Almarai Q1: Growth in line with estimates
Almarai Company
Food-Diversified – Industrial ALMARAI AB: Saudi Arabia 09 April 2015
US$13.64bn Market cap
Target price Consensus price Current price
36%
US$7.49mn
Free float
Avg. daily volume
80.0 84.2 85.7
-6.3% over current -1.5% over current as at 6/4/2015
Existing rating Underweight
Overweight
Neutral
Neutral
Flash view Flash View is an analyst’s preliminary interpretation of a results announcement or the impact of a major event. Our investment rating and earnings estimates are not being changed in this report. Any formal changes to our investment rating or earnings estimates will be made in a subsequent report, which may differ from the preliminary views expressed here. Performance Price Close
MAV10
MAV50
Relative to TADAWUL FF (RHS)
90.0
60.0
94.0
RSI10
111.1
Vol mn
128.3
70.0
2
Almarai Q1: Growth in line with estimates Almarai’s Q1 2015 results were in line with our estimates with revenues coming in at SAR3,037mn (+11.7% y-o-y) vs. our estimate of SAR3,011mn, and net profit rising 12% y-o-y to SAR306.5mn, as compared to our estimate of SAR303mn. All business segments except bakery delivered strong growth. The dairy & juice segment’s revenues grew at double-digit rates, while the revenues of the poultry segment jumped 46% y-o-y supported by lower mortality rates. The management has reaffirmed its guidance for the poultry segment turning cash flow positive in 2015. The company will also see the benefits of falling food prices in the coming quarters, which had been delayed due to its high inventory cover. While Almarai’s 2015 top-line growth is expected to remain at similar levels seen in 2014, the improving margins will boost its profit growth. We reiterate our Neutral rating on Almarai with a target price of SAR80.
145.4
80.0
70 30 -10 3
Research Department ARC Research Team Tel 966 11 211 9370, [email protected]
07/14
10/14
Earnings 12/12A
12/13A
12/14A
12/15E
Revenue (mn)
9,883
11,219
12,606
14,090
Revenue Growth
24.3%
13.5%
12.4%
11.8%
EBITDA (mn)
2,739
3,127
3,404
3,959
EBITDA Growth
21.7%
14.2%
8.9%
2.40
2.50
2.76
3.30
10.1%
19.9%
EPS
EPS Growth 26.4% 4.3% Source: Company data, Al Rajhi Capital
Earnings estimates
Up
No Change
Down
Dividend estimates
Up
No Change
Down
Recommendation
Upgrade
No Change
Downgrade
Long term view
Stronger
Confirmed
Weaker
Revenues: Almarai’s Q1 2015 revenues grew 11.7% y-o-y to SAR3,037mn, coming in line with our (SAR3,011mn) as well as consensus (SAR3,057mn) estimates. The company’s top-line growth was driven by the poultry segment (+46% y-o-y) and the fruit juice segment (+22% y-o-y). The core dairy segment continued to grow at double-digit rates (Fresh dairy: 11%, Long-life dairy: 13%). The overall top-line growth was led by volume growth of around 10.6% and improved pricing of 1.1%. Within Saudi Arabia, revenue growth was driven by volume growth and pricing increase of 7.8% and 2.2% respectively, while the figures in the GCC region, excluding KSA, stood at around 10% and 1.9%, respectively.
Gross and operating profits: Gross profit jumped 20.8% y-o-y to SAR1,110mn, slightly ahead of our estimate of SAR1,060mn, as the gross profit margin improved to 36.6% (+276bps y-o-y) vs. our expectations of 35.2%. Similarly, the operating profit rose 20.7% y-o-y to SAR378.1mn, higher than our expectations of SAR364mn. The operating profit margin expanded by around 90bps y-o-y to 12.4% (as compared to 12.1% estimate).
