Itqan Cap expects Herfy to swing to profit in H2 2020, raises target price to SAR 51.83

Herfy Food Services Co. will be able to turn its current losses to profits and resume previously set expansion plans to ensure business sustainability in the second half of 2020, Itqan Capital said in a new report.

The fast-food restaurant chain will be able to resume regular operations with limited capacity in the coming two quarters, as part of the Kingdom’s COVID-19 regulations.

However, the impact of the 15% value-added tax (VAT), coupled with the increase in the cost of living, is bound to slow down Herfy’s recovery next year.

Given that Herfy operates in the fast food and restaurant business, the brokerage noted that the company suffered significantly from closures and restrictions applied by the government to contain the pandemic.

“Not only did Herfy lose significant sales, but these losses are also ones that cannot be compensated, unlike in retail,” it added.

Moreover, restaurants are now required to take extra hygiene measures to ensure the safety of its in-house customer due to the pandemic, which comes with higher costs that Herfy will have to endure to maintain its competitiveness.

On the other hand, the easing in restrictions is bound to support the company’s slow recovery, especially coupled with home delivery sales.

Itqan Capital revised its recommendation to “neutral”, setting the target price at SAR 51.83 per share, a 2.8% discount from the closing price on Sept. 10.