Pro-forma earnings ahead of SFC/company's revised guidance; Buy
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The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
1Q15 review: Pro-forma earnings ahead of SFC/company’s revised guidance; Buy
Rating Summary
1Q15 pro-forma earnings ahead of SFC/consensus/company’s revised guidance;
Recommendation
Buy
Target price (SAR)
89.0
Upside/ (downside)
16%
SAR429m net profit guidance for 2Q15 means retail would recoup lost momentum: Savola reported 1Q15 headline net profit of SAR471m which included SAR265m of capital
Stock Details
gains from disposal of packaging business meaning proforma net profit (restating from capital
Closing price*
gains) came in at SAR206m (-52% yoy, -53% qoq). This was c.10%/8%/16% higher than SFC/consensus/company’s revised guidance primarily originating from higher share of profits from associates (SAR16m) and marginally higher profitability in food & retail (SAR8m). At this
SAR
77.0
SAR mn
41,118
Mn
534
52-Week High
SAR
88.3
52-Week Low
SAR
66.5
Market capitalization Shares outstanding
stage, while the cause of sharp yoy and qoq decline is largely known (management guided to
Price chg. (3 months)
soft retail business performance in mid-March and consequently revised downwards its 1Q15
EPS 2015E
profit guidance from SAR360m to SAR178m) and is not a market moving event anymore, in our view, the key to Savola’s equity story lies in evolution of Savola’s retail business performance in the coming quarters. To that end, management has guided to clean
Ticker (Reuters/ Bloomberg)
%
-1.2
SAR
3.66
2050.SE
SAVOLA AB
*Price as of April 19, 2015
SAR429m of net profit for 2Q15 which potentially means after a hiccup in 1Q15, retail Key Shareholding (%)
business while still not at optimal levels, is likely to recoup most of its lost momentum.
MASC Holding
11.2
Retail business holds key to mid-term growth: Savola is a consumer giant with
GOSI
10.2
food/retail/Almarai accounting for c.30%/24%/29% of 2014 net profit. While food’s
Abdullah Mohd. Abdullah Al Rabiah
performance has been virtually stagnant between 2012-14E and is likely to remain in slow
Public/Others
growth mode, fast growing retail business (2011-14 stores/revenue/net profit CAGR of c.
Source: Tadawul
8.2 70.5
13%/10%/36%), despite occasional misses and quarterly fluctuations, should largely maintain its growth momentum thanks to structural drivers and management’s aggressive
Key Ratios 2015E
2016E
P/E (x)
21.5
19.0
EV/EBITDA (x)
17.9
16.4
3.2
3.6
approach. Between 2014-16E, while we expect c.15% earnings CAGR at the consolidated level, bulk of the earnings growth should originate from retail/Almarai. Trades at 2015E P/E of 21.5x; Maintain Buy: After a c.3% Ytd decline in stock price (vs.
Dividend yield (%)
Tadawul Food & Agri c.+6%, Tadawul c.+13%), Savola trades at 2015E headline P/E of
Source: Company, Saudi Fransi Capital analysis
21.5x (KSA Food & Agri 23.3x, EM peers 22.6x, DM peers 22.9x), which we find undemanding, considering Savola’s dominant market position (edible oil, retail, restaurants
Stock price movement vs. TASI
through c.48% Herfy stake and packaged foods through c.36.5% Almarai stake). All in all, post publication of 1Q15 results, we maintain our Buy rating on Savola with an unchanged
230
SAR89/share target price.
