Aljazira Cap expects continued pressure on Alhokair’s margins, remains neutral

Fawaz Abdulaziz AlHokair Co.’s (Alhokair) Q4 FY20 earnings came below its estimates, Aljazira Capital said in a research note.

The company’s margins are likely to remain under pressure in the medium term as a result of subdued consumer demand due to withdrawal of cost-of-living allowance, higher VAT, and COVID-19 impact, the brokerage firm added.

The acquisition of Innovative Union enables diversification through exposure to the food businesses. The company’s plan to add stores would allow it to capitalize on growth opportunities in the sector, with improvements in margins through cost rationalization measures.

However, a decrease in purchasing power in the short term, a high debt-to-equity ratio and adaption to e-commerce pose major challenges, the brokerage firm said.

Aljazira Capital updated its rating on Alhokair to “Neutral” with a revised target price of SAR 20.1 per share.