Savola Group’s Q1 2019 net profit of SAR 6.5 million came above Al Rajhi Capital estimates of SAR 3 million and analysts’ forecasts of SAR 120 million losses.
“The net profit growth was mainly driven by the higher margins obtained in the food segment business”, the brokerage firm said in an earnings note.
The edible oil producer might shut down a few more stores this year, which will help it in achieving higher operating efficiency and a positive EBITDA in their retail segment.
Revenue from retail business is expected to drop due to a significant number of store closures in the past. Meanwhile, EBITDA is likely to breakeven in the medium term due to cost optimization initiatives and turnaround strategy, Al Rajhi Capital said.
“Further, Savola is invested in diverse businesses and in international markets which might intermittently lead to impairments and one off provisions. We remain wary of the business in the near term until the structural issues pertaining to the business model are resolved,” it added.
Al Rajhi Capital downgraded Savola’s rating to “underweight” but upped the target price lower to SAR 27 from SAR 25.
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