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Herfy Food Services (Herfy) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 19, 2015
4Q14 review: Earnings miss estimates; Maintain Buy
Rating Summary Recommendation
4Q14 net profit misses SFC estimate: Herfy reported 4Q14 headline net profit of SAR49m
Buy
Target price (SAR)
124.0
Upside/ (downside)
18%
(+11% qoq on restated numbers, -5% yoy) that has missed SFC estimate by c.9%. While revenue of SAR243m (+11% yoy, +8% qoq) was in line with our estimate, gross profit/
Stock Details
EBITDA/EBIT was c.11%/10%/13% lower than our forecasts primarily due to lower margin
Closing price*
(EBITDA margin c.25.1% vs. SFC est. c.28.2%) from higher than expected compensation and SG&A expenses.
Market capitalization Shares outstanding
SAR
105
SAR mn
4,851
Mn
46
52-Week High
SAR
108.6
A record number of 27 new restaurants opened in 4Q14 and 52 in 2014: Herfy opened
52-Week Low
SAR
80.2
27 new restaurants in 4Q14 and a total of 52 new restaurants in 2014 which is the highest in
Price chg. (3 months)
the previous 6 years. As a result, restaurant count stood at 259 implying a solid c.25% yoy
EPS 2015E
and c.12% qoq increase. While this feat is extraordinary and unlikely to be repeated every
Ticker (Reuters/ Bloomberg)
year, management guidance calls for a reasonable c.20-25 new restaurants/annum (majority
*Price as of January 18, 2015
%
4.0
SAR
4.90
6002.SE
HERFY AB
of them larger sized standalone ones with higher yields) in 2015E-18E which could take the Key Shareholding (%)
total restaurant count to a solid 339-359 by 2018 (+31%-38% from 2014E).
Ahmed Al Saeed
20.3
Herfy is a leader in KSA quick service restaurant sector; Expect 2014-16E earnings
Savola Group
47.6
CAGR of c.14%: We see Herfy as a leader in KSA’s fast growing quick service restaurant
Public
32.1
sector with a solid grasp on local tastes. While its asset light model (most stores leasehold)
Source: Tadawul
leads to superior returns (c.30% RoE) and vertically integrated operations (c.70%/30% meat/bakery production used for internal consumption) imply somewhat margin stability
Key Ratios 2015E
2016E
generation mean the company is well positioned for growth. Furthermore, after a soft
P/E (x)
21.4
19.0
performance in new restaurant openings in 2013 due to construction delays, new restaurant
EV/EBITDA (x)
17.1
15.3
openings are back on track in 2014 that should contribute to meaningful earnings growth
Dividend yield (%)
2.9
3.1
going forward. All in all, while we expect c.14% earnings CAGR in 2014-16E, investors
Source: Company, Saudi Fransi Capital analysis
(although margins could fluctuate quarter to quarter), strong B/S and potentially strong FCF
should closely watch the progress on new restaurants as that would account for c.70% of the Stock price movement vs. TASI
Trades at 2015E P/E of 21.4x; Maintain Buy: After an impressive c.32% increase in stock price (vs. Tadawul Consumer c.32%, Tadawul c.0%) since 2014 beginning, Herfy trades at 2015E P/E of 21.4x (KSA consumer 20.6x, EM peers 23.2, DM peers 25.3), which in our view, is not overtly cheap but undemanding considering Herfy’s market positioning and growth prospects in a stable non-cyclical industry. All in all, post publication of 4Q14 results, while we do not like the earnings miss, we focus on Herfy’s solid mid-term potential and maintain our Buy rating with an unchanged SAR 124/share target price.
170 160 150 140 130 120 110 100 90 80 70 Jan-13 Jan-13 Mar-13 Apr-13 May-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
earnings growth between 2014-16E.
Herfy
4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
243
240
1%
247
-2%
225
8%
219
11%
Gross Profit
72
81
-11%
Na
Na
72
0%
73
-2%
EBITDA (est)
61
68
-10%
76
-20%
58
5%
65
-6%
25.1%
28.2%
EBIT
47
54
-13%
Na
Na
44
6%
51
-8%
Net Profit
49
53
-9%
60
-19%
57
-14%
51
-5%
Restated NP
49
53
-9%
Na
Na
44
11%
51
-5%
SAR mn
Tadawul
Source: Tadawul Revenues
EBITDA margin
30.8%
25.8%
29.6%
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital, * Bloomberg consensus
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 | 4Q 2014 Preliminary Results | January 19, 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)
Herfy Food Services (Herfy) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 19, 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)
Herfy Food Services (Herfy) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 19, 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 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 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)
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 | 4Q 2014 Preliminary Results | January 19, 2015
4Q14 review: Earnings miss estimates; Maintain Buy
Rating Summary Recommendation
4Q14 net profit misses SFC estimate: Herfy reported 4Q14 headline net profit of SAR49m
Buy
Target price (SAR)
124.0
Upside/ (downside)
18%
(+11% qoq on restated numbers, -5% yoy) that has missed SFC estimate by c.9%. While revenue of SAR243m (+11% yoy, +8% qoq) was in line with our estimate, gross profit/
Stock Details
EBITDA/EBIT was c.11%/10%/13% lower than our forecasts primarily due to lower margin
Closing price*
(EBITDA margin c.25.1% vs. SFC est. c.28.2%) from higher than expected compensation and SG&A expenses.
