2Q15 review: Earnings miss SFC and consensus estimate; Maintain Buy
`
Herfy Food Services (Herfy) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 14, 2015
2Q15 review: Earnings miss SFC and consensus estimate; Maintain Buy
Rating Summary Recommendation
2Q15 net profit misses SFC and consensus estimate: Herfy reported 2Q15 net profit of
Buy
Target price (SAR)
140.0
Upside/ (downside)
20%
SAR46m (-12% yoy, -15% qoq) that has missed SFC/consensus by c.21%/20%. While revenue of SAR259m (+14% yoy, -2% qoq) was c.5% lower than our estimate due to an
Stock Details
early Ramadan, EBITDA/EBIT was c.9%/16% lower and EBITDA margin came in at c.27%
Closing price*
vs. SFC est of 28% (1Q15 28%). Overall, a weaker topline accounted for c.40% of the miss, margin miss accounted for c.35% and provision for investment losses accounted for c.25%. Overall, while we do not like the margin miss, we acknowledge that EBITDA/EBIT margin
SAR
116.3
SAR mn
5,371
Mn
46
52-Week High
SAR
127.3
52-Week Low
SAR
89.0
Market capitalization Shares outstanding
tends to fluctuate quarterly around mean and we expect it to largely normalize during the
Price chg. (3 months)
remainder of the year. For full 2015, we estimate EBITDA margin of c.27%, in line with 1H15.
EPS 2015E
New restaurant openings remained strong in 1H15: After a record of 52 new restaurants
Ticker (Reuters/ Bloomberg)
(highest in previous 6 years) in 2014, Herfy opened 21 restaurants in 1H15 (of which 15 were
*Price as of July 13, 2015
%
-1.6
SAR
4.89
6002.SE
HERFY AB
opened in 2Q15). This compares with our assumption of 25 new restaurants for full 2015 meaning Herfy’s new restaurant openings could beat our full year forecast. Furthermore, in
Key Shareholding (%)
the longer run, management guidance calls for a reasonable c.25 new restaurants/annum
Ahmed Al Saeed
20.3
Savola Group
49.0
Public
32.1
(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 2018 (+c.40% from 2014).
Source: Tadawul
Herfy is a leader in KSA quick service restaurant sector; Expect 2014-16E earnings CAGR of c.15%: We see Herfy as a leader in KSA’s fast growing quick service restaurant
Key Ratios 2015E
2016E
and vertically integrated operations (c.70%/30% meat/bakery production used internally)
P/E (x)
23.8
21.0
imply somewhat margin stability (although it could fluctuate quarter to quarter), strong B/S
EV/EBITDA (x)
18.9
16.8
and potentially strong FCF mean the company is well positioned for growth. Furthermore,
Dividend yield (%)
3.0
3.3
new restaurant openings have been strong (47 restaurants, c.+20%) in the previous 9
Source: Company, Saudi Fransi Capital analysis
sector with a solid grasp on local tastes. While its asset light model leads to superior returns
months meaning all else equal, we should see meaningful earnings growth going forward. All in all, while we expect c.15% earnings CAGR in 2014-16E, investors should closely watch the progress on new restaurants as that would account for c.70% of that growth.
Stock price movement vs. TASI 210
90
Herfy
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
70
Jul-13
miss, we focus on Herfy’s mid-term equity story and maintain our Buy rating with an
110
Sep-13
stable non-cyclical industry. All in all, post publication of 2Q15 results, despite the earnings
130
Jun-13
cheap but undemanding considering Herfy’s market positioning and growth prospects in a
150
Apr-13
23.8x (KSA Food & Agri 22.6x, EM peers 26.3x, DM peers 25.4x), which in our view, is not
170
Jan-13
stock price (vs. Tadawul Food & Agri c.3%, Tadawul c.11%), Herfy trades at 2015E P/E of
190
Feb-13
Trades at 2015E P/E of 23.8x; Maintain Buy: After an impressive c.19% Ytd increase in
Tadawul Food & Agri
unchanged target price of SAR140/share. Source: Tadawul 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
259
273
-5%
265
-2%
265
-2%
227
14%
Gross Profit
75
90
-16%
Na
Na
87
-14%
76
-2%
EBITDA
69
76
-9%
Na
Na
73
-6%
67
3%
27%
28%
Na
Na
28%
49
59
57
-13%
56
19%
21%
46
58
SAR mn
Revenues
EBITDA margin EBIT EBIT Margin Net Profit
-16%
22% -21%
58
29% -11%
21% -20%
55
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861
53
-7%
22% -15%
52
AbdulAziz Jawdat [email protected] +966-11-2826856
-12%
Source: Company, Saudi Fransi Capital, * Bloomberg consensus 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 | 2Q 2015 Preliminary Results | July 14, 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 | 2Q 2015 Preliminary Results | July 14, 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 | 2Q 2015 Preliminary Results | July 14, 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 company 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 statements 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 | 2Q 2015 Preliminary Results | July 14, 2015
2Q15 review: Earnings miss SFC and consensus estimate; Maintain Buy
Rating Summary Recommendation
2Q15 net profit misses SFC and consensus estimate: Herfy reported 2Q15 net profit of
Buy
Target price (SAR)
140.0
Upside/ (downside)
20%
SAR46m (-12% yoy, -15% qoq) that has missed SFC/consensus by c.21%/20%. While revenue of SAR259m (+14% yoy, -2% qoq) was c.5% lower than our estimate due to an
Stock Details
early Ramadan, EBITDA/EBIT was c.9%/16% lower and EBITDA margin came in at c.27%
Closing price*
vs. SFC est of 28% (1Q15 28%). Overall, a weaker topline accounted for c.40% of the miss, margin miss accounted for c.35% and provision for investment losses accounted for c.25%. Overall, while we do not like the margin miss, we acknowledge that EBITDA/EBIT margin
SAR
116.3
SAR mn
5,371
Mn
46
52-Week High
SAR
127.3
52-Week Low
SAR
89.0
Market capitalization Shares outstanding
tends to fluctuate quarterly around mean and we expect it to largely normalize during the
Price chg. (3 months)
remainder of the year. For full 2015, we estimate EBITDA margin of c.27%, in line with 1H15.
