4Q14 review: Earnings beat estimate again; Maintain Buy
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Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 2015
4Q14 review: Earnings beat estimate again; Maintain Buy
Rating Summary Target price (SAR)
225
4Q14 net profit beats consensus estimate: Saudi Catering reported 4Q14 net profit of
Upside/ (downside)
16%
Recommendation
BUY
SAR173m (36% yoy, 12% qoq) that has beaten consensus estimate by c.6%. While revenues increased c.10% yoy (c.-4% qoq), operational profit (EBIT) increased c.34% yoy
Stock Details
and c.8% qoq. According to the company, c.10% yoy revenue growth was a result of less
Closing price*
than expected (vs. SFC) increase in on-board catering sales (+6% yoy) which was well compensated by solid increase in Al Fursan Lounge sales (+41% yoy), Skysales (+16% yoy) and non-airline related revenues (+32% yoy). Al-Fursan Lounge sales benefitted from new
SAR
194.5
SAR mn
15,949
Mn
82
52-Week High
SAR
208.5
52-Week Low
SAR
143.5
Market capitalization Shares outstanding
openings in Riyadh and Dammam while new contracts in remote site management supported
Price chg. (3 months)
the non-airline related revenue.
EPS 2015E
Broader sector outlook optimistic; 2014-16E earnings CAGR c.16%: Our comfort in the
Ticker (Reuters/ Bloomberg)
company’s equity story stems from our positive outlook on the broader macro picture as we believe Saudi Catering would be a key beneficiary of strong growth prospects in KSA aviation
%
7.0
SAR
9.70
6004.SE
CATERING AB
*Price as of January 20, 2015, **the company reports EPS before tax
industry. In the mid to long term, we think the company should benefit from 1/ fleet expansion of its anchor client Saudi Airlines, 2/ increasing number of private domestic aviation players
Key Shareholding (%)
and 3/ expansion in non-airline related business by leveraging its existing client relationships.
Saudia
35.7
All in all, we believe in the company’s earnings prowess and expect strong earnings
SCCL
34.3
Public
30.0
momentum to continue (2014-16E earnings CAGR c.16%).
Source: Tadawul
Solid B/S with net cash+investments c.5% of MCap; expect c.3.9% dividend yield for 2015: Saudi Catering’s B/S is solid with net cash + investments of c.SAR 720mn (c.5% of
Key Ratios
2015e
2016e
Mcap) as of end 3Q14. Thus, in the absence of debt repayment and with a low capex
P/E (x)
20.7
18.2
consumptive business model, we expect company’s cash generation capability to remain
EV/EBITDA (x)
18.5
16.2
3.9
4.4
strong in 2015E with operational FCF of c.SAR750m (c.5% FCF yield). In our view, this should lead to higher dividends and as such we expect 2015E DPS of SAR 7.6 implying a
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
yield of c.3.9%, higher than that of Tadawul (c.3.5%) and KSA Food & Agriculture (c.2.5%). Stock price movement vs. TASI
Stock continues to outperform Tadawul; Maintain Buy: In our view, investors seem to acknowledge the mid-term earnings power of the company and the attractiveness of its
280
business model which is well evident in the stock performance. While it outperformed Tadawul since 2014 beginning (c.38% vs. c.-1.0%), the outperformance was more stark in
240
the previous three months (c.7% vs. Tadawul c.-14%). Keeping in mind the strength and
200
visibility of the company’s earnings, we maintain our Buy rating on the stock with an
160
unchanged target price of SAR225/share. The stock trades at an undemanding 2015E excash P/E of 20.7x (KSA consumer 20.6x, global peers 18.5x) and we believe an attractive profile such as Saudi Catering (positive sector outlook, strong earnings growth, stable
120 80 Jan-13
Jul-13
business model, solid B/S) should command a premium valuation. 4Q14
Cons*
%dev
3Q14
% qoq
4Q13
% yoy
Revenues*
528
571
-7%
553
-4%
480
10%
Gross Profit
183
Na
Na
188
-2%
178
3%
EBITDA*
170
157
8%
156
8%
126
34%
EBITDA Margin
32%
27%
EBIT
165
146
13%
152
8%
123
34%
Net Profit**
173
164
6%
155
12%
127
36%
SAR mn
28%
Jan-14
TASI
26%
Jul-14
Jan-15
Catering
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-1-12826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, ** Reported as net profit before tax
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)
Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 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.
