Savola’s Q2 beats forecasts despite profit decline, says Falcom

Savola Group’s Q2 2018 net profit of SAR 141 million came ahead of Falcom Financial Services’ estimates, despite a 38.7 percent decline year-on-year (YoY), Falcom said in a recent report.

The earnings’ decrease was driven by lower sales volumes and the non-recurring impact of SAR 62 million on disposal of lease hold rights by Panda UAE in Q2 2017.

The second-quarter revenue fell by 7.4 percent YoY to SAR 6.2 billion, due to weak sales in retail and the food manufacturing segments, despite recording higher volumes in food services division.

Savola’s retail division reported losses for the tenth straight quarter in Q2 2018, widening its loss by 31 percent YoY to SAR 210.5 million, on a decline in the basket size, in addition to lower consumer spending upon the VAT implementation locally and in the UAE.

Savola shut down a total of nine stores in the second quarter of 2018, including two Pandati outlets and seven Panda supermarkets. 

“We expect Savola’s profit margins to improve onwards in line with the company’s retail restructuring strategy”, Falcom stated.

Falcom cut Savola’s target price to SAR 38.0, on the share's recent price decline, and reiterated an “overweight” rating on the stock.