Market capitalization Shares outstanding
SAR
105
SAR mn
4,851
Mn
46
52-Week High
SAR
108.6
A record number of 27 new restaurants opened in 4Q14 and 52 in 2014: Herfy opened
52-Week Low
SAR
80.2
27 new restaurants in 4Q14 and a total of 52 new restaurants in 2014 which is the highest in
Price chg. (3 months)
the previous 6 years. As a result, restaurant count stood at 259 implying a solid c.25% yoy
EPS 2015E
and c.12% qoq increase. While this feat is extraordinary and unlikely to be repeated every
Ticker (Reuters/ Bloomberg)
year, management guidance calls for a reasonable c.20-25 new restaurants/annum (majority
*Price as of January 18, 2015
%
4.0
SAR
4.90
6002.SE
HERFY AB
of them larger sized standalone ones with higher yields) in 2015E-18E which could take the Key Shareholding (%)
total restaurant count to a solid 339-359 by 2018 (+31%-38% from 2014E).
Ahmed Al Saeed
20.3
Herfy is a leader in KSA quick service restaurant sector; Expect 2014-16E earnings
Savola Group
47.6
CAGR of c.14%: We see Herfy as a leader in KSA’s fast growing quick service restaurant
Public
32.1
sector with a solid grasp on local tastes. While its asset light model (most stores leasehold)
Source: Tadawul
leads to superior returns (c.30% RoE) and vertically integrated operations (c.70%/30% meat/bakery production used for internal consumption) imply somewhat margin stability
Key Ratios 2015E
2016E
generation mean the company is well positioned for growth. Furthermore, after a soft
P/E (x)
21.4
19.0
performance in new restaurant openings in 2013 due to construction delays, new restaurant
EV/EBITDA (x)
17.1
15.3
openings are back on track in 2014 that should contribute to meaningful earnings growth
Dividend yield (%)
2.9
3.1
going forward. All in all, while we expect c.14% earnings CAGR in 2014-16E, investors
Source: Company, Saudi Fransi Capital analysis
(although margins could fluctuate quarter to quarter), strong B/S and potentially strong FCF
should closely watch the progress on new restaurants as that would account for c.70% of the Stock price movement vs. TASI
Trades at 2015E P/E of 21.4x; Maintain Buy: After an impressive c.32% increase in stock price (vs. Tadawul Consumer c.32%, Tadawul c.0%) since 2014 beginning, Herfy trades at 2015E P/E of 21.4x (KSA consumer 20.6x, EM peers 23.2, DM peers 25.3), which in our view, is not overtly cheap but undemanding considering Herfy’s market positioning and growth prospects in a stable non-cyclical industry. All in all, post publication of 4Q14 results, while we do not like the earnings miss, we focus on Herfy’s solid mid-term potential and maintain our Buy rating with an unchanged SAR 124/share target price.
170 160 150 140 130 120 110 100 90 80 70 Jan-13 Jan-13 Mar-13 Apr-13 May-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
earnings growth between 2014-16E.
Herfy
4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
243
240
1%
247
-2%
225
8%
219
11%
Gross Profit
72
81
-11%
Na
Na
72
0%
73
-2%
EBITDA (est)
61
68
-10%
76
-20%
58
5%
65
-6%
25.1%
28.2%
EBIT
47
54
-13%
Na
Na
44
6%
51
-8%
Net Profit
49
53
-9%
60
-19%
57
-14%
51
-5%
Restated NP
49
53
-9%
Na
Na
44
11%
51
-5%
SAR mn
Tadawul
Source: Tadawul Revenues
EBITDA margin
30.8%
25.8%
29.6%
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital, * Bloomberg consensus
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 | 4Q 2014 Preliminary Results | January 19, 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)
Herfy Food Services (Herfy) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 19, 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)
Herfy Food Services (Herfy) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 19, 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 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 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)
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)
