Savola Suffer an Unanticipated Losses -Al-Ahli Capital

Savola Group’s losses hit SR254 million in Q4-2021, compared to a net profit of SR45 million in Q4-2020 (SR122 million in Q3-2021), were in contrast to forecasts of a net profit of SR75 million, Al-Ahli Capital reported.

It attributed the difference between results and expectations to non-recurring impairment expenses of SR363 million and SR59 million related to the retail and food manufacturing sectors, respectively, adding that adjusted net income increased by 48% year-on-year to SR139 million, in Q4-2021 compared to SR94 million, in Q4-2020.

On the other hand, Al-Ahly Capital proposed an increase in the weight of the Savola Group’s shares with a target price of SR37.8, stating that despite the poor performance in 2021, Savola’s prognosis is favorable in the medium term as diverse companies return to normal. On the other hand, the key incentive is still Panda’s appeal.

It stock has was at P/E of 23.9, which is higher than the sector average of 22.9 times, according to Al-Ahly Capital,.

Revenues climbed by 30.1% on an annual basis (+11.5% on a quarterly basis) to reach SR6.75 billion, exceeding forecasts of SR6.4 billion, but operational revenues were far below expectations at SR887 million.

Food industry revenues climbed by 74% year-on-year to SR3.9 billion, owing to greater revenues as a result of rising commodity prices.

The growth was also aided by higher volumes and a robust comeback in B2B channels.

Panda’s revenues decreased by 6% on an annual basis, to reach SR2.4 billion, due to a decline in consumer circulation, driven by rising costs and inflationary pressures, as well as demographic changes following the epidemic in Saudi Arabia, according to Al-Ahli Capital, noting that this is a major concern because the sector’s sales levels are at their lowest in about ten years, specifically since Q2-2012.

In Q4-2021, gross margin was 16.7%, down 4.0% year over year (-0.2% quarter over quarter) and below the estimate of 19.1%. Since Q4-2016, this is the lowest margin. Higher commodity costs, notably in the food processing sector, are to blame for the shrinking margins.

Operating expenses, excluding one-time depreciation, totaled SR422 million, or SR887 million less than estimates of SR1.1 billion, and the adjusted operating expenses to sales ratio was 13.1% in Q4-2021, compared to 17.7% in Q4-2020 and forecast at 17.8%, indicating that opex efficiency is likely to be the main positive factor.

The declines in Q4-2021, on the other hand, represent a big negative (SR49 million in Q4-2020).

Other net expenses declined by 2.2% on an annual basis to SR180 million (+0.2% on a quarterly basis), but were higher than expectations of SR159 million.

Despite a drop in net financing expenses, the difference is primarily attributable to an increase in Zakat and taxes.