Saudi Fransi Capital starts Farm Superstores at ‘buy,’ sets TP at SAR 76

Saudi Fransi Capital has initiated coverage of Saudi Marketing Co. (Farm Superstores) with a “buy” rating and a target share price of SAR 76, saying it is a direct play on the kingdom’s organized food and grocery retail potential. 

Farm is in position to increase its market share given that the Saudi grocery sector is projected to grow by six percent annually. Unorganized retailers currently dominate the fragmented market with the top five players accounting for only about 20 percent of market share.

Saudi Fransi expects Farm’s earnings to rise nearly 13 percent over 2014-2017 on the back of at least seven new store openings every year.

Sector risks include the inability to pass cost inflation to customers, increased competition leading to margin compression, potential restrictive regulations from the government preventing price increases, and employee wage inflation.

Company specific risks include slower-than-expected new store launches and the inability to drive traffic to new stores, margin compression, and the inability to secure suitable real estate space for expansion and non-renewal of leases for profitable stores, Saudi Fransi Capital added.