16.3%
Valuation
P/E (x) 25.0
20.0 15.0
Figure 1 Almarai: summary of Q1 2015 results (SAR mn) Q1 2014 Q4 2014 Q1 2015 % chg y-o-y % chg q-o-q
10.0 5.0
0.0 01/10
Below
01/15
Source: Bloomberg
Period End (SAR)
In Line
Likely impact:
1 04/14
Above
Earnings vs. our forecast
Revenue Gross profit 01/11
01/12
Source: Company data, Al Rajhi Capital
01/13
Gross profit margin (%)
ARC est
2,719
3,331
3,037
11.7%
-8.8%
3,011
919
1,234
1,110
20.8%
-10.0%
1,060
33.8%
37.1%
36.6%
Operating profit
313
507
378
20.7%
-25.4%
35.2% 364
Net profit
274
428
307
12.0%
-28.4%
303
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. Powered by EFA Platform
1
Almarai Company
Food-Diversified –Industrial 09 April 2015
Net profit: Net profit stood at SAR306.5mn (+12% y-o-y), in line with our SAR303mn estimate, but slightly lower than the consensus figure of SAR318.5mn. It is noteworthy that the Q1 2014 profit included a one-off gain of SAR20mn on account of the acquisition of shares of International Pediatric Nutrition Company (IPNC). Excluding this one-off gain, the company’s profits were higher by around 21%. Conclusion: Almarai posted a strong set of results in Q1 2015. The company’s poultry segment is finally heading in the right direction with a lower mortality rate and is expected to breakeven this year. The core dairy segment continues to grow at double-digit rates, while the juice segment is witnessing strong growth. We expect Almarai’s margins to improve further over the next few quarters as the impact of lower food prices starts to reflect on its earnings. The management has maintained its 2015 guidance for achieving a similar top-line growth as witnessed in 2014, but as the margins are likely to improve on lower raw material costs, the net profit growth is likely to be higher. For now, we reiterate our Neutral rating on Almarai with a target price of SAR80.
Segmental Analysis Dairy & fresh juice: The segment accounted for around 78% of the company’s total revenues during the quarter. Sales from the dairy & juice segment grew 10.7% y-o-y to SAR2,353mn, while net profit rose 6.6% y-o-y to SAR390mn. Within the segment fresh dairy sales jumped around 11% y-o-y to SAR1.39bn, as the route expansions improved product distribution. Sales of the long-life dairy segment rose by about 13% y-o-y to SAR342mn, on the back of new products, price increases and improved product mix. The juice segment witnessed a strong 22% y-o-y to SAR393mn, driven by the robust demand in Egypt and improved distribution in the Kingdom. On the other hand, the cheese & butter segment remained largely flat (+1% y-oy) due to intense competition in the market. Poultry: The poultry segment posted a top-line growth of around 46% y-o-y to SAR309mn, supported by high volume growth, lower mortality and improved distribution. The segment’s net loss stood at SAR62mn, which is a marked improvement from a loss of SAR133mn in Q1 2014 and a loss of SAR72mn in Q4 2014. The segment continued to witness improved KPIs and the management reaffirmed its guidance for reaching cash flow positive in 2015. The company’s investment in air filtration and vaccinations has helped reduce mortality rates. This has improved the supply from the company’s farms to its factories, enabling it to improve efficiencies. The company’s current production rate is around 90mn birds, which is likely to be increased to 100-110mn birds by 2015-end. Bakery: Bakery sales fell by about 5% in Q1 2015 to SAR356mn mainly due to the fire incident at one of its Jeddah factory, rendering it unusable. Nevertheless, the segment’s bottom-line grew 23% y-o-y to SAR26mn. As a result of the fire, the company lost 7 product lines. The management expects to make 3-4 product lines available through its other facilities, while the rest are not expected become available before 2016-end. The loss calculations are expected to be completed by Q2 2015, but the company has already received a payment of SAR250mn from the insurance company as payment on account.
