Saudi Arabia’s retail sector is expected to rebound "strongly" in 2019 from last year, with strong topline growth driving margin expansion, Arqaam Capital said in a recent report.
"Sales growth should rebound off a low base H1 2018, where inflationary pressure and weak consumer sentiment after the introduction of VAT and the revision of subsidies in 2018, impacted consumer sentiment and spending," it added.
Improving sentiment (consumer confidence index improving from 51.7 to 63.5 year-on-year), wage growth (+3-5 percent) and price deflation (-1.9 percent) will likely produce real disposable income growth in the Kingdom, translating into strong volume rebound, the consultancy said.
Among the companies likely to benefit are Abdulmohsen Alhokair Group, Savola Group and Al Tayyar Travel Group, with Arqaam Capital assigning a "buy" rating on the three stocks.
“We expect spending on discretionary items to grow on higher disposable income, decline in staples share of the consumer wallet, and recovering confidence.
"We expect retailers to benefit from this and from market consolidation as smaller players are priced-out by more stringent Saudization and VAT requirements,” the report noted.
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