EPS 2015E
New restaurant openings remained strong in 1H15: After a record of 52 new restaurants
Ticker (Reuters/ Bloomberg)
(highest in previous 6 years) in 2014, Herfy opened 21 restaurants in 1H15 (of which 15 were
*Price as of July 13, 2015
%
-1.6
SAR
4.89
6002.SE
HERFY AB
opened in 2Q15). This compares with our assumption of 25 new restaurants for full 2015 meaning Herfy’s new restaurant openings could beat our full year forecast. Furthermore, in
Key Shareholding (%)
the longer run, management guidance calls for a reasonable c.25 new restaurants/annum
Ahmed Al Saeed
20.3
Savola Group
49.0
Public
32.1
(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 2018 (+c.40% from 2014).
Source: Tadawul
Herfy is a leader in KSA quick service restaurant sector; Expect 2014-16E earnings CAGR of c.15%: We see Herfy as a leader in KSA’s fast growing quick service restaurant
Key Ratios 2015E
2016E
and vertically integrated operations (c.70%/30% meat/bakery production used internally)
P/E (x)
23.8
21.0
imply somewhat margin stability (although it could fluctuate quarter to quarter), strong B/S
EV/EBITDA (x)
18.9
16.8
and potentially strong FCF mean the company is well positioned for growth. Furthermore,
Dividend yield (%)
3.0
3.3
new restaurant openings have been strong (47 restaurants, c.+20%) in the previous 9
Source: Company, Saudi Fransi Capital analysis
sector with a solid grasp on local tastes. While its asset light model leads to superior returns
months meaning all else equal, we should see meaningful earnings growth going forward. All in all, while we expect c.15% earnings CAGR in 2014-16E, investors should closely watch the progress on new restaurants as that would account for c.70% of that growth.
Stock price movement vs. TASI 210
90
Herfy
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
70
Jul-13
miss, we focus on Herfy’s mid-term equity story and maintain our Buy rating with an
110
Sep-13
stable non-cyclical industry. All in all, post publication of 2Q15 results, despite the earnings
130
Jun-13
cheap but undemanding considering Herfy’s market positioning and growth prospects in a
150
Apr-13
23.8x (KSA Food & Agri 22.6x, EM peers 26.3x, DM peers 25.4x), which in our view, is not
170
Jan-13
stock price (vs. Tadawul Food & Agri c.3%, Tadawul c.11%), Herfy trades at 2015E P/E of
190
Feb-13
Trades at 2015E P/E of 23.8x; Maintain Buy: After an impressive c.19% Ytd increase in
Tadawul Food & Agri
unchanged target price of SAR140/share. Source: Tadawul 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
259
273
-5%
265
-2%
265
-2%
227
14%
Gross Profit
75
90
-16%
Na
Na
87
-14%
76
-2%
EBITDA
69
76
-9%
Na
Na
73
-6%
67
3%
27%
28%
Na
Na
28%
49
59
57
-13%
56
19%
21%
46
58
SAR mn
Revenues
EBITDA margin EBIT EBIT Margin Net Profit
-16%
22% -21%
58
29% -11%
21% -20%
55
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861
53
-7%
22% -15%
52
AbdulAziz Jawdat [email protected] +966-11-2826856
-12%
Source: Company, Saudi Fransi Capital, * Bloomberg consensus 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 | 2Q 2015 Preliminary Results | July 14, 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 | 2Q 2015 Preliminary Results | July 14, 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 | 2Q 2015 Preliminary Results | July 14, 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 company 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 statements 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)
