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Summary
This document is page 77 of a BofA Merrill Lynch Global Research report titled 'GEMs Paper #26', dated June 30, 2016. It provides financial analysis, stock ratings, and risk assessments for several companies, primarily focused on the Saudi Arabian market (e.g., Al Hammadi, Al Othaim). The document includes a table of stocks with buy/neutral/underperform opinions and detailed valuation methodologies for specific entities. It bears the Bates stamp HOUSE_OVERSIGHT_016187, indicating it is part of document production for the House Oversight Committee, likely related to investigations into financial institutions connected to Jeffrey Epstein.
Organizations (18)
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Key Quotes (2)
"We assume a perpetuity growth rate of 2% and WACC of 9.1% in our DCF."Source
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Quote #1
"Saudization: Most of Al Othaim's labors are low level staff working in the warehouses and branches which depends heavily on expatriate labors."Source
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Quote #2
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Complete text extracted from the document (3,021 characters)
Table 29: Stocks mentioned
Name Symbol Opinion Q-R-Q Price PO
Al Hammadi XBQYF Buy C-1-7 SAR 40.19 SAR 64.0
Al Othaim XWPJF Buy C-1-7 SAR 99.99 SAR 121.0
BAE SYSTEMS BAESF Buy A-1-7 GBP 483.4 GBP 600
BAE SYSTEMS BAESY Buy A-1-7 USD 26.17 GBP 34.26
SABIC XAUBF Buy C-1-8 SAR 80.87 SAR 99.5
Saudi Telecom XUTUF Buy C-1-7 SAR 63.95 SAR 81.0
Savola XSAVF Buy C-1-7 SAR 35.95 SAR 46.0
THALES THLEF Buy C-1-7 EUR 73.5 EUR 87.0
YANSAB XUYNF Buy C-1-7 SAR 40.28 SAR 48.0
Zain KSA XOCTF Buy C-1-9 SAR 7.83 SAR 12.2
Almarai XALRF Neutral B-2-7 SAR 53.7 SAR 61.0
Jarir XJRIF Neutral C-2-7 SAR 118.64 SAR 134.0
SAFCO XDUAF Neutral C-2-8 SAR 59.73 SAR 72.0
Dallah Healthcare XJEFF Underperform C-3-7 SAR 86.12 SAR 79.0
Dar Al Arkan XARKF Underperform C-3-9 SAR 6.49 SAR 7.0
Extra XYDUF Underperform C-3-7 SAR 26.72 SAR 24.0
Source: BofA Merrill Lynch Global Research
Name Symbol Opinion Q-R-Q Price PO
Al Hammadi XBQYF Buy C-1-7 SAR 40.19 SAR 64.0
Al Othaim XWPJF Buy C-1-7 SAR 99.99 SAR 121.0
BAE SYSTEMS BAESF Buy A-1-7 GBP 483.4 GBP 600
BAE SYSTEMS BAESY Buy A-1-7 USD 26.17 GBP 34.26
SABIC XAUBF Buy C-1-8 SAR 80.87 SAR 99.5
Saudi Telecom XUTUF Buy C-1-7 SAR 63.95 SAR 81.0
Savola XSAVF Buy C-1-7 SAR 35.95 SAR 46.0
THALES THLEF Buy C-1-7 EUR 73.5 EUR 87.0
YANSAB XUYNF Buy C-1-7 SAR 40.28 SAR 48.0
Zain KSA XOCTF Buy C-1-9 SAR 7.83 SAR 12.2
Almarai XALRF Neutral B-2-7 SAR 53.7 SAR 61.0
Jarir XJRIF Neutral C-2-7 SAR 118.64 SAR 134.0
SAFCO XDUAF Neutral C-2-8 SAR 59.73 SAR 72.0
Dallah Healthcare XJEFF Underperform C-3-7 SAR 86.12 SAR 79.0
Dar Al Arkan XARKF Underperform C-3-9 SAR 6.49 SAR 7.0
Extra XYDUF Underperform C-3-7 SAR 26.72 SAR 24.0
Source: BofA Merrill Lynch Global Research
Price objective basis & risk
Al Hammadi (XBQYF)
Our SAR64 PO for Al Hammadi is based on our DCF-derived valuation. This is equivalent to 32x FY17E EPS. Strong earnings growth means out-year valuations appear much more reasonable than near-term valuations (e.g. implied 13x FY20E EPS). Company specific risks are: lower-than-expected growth resulting from delays in executing on expansion plans, inability to raise prices to offset cost inflation, failure to manage growth without impacting margins, pricing pressure from insurers, new competition, sustained delays to government payments, and any potentially dilutive acquisitions. General/macro risks are: sustained low oil prices and any resultant slow-down in the economy, civil unrest, ongoing failure of the government to pay bills.
