Al Rajhi Cap initiates coverage of Leejam with ‘overweight’ rating

Al Rajhi Capital has initiated coverage of Leejam Sports Co. with an “overweight” rating, setting the stock target price at SAR 90, the brokerage firm said in a recent note.

The company seeks to expand its stores aggressively by 30 percent in the next three years, it added.

“Leejam looks extremely attractive from a long term perspective with 33 percent topline growth in three years, clean balance sheet, healthy EBITDA margin of 39 percent (in 2018), ROIC of 17 percent (FY 2018) and a healthy dividend payout ratio (historically over 50 percent),” the firm also said. 

The Fitness Time brand owner is forecast to record net profit of SAR 233 million and SAR 261 million in 2019 and 2020, respectively.

Revenue growth is expected to be driven by double digit growth in female subscriptions, corporate segment and personal training segment.

“We expect the company to deliver robust growth in the near term mainly due to strong expansion plans which would increase its market share,” the report added. 

Leejam’s free cash flows make room for future expansion and high dividend payout. In addition, its diversified product portfolio mitigates the risk of rising competition.