Albilad Cap cuts Savola’s fair value to SAR 41

Albilad Capital has cut the fair value on Savola Group to SAR 41 from SAR 43.8 per share, reflecting exchange rate fluctuations in some markets, higher operating expense and increased outlet shutdowns, the brokerage said in a note on Sunday.

Savola, Saudi Arabia’s largest food producer, posted a net profit of SAR 513 million for the first nine months of 2016, a 60 percent year-on-year (YoY) drop attributed to higher financial charges, operating expenses, and higher zakat and income tax.

Foreign currency losses from United Sugar Company of Egypt also weighed on 9M 2016 earnings, the company said.

Meanwhile, Q3 profit plunged 53 percent YoY to SAR 173.4 million mainly due to lower gross profit and higher operating expenses.

Despite Savola’s expansions in the retail sector in the kingdom over the last three years, the conglomerate shut down 101 Pandati convenience stores and two supermarkets in the first nine months of 2016, opening only one new store, Albilad said.

Going forward, the brokerage firm said it expects Savola’s management strategy to involve cautious and selective expansion in the retail network.

“We also believe that failure to keep pace with the market, and the aggressive expansion may backfire,” the brokerage added.

Moreover, Savola is expected to adopt cost cutting plans to cope with growing competition, exploit favorable world prices of agricultural commodities, pursue more integration between units of the group, and introduce high-profit products and increased private labeling.