Figure 2 Segmental performance
(SAR mn)
Dairy & Juice
Bakery
Poultry
Q1 2014
Q1 2015
Estimate
Q1 2014
Q1 2015
Estimate
Q1 2014
Q1 2015
Revenue
2,126
2,353
2,369
373
356
351
211
309
279
y-o-y growth
11.8%
10.7%
11.5%
9.5%
-4.8%
-6.0%
30.2%
46.4%
32.2%
Profit* Profit margin
Estimate
366
390
400
21.6
26.5
39
-133
-62
-58
17.2%
16.6%
16.9%
5.8%
7.4%
11.0%
-63.0%
-20.0%
-20.8%
Source: Company data, Al Rajhi Capital (* profit before minority interest)
Disclosures Please refer to the important disclosures at the back of this report.
2
Almarai Company
Food-Diversified –Industrial 09 April 2015
Major Developments New CEO takes over On February 1, 2015 Almarai announced that its CEO Engr. Abdul Rahman bin Abdul Mohsen Al-Fadley stepped down from his position after he was nominated as the new minister for agriculture in the new government. Mr. Georges Schorderet was appointed as the new CEO of the company. He joined Almarai in 2004 as CFO. Since 2011, he was working as the COO of the company.
Almarai receives SAR250mn from insurance company Almarai received a payment of SAR250mn from Arabian Shield Cooperative Insurance Company as part of a claim related to the fire damage at its Jeddah bakery factory. This payment was not in respect of a specific claim item, but only a general on account payment until the full extent of claim is assessed and finalized, which is expected in Q2 2015.
Disclosures Please refer to the important disclosures at the back of this report.
3
Almarai Company
Food-Diversified –Industrial 09 April 2015
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Additional disclosures 1. Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 6-9 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 6-9 month time horizon.
2. Definitions "Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their target price within that time. "Fair value": We estimate fair value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. "Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair value per share, and explain our reasons for doing so. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations.
Contact us Pritish Devassy, CFA Senior Research Analyst Tel : +966 1 211 9370 Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
4
Food-Diversified – Industrial ALMARAI AB: Saudi Arabia 09 April 2015
US$13.64bn Market cap
Target price Consensus price Current price
36%
US$7.49mn
Free float
Avg. daily volume
80.0 84.2 85.7
-6.3% over current -1.5% over current as at 6/4/2015
Existing rating Underweight
Overweight
Neutral
Neutral
Flash view Flash View is an analyst’s preliminary interpretation of a results announcement or the impact of a major event. Our investment rating and earnings estimates are not being changed in this report. Any formal changes to our investment rating or earnings estimates will be made in a subsequent report, which may differ from the preliminary views expressed here. Performance Price Close
MAV10
MAV50
Relative to TADAWUL FF (RHS)
90.0
60.0
94.0
RSI10
111.1
Vol mn
128.3
70.0
2
Almarai Q1: Growth in line with estimates Almarai’s Q1 2015 results were in line with our estimates with revenues coming in at SAR3,037mn (+11.7% y-o-y) vs. our estimate of SAR3,011mn, and net profit rising 12% y-o-y to SAR306.5mn, as compared to our estimate of SAR303mn. All business segments except bakery delivered strong growth. The dairy & juice segment’s revenues grew at double-digit rates, while the revenues of the poultry segment jumped 46% y-o-y supported by lower mortality rates. The management has reaffirmed its guidance for the poultry segment turning cash flow positive in 2015. The company will also see the benefits of falling food prices in the coming quarters, which had been delayed due to its high inventory cover. While Almarai’s 2015 top-line growth is expected to remain at similar levels seen in 2014, the improving margins will boost its profit growth. We reiterate our Neutral rating on Almarai with a target price of SAR80.
