SACO’s Q2 earnings below estimates, says Aljazira Cap

Saudi Company for Hardware’s (SACO) Q2 2018 net profit of SAR 20.3 million missed Aljazira Capital and consensus’ forecasts of SAR 38.9 million, the brokerage firm said in a recent earnings review.

“The large deviation is mainly due to lower than expected top-line followed by lower gross profit margins,” Aljazira Capital added.

Revenue came in at SAR 343 million in Q2 2018, a drop of 8.8 percent year-on-year, due to a decline in like-for-like (LFL) revenue and the launch of a single store during the quarter.

“LFL sales weakness is estimated to continue beyond 1H-18. Decline in revenues are estimated to decelerate throughout 2H-18. Revised top line growth stand at SAR 1,365.4 million for FY2018 (c. -6.9 percent),” Aljazira Capital said.

The long-term market share gains through expansions in a highly fragmented market

remain SACO’s main long-term positive catalyst.

Meanwhile, shirt-term gains from higher industry concentration on competitor exits are negligible.

Progress in management’s recent initiatives to navigate current industry conditions may be the main upside risk to valuation from current levels.

Other upside and downside risks to valuation rest mainly on macro and industry wide conditions.

Outlook for duration of the pressure on consumer purchasing power is still unclear.

Aljazira Capital maintained its “neutral” recommendation on the stock, with a price target of SAR 94.6.