-16E earnings CAGR of c.14%, investors should closely monitor progress of new stores
Source: Tadawul
27.7 6.0 66.3
(SFC est 8-10/year vs. management guidance of 10-12) as that would account for c.60% of Key Ratios
the earnings growth. Trades at 2015E P/E of 20.8x; maintain Buy: After a c.5% Ytd increase in stock price (Tadawul Retail c.13%), Othaim trades at 2015E P/E of 20.8x (KSA Retail 21.5x, EM peers 21.3x, DM peers 19.6x), which we think is undemanding, considering Othaim’s industry position and growth prospects. All in all, post publication of 2Q15 results, we maintain our
2015E
2016E
P/E (x)
20.8
18.1
EV/EBITDA (x)
13.0
11.5
1.8
2.0
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
Buy rating with an unchanged SAR 135/share target price. 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
1,726
1,565
10%
1,719
0%
1,422
21%
1,511
14%
248
229
8%
Na
Na
212
17%
219
13%
79
72
9%
Na
Na
70
12%
74
7%
4.6%
4.6%
EBIT
50
44
14%
47
6%
42
18%
49
1%
Net Profit
56
51
10%
55
1%
49
14%
52
8%
SAR mn
Revenues
Stock price movement vs. TASI 320 270
Gross Profit
220
EBITDA EBITDA margin
Na
5.0%
170 120
4.8%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Othaim
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Retail
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)
Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 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)
Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 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)
Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 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 complete, 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)
Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 2015
2Q15 review: Earnings beat SFC estimate: Maintain Buy
Rating Summary Recommendation
2Q15 net profit ahead of SFC and broadly in line with consensus: Othaim reported 2Q15
Buy
Target price (SAR)
135.0
Upside/ (downside)
23%
net profit of SAR56m (+8% yoy, +14% qoq) that has beaten SFC estimate by c.10% and came broadly in line with consensus. While revenue of SAR1,726m (+14% yoy, +21% qoq)
Stock Details
was c.10% ahead of SFC est., operational performance was also stronger than expected
Closing price*
with gross profit/EBITDA/EBIT c.8%/9%/14% ahead of our forecasts. Consequently EBITDA margin came in at c.4.6%, in line with our estimate. Although seasonality leads to EBITDA margin volatility on a qoq basis, second quarter’s in-line EBITDA margin provides us with
SAR
110.0
SAR mn
4,950
Mn
45
52-Week High
SAR
116.2
52-Week Low
SAR
95.6
Market capitalization Shares outstanding
comfort on our full year earnings estimates after a margin miss (and consequently earnings
Price chg. (3 months)
miss) in 1Q15.
EPS 2015E
New stores hold key to mid-term growth while a fast growing fragmented industry
Ticker (Reuters/ Bloomberg)
offers opportunities: We see Othaim as a play on KSA’s organized food & grocery retail potential. While the broader industry is growing at a reasonably fast c.8%/year with shopping habits shifting to supermarkets/hypermarkets, the market still remains highly fragmented
%
-0.2
SAR
5.29
4001.SE
AOTHAIM AB
*Price as of July 14, 2015 Key Shareholding (%)
(unorganized retail c.75% share). This in our view creates a fertile ground for an organized
Al Othaim Holding Co.
player with a solid B/S, strong FCF and extensive distribution network like Othaim to invest in
Abdullah Bin Saleh Ali Al Othaim
growth and increase market share (c.4% now after Panda c.10%). All in all, while we forecast
Public
2014-16E earnings CAGR of c.14%, investors should closely monitor progress of new stores
Source: Tadawul
27.7 6.0 66.3
(SFC est 8-10/year vs. management guidance of 10-12) as that would account for c.60% of Key Ratios
the earnings growth. Trades at 2015E P/E of 20.8x; maintain Buy: After a c.5% Ytd increase in stock price (Tadawul Retail c.13%), Othaim trades at 2015E P/E of 20.8x (KSA Retail 21.5x, EM peers 21.3x, DM peers 19.6x), which we think is undemanding, considering Othaim’s industry position and growth prospects. All in all, post publication of 2Q15 results, we maintain our
2015E
2016E
P/E (x)
20.8
18.1
EV/EBITDA (x)
13.0
11.5
1.8
2.0
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
Buy rating with an unchanged SAR 135/share target price. 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
1,726
1,565
10%
1,719
0%
1,422
21%
1,511
14%
248
229
8%
Na
Na
212
17%
219
13%
79
72
9%
Na
Na
70
12%
74
7%
4.6%
4.6%
EBIT
50
44
14%
47
6%
42
18%
49
1%
Net Profit
56
51
10%
55
1%
49
14%
52
8%
SAR mn
Revenues
Stock price movement vs. TASI 320 270
Gross Profit
220
EBITDA EBITDA margin
Na
5.0%
170 120
4.8%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Othaim
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Retail
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)
Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 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)
Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 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)
Abdullah Al Othaim Markets Co. (Othaim) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 15, 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 complete, 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)
