Savola Group Close to fair value - Al Rajhi Capital

Savola Group Company
Food-Diversified –Industrial
28 March 2012
We expect Savola to operate
200 stores by 2015
More outlets are in the pipeline
We assume that growth in supermarkets and hypermarket will outperform that of small
convenience stores. Al Azizia is leading this trend and has outlined a clear strategy of
launching new supermarket and hypermarket outlets. Savola announced that it is planning to
operate a total of 200 outlets by 2015 (now 131). This aggressive expansion plan will ensure
that Panda will be better placed to capture a higher market share in this space in the future.
We estimate that if everything goes as planned, Savola’s market share will reach 14% by 2015.
Figure 20 Savola: retail revenues vs. sales per sqm per week
Figure 21 Savola: retail SSS and EBIT margins
20,000
18,000
16,000
14,000
12,000
10,000
550
500
450
400
14.0%
12.0%
10.0%
8.0%
6.0%
Title:
Source:
Please fill in the values above to have them entered in your report
450
400
350
300
250
200
8,000
6,000
4,000
350
300
4.0%
2.0%
150
100
50
2,000
FY07 FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E
250
0.0%
FY08 FY09 FY10 FY11 FY12E FY13E FY14E FY15E FY16E
0
Retail revenues (SARmn)
Source: Company data, Al Rajhi Capital
Sales per sqm (SAR per week) - RHS
Source: Company data, Al Rajhi Capital
EBIT (SAR mn) - RHS SSS growth% EBIT margin%
As much as this is encouraging, Savola’s retail margins are squeezed. Usually, new
hypermarkets take between 3-4 years to reach full utilization, while supermarkets take only 1-
2 years. During the past three years, we estimate that aggregate selling space grew by 13%;
while hypermarkets’ selling space grew by 15% over the same period. Compared to 2010, last
year’s retail margins have shown significant improvement. As Savola intends to embark on an
aggressive expansion program for the next few years, we do not expect any major
improvements in margins.
As hypermarkets mature, we
expect margins to improve
Low efficiency compared to local and international players
When we compare Savola’s retail division with its international peers, we can see its
depressed efficiency ratios. That said, compared to local players such as Alothaim, Panda’s
efficiency are decent. We believe the western lifestyle makes international players’ sales per
sqm higher than the Saudi ones. In addition, online selling is a major sales channel for
international retailers. Looking ahead, we believe efficiency will improve gradually as hyper
and super markets mature. We expect sales per sqm to increase at a CAGR of 4% over the
next 4-5 years.
Figure 22 Comparing Savola’s (retail) sales per sqm per week with international peers
1,400.0
1,200.0
1,000.0
1,315
6.0%
5.5%
5.0%
800.0
600.0
689
4.5%
4.0%
3.5%
400.0
383
3.0%
200.0
2.5%
0.0
Tesco* Sainsbury's Savola**
2.0%
Sales per sq mt (SAR weekly)
EBIT%
Source: Companies data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report. 10