Itqan Capital initiates SACO coverage with “Neutral” recommendation

Itqan Capital commenced the coverage for Saudi Company for Hardware Company (SACO) with a “Neutral” recommendation and a target price of SAR 65.05 per share.

“Although SACO was struggling in 2018, signs of recovery showed in H1 2019 supported by recovering purchasing power and the addition of new stores,” the brokerage firm said in a research note.

“On the other hand, we expect that SACO will face challenges in strengthening its position in a highly competitive retail sector,” Itqan said.

The firm noted that SACO’s fragmented product portfolio is weakening its position in the sector and is not efficiently translating into high traffic on its stores relative to competitors.

“Accordingly, SACO’s store yield is lagging behind competitors despite offering a wider range of products,” it added.

“Key growth catalysts for the company includes Vision 2030 housing program, favorable market conditions, and pressures on small retailers. Meanwhile, key risk factors are low store yield, e-commerce competition and low inventory turnover,” Itqan stated.