NCB Capital maintains Savola’s ‘overweight’ rating

NCB Capital (NCBC) kept its overweight recommendation on Savola Group, citing strong, long-term growth forecasts.

The firm set Savola’s target price (TP) at SAR 91.40. However, it lowered the group’s profit forecasts for the fiscal year by 11.4 percent to SAR 1.8 billion after management guidance was reduced for first quarter profits.

Foreign exchange difficulties— particularly in Egypt— stoked concern for the edible oil producer. However, its retail segment will likely remain strong, NCBC added.

Savola’s profits are expected to grow at a compound annual growth rate (CAGR) of 11 percent until 2018, according to NCBC.

Meanwhile, the firm remained neutral on Almarai, the Gulf’s top dairy producer, with a target price of SAR 78.80.

For Almarai, the poultry sector is a major growth driver and is expected to contribute 14 percent to total sales in 2019.

Commenting on the Saudi food sector’s performance, the investment firm said the continuous decline in prices of raw materials will mean higher profit margins.

Savola and Almarai would both benefit from an increase in production capacity, which will be bolstered by higher per capita consumption in the kingdom.

NCBC prefers Savola to Almarai, based on Savola’s strong backlog, favorable retail sector forecasts, and attractive valuation.