Al Rajhi Cap initiates Development Works Food with 'Neutral', TP set at SAR170/share

Al Rajhi Capital began its coverage of Development Works Food Co., listed on Nomu-parallel market, with 'Neutral' recommendation, and set its target price (TP) at SAR 170 per share.

The company is still in the early stages of growth and the entire quick-service restaurant industry, in which the company operates, is well poised to grow at a faster pace compared to the other segments of the food and beverage industry, Al Rajhi Capital said in a report.

It added that the company’s gross margins and return on assets have been in a falling trajectory lately, and are likely to improve after the disposal of low performing brands and expansion of new juice stores.

"The change in the business strategy to focus on 'Juice Time' brand should expect the gross margins as juice is a higher margin business compared to other brands. We expect the gross margins of juice to reach 22% by 2025," the report said.

It also assumes that adding 45 new stores during the period 2021-2023 and a positive growth of existing stores from 2021 will boost the company’s revenue to reach SAR166 million by 2023.

The company was also projected to log SAR 7.03 million loss in 2020, then to turn profit with SAR 5.2 million and SAR 11.4 million in and 2021 and 2022, respectively.

The 'Neutral' rating means it expects the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12-month time horizon.