145.4
80.0
70 30 -10 3
Research Department ARC Research Team Tel 966 11 211 9370, [email protected]
07/14
10/14
Earnings 12/12A
12/13A
12/14A
12/15E
Revenue (mn)
9,883
11,219
12,606
14,090
Revenue Growth
24.3%
13.5%
12.4%
11.8%
EBITDA (mn)
2,739
3,127
3,404
3,959
EBITDA Growth
21.7%
14.2%
8.9%
2.40
2.50
2.76
3.30
10.1%
19.9%
EPS
EPS Growth 26.4% 4.3% Source: Company data, Al Rajhi Capital
Earnings estimates
Up
No Change
Down
Dividend estimates
Up
No Change
Down
Recommendation
Upgrade
No Change
Downgrade
Long term view
Stronger
Confirmed
Weaker
Revenues: Almarai’s Q1 2015 revenues grew 11.7% y-o-y to SAR3,037mn, coming in line with our (SAR3,011mn) as well as consensus (SAR3,057mn) estimates. The company’s top-line growth was driven by the poultry segment (+46% y-o-y) and the fruit juice segment (+22% y-o-y). The core dairy segment continued to grow at double-digit rates (Fresh dairy: 11%, Long-life dairy: 13%). The overall top-line growth was led by volume growth of around 10.6% and improved pricing of 1.1%. Within Saudi Arabia, revenue growth was driven by volume growth and pricing increase of 7.8% and 2.2% respectively, while the figures in the GCC region, excluding KSA, stood at around 10% and 1.9%, respectively.
Gross and operating profits: Gross profit jumped 20.8% y-o-y to SAR1,110mn, slightly ahead of our estimate of SAR1,060mn, as the gross profit margin improved to 36.6% (+276bps y-o-y) vs. our expectations of 35.2%. Similarly, the operating profit rose 20.7% y-o-y to SAR378.1mn, higher than our expectations of SAR364mn. The operating profit margin expanded by around 90bps y-o-y to 12.4% (as compared to 12.1% estimate).
16.3%
Valuation
P/E (x) 25.0
20.0 15.0
Figure 1 Almarai: summary of Q1 2015 results (SAR mn) Q1 2014 Q4 2014 Q1 2015 % chg y-o-y % chg q-o-q
10.0 5.0
0.0 01/10
Below
01/15
Source: Bloomberg
Period End (SAR)
In Line
Likely impact:
1 04/14
Above
Earnings vs. our forecast
Revenue Gross profit 01/11
01/12
Source: Company data, Al Rajhi Capital
01/13
Gross profit margin (%)
ARC est
2,719
3,331
3,037
11.7%
-8.8%
3,011
919
1,234
1,110
20.8%
-10.0%
1,060
33.8%
37.1%
36.6%
Operating profit
313
507
378
20.7%
-25.4%
35.2% 364
Net profit
274
428
307
12.0%
-28.4%
303
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. Powered by EFA Platform
1
Almarai Company
Food-Diversified –Industrial 09 April 2015
Net profit: Net profit stood at SAR306.5mn (+12% y-o-y), in line with our SAR303mn estimate, but slightly lower than the consensus figure of SAR318.5mn. It is noteworthy that the Q1 2014 profit included a one-off gain of SAR20mn on account of the acquisition of shares of International Pediatric Nutrition Company (IPNC). Excluding this one-off gain, the company’s profits were higher by around 21%. Conclusion: Almarai posted a strong set of results in Q1 2015. The company’s poultry segment is finally heading in the right direction with a lower mortality rate and is expected to breakeven this year. The core dairy segment continues to grow at double-digit rates, while the juice segment is witnessing strong growth. We expect Almarai’s margins to improve further over the next few quarters as the impact of lower food prices starts to reflect on its earnings. The management has maintained its 2015 guidance for achieving a similar top-line growth as witnessed in 2014, but as the margins are likely to improve on lower raw material costs, the net profit growth is likely to be higher. For now, we reiterate our Neutral rating on Almarai with a target price of SAR80.
