NCB Capital maintains ‘overweight’ on Savola

NBC Capital on Thursday maintained its overweight recommendation on Savola Group with a target price of SAR 86.5 for the stock.

The investment arm of National Commercial Bank (NCB) said that low commodity prices in Saudi Arabia will reduce the impact of high operating expenses.

NCB said it prefers Savola due to the attractive valuation of its core segments— food and retail.

Savola’s retail segment continues to be its key growth driver, despite the short-term pressures that it faced. The group’s Panda hypermarkets lured in attractive SAR 1 billion sales during Ramadan.

The firm, however, believes that Savola’s “aggressive” expansion of Pandati will negatively impact its average margins, as well as lower its share price to SAR 80 due to high operating expenses.

Savola aims to have 1,000 Pandati stores across the GCC by the end of 2020.

As Saudi consumption patterns continue to shift towards healthier food choices, the need for expanding local food companies has emerged to support the government’s Saudization program and to reduce food imports, which constitute 14.1 percent of total Saudi imports at a total of SAR 652 billion, the firm added.

NCB also reaffirmed its neutral recommendation on Almarai with a target price of SAR 83.3 per share.