Saudi retail sector to consolidate in 2019 on higher Saudization: NCBC

Saudi retail sector will witness further consolidation in 2019, benefitting larger organized players, NCB Capital (NCBC) said in its report on Tuesday.

This can be attributed to the increasing Saudization levels to 70 percent at 12 retail subsectors by January 2019, the report added.

“This will negatively impact smaller shops due to higher costs and difficulties of hiring of Saudi nationals. The increased Saudization rates and overall income of Saudis will support the structural shift towards the modern retail formats, in-line with global trends,” the brokerage firm said.

Among the covered stocks, NCBC upgraded Al Othaim to ‘Overweight’ due to its valuation gap and growth prospects driven by store expansion plans. Meanwhile, it downgraded Jarir to ‘Neutral’ on fair valuation.

“Al Othaim trades at a 2019f PE of 15.3x, while Jarir trades at 17.0x vs the covered peer average at 16.4x. We remain Neutral on Al Hokair, eXtra and Shaker,” the firm said.