Segmental Analysis Dairy & fresh juice: The segment accounted for around 78% of the company’s total revenues during the quarter. Sales from the dairy & juice segment grew 10.7% y-o-y to SAR2,353mn, while net profit rose 6.6% y-o-y to SAR390mn. Within the segment fresh dairy sales jumped around 11% y-o-y to SAR1.39bn, as the route expansions improved product distribution. Sales of the long-life dairy segment rose by about 13% y-o-y to SAR342mn, on the back of new products, price increases and improved product mix. The juice segment witnessed a strong 22% y-o-y to SAR393mn, driven by the robust demand in Egypt and improved distribution in the Kingdom. On the other hand, the cheese & butter segment remained largely flat (+1% y-oy) due to intense competition in the market. Poultry: The poultry segment posted a top-line growth of around 46% y-o-y to SAR309mn, supported by high volume growth, lower mortality and improved distribution. The segment’s net loss stood at SAR62mn, which is a marked improvement from a loss of SAR133mn in Q1 2014 and a loss of SAR72mn in Q4 2014. The segment continued to witness improved KPIs and the management reaffirmed its guidance for reaching cash flow positive in 2015. The company’s investment in air filtration and vaccinations has helped reduce mortality rates. This has improved the supply from the company’s farms to its factories, enabling it to improve efficiencies. The company’s current production rate is around 90mn birds, which is likely to be increased to 100-110mn birds by 2015-end. Bakery: Bakery sales fell by about 5% in Q1 2015 to SAR356mn mainly due to the fire incident at one of its Jeddah factory, rendering it unusable. Nevertheless, the segment’s bottom-line grew 23% y-o-y to SAR26mn. As a result of the fire, the company lost 7 product lines. The management expects to make 3-4 product lines available through its other facilities, while the rest are not expected become available before 2016-end. The loss calculations are expected to be completed by Q2 2015, but the company has already received a payment of SAR250mn from the insurance company as payment on account.
Figure 2 Segmental performance
(SAR mn)
Dairy & Juice
Bakery
Poultry
Q1 2014
Q1 2015
Estimate
Q1 2014
Q1 2015
Estimate
Q1 2014
Q1 2015
Revenue
2,126
2,353
2,369
373
356
351
211
309
279
y-o-y growth
11.8%
10.7%
11.5%
9.5%
-4.8%
-6.0%
30.2%
46.4%
32.2%
Profit* Profit margin
Estimate
366
390
400
21.6
26.5
39
-133
-62
-58
17.2%
16.6%
16.9%
5.8%
7.4%
11.0%
-63.0%
-20.0%
-20.8%
Source: Company data, Al Rajhi Capital (* profit before minority interest)
Disclosures Please refer to the important disclosures at the back of this report.
2
Almarai Company
Food-Diversified –Industrial 09 April 2015
Major Developments New CEO takes over On February 1, 2015 Almarai announced that its CEO Engr. Abdul Rahman bin Abdul Mohsen Al-Fadley stepped down from his position after he was nominated as the new minister for agriculture in the new government. Mr. Georges Schorderet was appointed as the new CEO of the company. He joined Almarai in 2004 as CFO. Since 2011, he was working as the COO of the company.
Almarai receives SAR250mn from insurance company Almarai received a payment of SAR250mn from Arabian Shield Cooperative Insurance Company as part of a claim related to the fire damage at its Jeddah bakery factory. This payment was not in respect of a specific claim item, but only a general on account payment until the full extent of claim is assessed and finalized, which is expected in Q2 2015.
Disclosures Please refer to the important disclosures at the back of this report.
3
Almarai Company
Food-Diversified –Industrial 09 April 2015
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Additional disclosures 1. Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 6-9 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 6-9 month time horizon.
2. Definitions "Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their target price within that time. "Fair value": We estimate fair value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. "Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair value per share, and explain our reasons for doing so. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations.
Contact us Pritish Devassy, CFA Senior Research Analyst Tel : +966 1 211 9370 Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
4
