CitiGroup raised the Savola price target to SAR48 per share. The report states that the share price of the consumer conglomerate is up 20% YTD versus the Saudi Tadawul up 4%.
The report notes that Savola’s companies that manage the Group’s core sectors (Foods, Retail, and Plastics) are benefiting from rising utilization, successful integration of acquisitions and scale economies.
Looking at land parcel disposals, the report notes that they generated capital gains in 2011 and special dividends of SAR0.3 per share.
More of this should be in store as further land sales crystallize (for example, the agreed sale to KEC which should result in a SAR0.46 per share cap gain in 2012) and as lock ups expire in other parts of the non-core investment portfolio.
CitiGroup considers that there is scope for further returns improvement (when managed businesses are benchmarked to international peers and from opportunistic disposal of non-income generating assets), future growth opportunities in the same geographies and product categories or closely related ones and the capability of management to pursue this (demonstrated by the 2011 performance) suggest there could be much more to come.
The CitiGroup equities report observes that organic growth drivers in Savola’s core sectors are in place and include:
(1) growing populations, (2) grocery retail penetration growth and market share gain (via store expansion) in Saudi, (3) branded edible oil, sugar and pasta market share growth (via utilization ramp and distribution investment) across Saudi, Egypt and Iran and (4) penetration of branded, packaged food ingredients in frontier markets like Algeria, Sudan and Morocco.
Inorganic growth is via expansion into adjacent countries and adjacent categories (within ingredients, ready to cook and condiments).
The Savola Group operates in three core sectors: the Food Sector which includes edible oils, sugar, and pasta, the Retail Sector through Al Aziziya Panda supermarkets and hypermarkets, and the Plastics Sector, which manufactures both rigid & flexible plastic products.
In addition, the group has a diversified portfolio of strategic investments in which it owns 29.99% of Al-Marai fresh diary company, 49% of Herfy foods & restaurant chain, and 30% of Kinan International real estate.
The Savola Group is also one of the founders of King Abdullah Economic City and Knowledge Economic City in Al-Madinah Al-Munawarah.
The Group previously declared a record net profit from operations for the year 2011 amounting to more than one billion riyals, an increase of 35% as well as announcing its forecast of net Income of SAR1.2bn (before capital gains) for the year ending 2012.
Ameinfo
