Retail Sector Report - Al Rajhi Capital

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United Electronics Company Retail –Industrial 05 January 2013 Using the P/E multiple, we arrive at the appraised value of SAR98.7 per share. Figure 31 P/E multiple approach Particulars Extra's 2013 EPS (SAR) 6.8 P/E multiple (x) 14.5 Price per share (SAR) 98.7 Source: Al Rajhi Capital Using the EV/EBITDA multiple we arrive at an enterprise value of SAR2,483mn. Since net debt is negative, we add it to the enterprise value along with the book value of associates to arrive at the appraised value of SAR2,591mn. Dividing this by the total number of shares, we arrive at Extra’s appraised value of SAR107.9 per share. Figure 32 EV/EBITDA multiple approach Particulars SAR mn Extra's 2013E EBITDA 199.3 EV/EBITDA multiple (x) 12.5 Extra's enterprise value 2,482.5 Value of non-core assets 0.3 Value of debt 107.7 Value of minorities 0.0 Appraised value of the enterprise 2,590.5 # of Shares (mn) 24.0 Price per share (SAR) 107.9 Source: Company data, Al Rajhi Capital We arrive at a fair value of SAR103.3 per share for Extra based on comparative multiples The simple average of the appraised values arrived at using the P/E and EV/EBITDA multiples works out to SAR103.3 per share. Figure 33 Extra's value using relative valuation methods Particulars Appraised value using P/E multiple 107.9 Appraised value using EV/EBITDA multiple 98.7 SAR Fair value per share 103.3 Source: Al Rajhi Capital We arrive at a target price of SAR123.5per share for Extra combining valuation under both the methods Finally, we take the weighted valuation of the long-run EVA and comparative multiples analysis methods. We assign a 70% weight to the fair value arrived using the EVA method and a 30% weight to the fair value arrived using the comparative multiples method to arrive at the final fair value of Extra at SAR123.5per share, implying a 19% upside from the current market price. We believe this valuation as justified, given the positive outlook for the retail sector in the Kingdom and the growth prospects of the company. Disclosures Please refer to the important disclosures at the back of this report. 20
United Electronics Company Retail –Industrial 05 January 2013 We expect revenue to be around SAR2.8bn for 2012 Income Statement (SARmn) 12/10A 12/11A 12/12A 12/13E 12/14E Revenue 1,778 2,462 2,850 3,302 3,830 Cost of Goods Sold (1,456) (2,026) (2,350) (2,730) (3,175) Gross Profit 322 435 500 572 655 Government Charges S.G. & A. Costs (223) (299) (348) (404) (475) Operating EBIT 99 136 152 168 180 Cash Operating Costs (1,660) (2,304) (2,671) (3,103) (3,612) EBITDA 118 158 180 199 218 Depreciation and Amortisation (19) (22) (28) (32) (38) Operating Profit 99 136 152 168 180 Net financing income/(costs) (0) (0) (0) - - Forex and Related Gains - - - - - Provisions - - - - - Other Income 1 0 0 - - Other Expenses Net Profit Before Taxes 100 136 152 168 180 Taxes (2) (3) (4) (4) (5) Minority Interests - - - - - Net profit available to shareholders 98 132 148 163 176 Dividends - (60) (60) (60) (105) Transfer to Capital Reserve 12/10A 12/11A 12/12A 12/13E 12/14E Adjusted Shares Out (mn) 24.00 24.00 24.00 24.00 24.00 CFPS (SAR) 6.86 6.43 7.32 8.13 8.89 EPS (SAR) 5.75 5.51 6.17 6.81 7.31 DPS (SAR) 0.000 2.500 2.500 2.500 4.388 Growth 12/10A 12/11A 12/12A 12/13E 12/14E Revenue Growth 23.5% 38.4% 15.8% 15.8% 16.0% Gross Profit Growth 42.8% 35.1% 14.8% 14.4% 14.5% EBITDA Growth 94.5% 33.6% 13.8% 10.9% 9.3% Operating Profit Growth 143.1% 36.7% 11.9% 10.2% 7.4% Net Profit Growth 138.1% 35.3% 12.0% 10.3% 7.4% EPS Growth 40.1% -4.2% 12.0% 10.3% 7.4% Margins 12/10A 12/11A 12/12A 12/13E 12/14E Gross profit margin 18.1% 17.7% 17.5% 17.3% 17.1% EBITDA margin 6.6% 6.4% 6.3% 6.0% 5.7% Operating Margin 5.6% 5.5% 5.3% 5.1% 4.7% Pretax profit margin 5.6% 5.5% 5.3% 5.1% 4.7% Net profit margin 5.5% 5.4% 5.2% 4.9% 4.6% Other Ratios 12/10A 12/11A 12/12A 12/13E 12/14E ROCE 37.9% 35.3% 32.4% 27.0% 25.6% ROIC 44.3% 56.7% 47.7% 46.1% 45.3% ROE 50.3% 42.7% 35.4% 31.8% 29.0% Effective Tax Rate 2.3% 2.5% 2.7% 2.5% 2.5% Capex/Sales 6.5% 2.9% 3.5% 3.5% 3.5% Dividend Payout Ratio 0.0% 45.4% 40.5% 36.7% 60.0% Extra trades at 2013 PE of 15.2x Valuation Measures 12/10A 12/11A 12/12A 12/13E 12/14E P/E (x) 18.0 18.8 16.8 15.2 14.2 P/CF (x) 15.1 16.1 14.2 12.8 11.7 P/B (x) 10.2 6.6 5.4 4.4 3.8 EV/Sales (x) 1.0 1.0 0.8 0.7 0.6 EV/EBITDA (x) 14.8 15.3 13.2 11.6 10.3 EV/EBIT (x) 17.7 17.8 15.7 13.8 12.5 EV/IC (x) 10.6 7.8 6.7 6.0 5.6 Dividend Yield 0.0% 2.4% 2.4% 2.4% 4.2% Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 21
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