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)
Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 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)
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)
Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 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)
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)
Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 2015
4Q14 review: Earnings beat estimate again; Maintain Buy
Rating Summary Target price (SAR)
225
4Q14 net profit beats consensus estimate: Saudi Catering reported 4Q14 net profit of
Upside/ (downside)
16%
Recommendation
BUY
SAR173m (36% yoy, 12% qoq) that has beaten consensus estimate by c.6%. While revenues increased c.10% yoy (c.-4% qoq), operational profit (EBIT) increased c.34% yoy
Stock Details
and c.8% qoq. According to the company, c.10% yoy revenue growth was a result of less
Closing price*
than expected (vs. SFC) increase in on-board catering sales (+6% yoy) which was well compensated by solid increase in Al Fursan Lounge sales (+41% yoy), Skysales (+16% yoy) and non-airline related revenues (+32% yoy). Al-Fursan Lounge sales benefitted from new
SAR
194.5
SAR mn
15,949
Mn
82
52-Week High
SAR
208.5
52-Week Low
SAR
143.5
Market capitalization Shares outstanding
openings in Riyadh and Dammam while new contracts in remote site management supported
Price chg. (3 months)
the non-airline related revenue.
EPS 2015E
Broader sector outlook optimistic; 2014-16E earnings CAGR c.16%: Our comfort in the
Ticker (Reuters/ Bloomberg)
company’s equity story stems from our positive outlook on the broader macro picture as we believe Saudi Catering would be a key beneficiary of strong growth prospects in KSA aviation
%
7.0
SAR
9.70
6004.SE
CATERING AB
*Price as of January 20, 2015, **the company reports EPS before tax
industry. In the mid to long term, we think the company should benefit from 1/ fleet expansion of its anchor client Saudi Airlines, 2/ increasing number of private domestic aviation players
Key Shareholding (%)
and 3/ expansion in non-airline related business by leveraging its existing client relationships.
Saudia
35.7
All in all, we believe in the company’s earnings prowess and expect strong earnings
SCCL
34.3
Public
30.0
momentum to continue (2014-16E earnings CAGR c.16%).
Source: Tadawul
Solid B/S with net cash+investments c.5% of MCap; expect c.3.9% dividend yield for 2015: Saudi Catering’s B/S is solid with net cash + investments of c.SAR 720mn (c.5% of
Key Ratios
2015e
2016e
Mcap) as of end 3Q14. Thus, in the absence of debt repayment and with a low capex
P/E (x)
20.7
18.2
consumptive business model, we expect company’s cash generation capability to remain
EV/EBITDA (x)
18.5
16.2
3.9
4.4
strong in 2015E with operational FCF of c.SAR750m (c.5% FCF yield). In our view, this should lead to higher dividends and as such we expect 2015E DPS of SAR 7.6 implying a
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
yield of c.3.9%, higher than that of Tadawul (c.3.5%) and KSA Food & Agriculture (c.2.5%). Stock price movement vs. TASI
Stock continues to outperform Tadawul; Maintain Buy: In our view, investors seem to acknowledge the mid-term earnings power of the company and the attractiveness of its
280
business model which is well evident in the stock performance. While it outperformed Tadawul since 2014 beginning (c.38% vs. c.-1.0%), the outperformance was more stark in
240
the previous three months (c.7% vs. Tadawul c.-14%). Keeping in mind the strength and
200
visibility of the company’s earnings, we maintain our Buy rating on the stock with an
160
unchanged target price of SAR225/share. The stock trades at an undemanding 2015E excash P/E of 20.7x (KSA consumer 20.6x, global peers 18.5x) and we believe an attractive profile such as Saudi Catering (positive sector outlook, strong earnings growth, stable
120 80 Jan-13
Jul-13
business model, solid B/S) should command a premium valuation. 4Q14
Cons*
%dev
3Q14
% qoq
4Q13
% yoy
Revenues*
528
571
-7%
553
-4%
480
10%
Gross Profit
183
Na
Na
188
-2%
178
3%
EBITDA*
170
157
8%
156
8%
126
34%
EBITDA Margin
32%
27%
EBIT
165
146
13%
152
8%
123
34%
Net Profit**
173
164
6%
155
12%
127
36%
SAR mn
28%
Jan-14
TASI
26%
Jul-14
Jan-15
Catering
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-1-12826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, ** Reported as net profit before tax
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)
Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 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.
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)
Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 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)
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)
Saudi Airlines Catering Company Agriculture & Food Industries | 4Q 2014 Preliminary Results | January 21, 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)
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)