Our SAR64 PO for Al Hammadi is based on our DCF-derived valuation. This is equivalent to 32x FY17E EPS. Strong earnings growth means out-year valuations appear much more reasonable than near-term valuations (e.g. implied 13x FY20E EPS). Company specific risks are: lower-than-expected growth resulting from delays in executing on expansion plans, inability to raise prices to offset cost inflation, failure to manage growth without impacting margins, pricing pressure from insurers, new competition, sustained delays to government payments, and any potentially dilutive acquisitions. General/macro risks are: sustained low oil prices and any resultant slow-down in the economy, civil unrest, ongoing failure of the government to pay bills.
Al Othaim (XWPJF)
We use a combination of DCF, DDM and peer group analysis to value Al Othaim. We have taken a weighted average of values implied by our DCF, DDM and peer group analyses. We attribute a 50% weight to the DCF and 25% weights for both the DDM and the P/E multiple, which points to a PO of SAR121. We attribute a greater weight to the DCF valuation as we believe food retailers offer good visibility on cash flow generation. In the case of Al Othaim, we think DCF better reflects the stock's growth opportunity. We assume a perpetuity growth rate of 2% and WACC of 9.1% in our DCF.
We use a combination of DCF, DDM and peer group analysis to value Al Othaim. We have taken a weighted average of values implied by our DCF, DDM and peer group analyses. We attribute a 50% weight to the DCF and 25% weights for both the DDM and the P/E multiple, which points to a PO of SAR121. We attribute a greater weight to the DCF valuation as we believe food retailers offer good visibility on cash flow generation. In the case of Al Othaim, we think DCF better reflects the stock's growth opportunity. We assume a perpetuity growth rate of 2% and WACC of 9.1% in our DCF.
The downside risks to our investment case are:
- Weaker-than-expected margin performance
- Cannibalisation effect in Saudi Arabia
- Competition: We expect competition to intensify among the large organized players, such as Savola-owned Panda which have aggressive retail expansion plans growth plan
- Saudization: Most of Al Othaim's labors are low level staff working in the warehouses and branches which depends heavily on expatriate labors. This suggests the Saudization of the staff could put further pressure on margins.
- Weaker-than-expected margin performance
- Cannibalisation effect in Saudi Arabia
- Competition: We expect competition to intensify among the large organized players, such as Savola-owned Panda which have aggressive retail expansion plans growth plan
- Saudization: Most of Al Othaim's labors are low level staff working in the warehouses and branches which depends heavily on expatriate labors. This suggests the Saudization of the staff could put further pressure on margins.
Almarai (XALRF)
We arrive at our SAR61/share price objective using a combination of P/E multiples and DCF valuation, taking the average yielded by the two methods. More specifically:
We arrive at our SAR61/share price objective using a combination of P/E multiples and DCF valuation, taking the average yielded by the two methods. More specifically:
Merrill Lynch
GEMs Paper #26 | 30 June 2016 77
HOUSE_OVERSIGHT_016187
GEMs Paper #26 | 30 June 2016 77
HOUSE_OVERSIGHT_016187
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