190
210
170 150
1Q15A
1Q15E
%diff
Cons*
%dev
4Q14
%qoq
1Q14
%yoy
Na
5,982
Na
6,497
Na
6,024
Na
6,492
Na
1,182
1,125
5%
Na
Na
1,352
-13%
1,093
8%
EBITDA (est)
Na
506
Na
Na
Na
587
Na
461
Na
EBITDA margin
Na
8.5%
EBIT
386
380
2%
Na
Na
634
-39%
531
-27%
Net Profit
471
451
4%
455
3%
434
8%
423
11%
Restated NP
206
186
10%
190
8%
433
-53%
424
-52%
SAR mn
130 110
Na
9.7%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
7.1%
Jan-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Jun-14
Apr-14
Jan-14
Feb-14
Oct-13
Savola
Nov-13
Jul-13
Aug-13
Apr-13
May-13
70
Jan-13
Gross Profit
90
Feb-13
Revenues
Tadawul Food & Agri
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)
The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 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)
The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 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)
The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 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 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 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)
The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 2015
1Q15 review: Pro-forma earnings ahead of SFC/company’s revised guidance; Buy
Rating Summary
1Q15 pro-forma earnings ahead of SFC/consensus/company’s revised guidance;
Recommendation
Buy
Target price (SAR)
89.0
Upside/ (downside)
16%
SAR429m net profit guidance for 2Q15 means retail would recoup lost momentum: Savola reported 1Q15 headline net profit of SAR471m which included SAR265m of capital
Stock Details
gains from disposal of packaging business meaning proforma net profit (restating from capital
Closing price*
gains) came in at SAR206m (-52% yoy, -53% qoq). This was c.10%/8%/16% higher than SFC/consensus/company’s revised guidance primarily originating from higher share of profits from associates (SAR16m) and marginally higher profitability in food & retail (SAR8m). At this
SAR
77.0
SAR mn
41,118
Mn
534
52-Week High
SAR
88.3
52-Week Low
SAR
66.5
Market capitalization Shares outstanding
stage, while the cause of sharp yoy and qoq decline is largely known (management guided to
Price chg. (3 months)
soft retail business performance in mid-March and consequently revised downwards its 1Q15
EPS 2015E
profit guidance from SAR360m to SAR178m) and is not a market moving event anymore, in our view, the key to Savola’s equity story lies in evolution of Savola’s retail business performance in the coming quarters. To that end, management has guided to clean
Ticker (Reuters/ Bloomberg)
%
-1.2
SAR
3.66
2050.SE
SAVOLA AB
*Price as of April 19, 2015
SAR429m of net profit for 2Q15 which potentially means after a hiccup in 1Q15, retail Key Shareholding (%)
business while still not at optimal levels, is likely to recoup most of its lost momentum.
MASC Holding
11.2
Retail business holds key to mid-term growth: Savola is a consumer giant with
GOSI
10.2
food/retail/Almarai accounting for c.30%/24%/29% of 2014 net profit. While food’s
Abdullah Mohd. Abdullah Al Rabiah
performance has been virtually stagnant between 2012-14E and is likely to remain in slow
Public/Others
growth mode, fast growing retail business (2011-14 stores/revenue/net profit CAGR of c.
Source: Tadawul
8.2 70.5
13%/10%/36%), despite occasional misses and quarterly fluctuations, should largely maintain its growth momentum thanks to structural drivers and management’s aggressive
Key Ratios 2015E
2016E
P/E (x)
21.5
19.0
EV/EBITDA (x)
17.9
16.4
3.2
3.6
approach. Between 2014-16E, while we expect c.15% earnings CAGR at the consolidated level, bulk of the earnings growth should originate from retail/Almarai. Trades at 2015E P/E of 21.5x; Maintain Buy: After a c.3% Ytd decline in stock price (vs.
Dividend yield (%)
Tadawul Food & Agri c.+6%, Tadawul c.+13%), Savola trades at 2015E headline P/E of
Source: Company, Saudi Fransi Capital analysis
21.5x (KSA Food & Agri 23.3x, EM peers 22.6x, DM peers 22.9x), which we find undemanding, considering Savola’s dominant market position (edible oil, retail, restaurants
Stock price movement vs. TASI
through c.48% Herfy stake and packaged foods through c.36.5% Almarai stake). All in all, post publication of 1Q15 results, we maintain our Buy rating on Savola with an unchanged
230
SAR89/share target price.
190
210
170 150
1Q15A
1Q15E
%diff
Cons*
%dev
4Q14
%qoq
1Q14
%yoy
Na
5,982
Na
6,497
Na
6,024
Na
6,492
Na
1,182
1,125
5%
Na
Na
1,352
-13%
1,093
8%
EBITDA (est)
Na
506
Na
Na
Na
587
Na
461
Na
EBITDA margin
Na
8.5%
EBIT
386
380
2%
Na
Na
634
-39%
531
-27%
Net Profit
471
451
4%
455
3%
434
8%
423
11%
Restated NP
206
186
10%
190
8%
433
-53%
424
-52%
SAR mn
130 110
Na
9.7%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
7.1%
Jan-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Jun-14
Apr-14
Jan-14
Feb-14
Oct-13
Savola
Nov-13
Jul-13
Aug-13
Apr-13
May-13
70
Jan-13
Gross Profit
90
Feb-13
Revenues
Tadawul Food & Agri
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)
The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 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)
The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 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)
The Savola Group (Savola) KSA Consumer Sector | 1Q 2015 Preliminary Results | April 20, 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 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 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)
