JEDDAH: Jarir Marketing Co. achieved a major milestone by crossing the SR1 billion mark in quarterly sales with SR1.20 billion (up 64 percent) in Q3, 2011. Smartphones and tablets continue robust uptake as electronics comprise some 70 percent of total sales, according to Riyad Capital's special report about Jarir released on Tuesday.
Revenue forecasts for 2012 and 2013 have been revised up 37 percent and 46 percent to SR4.9 billion and SR5.6 billion, respectively.
Dividend per share (DPS) in Q3 was increased 70 percent to SR3.40 as management appears to be targeting a steady payout ratio. Riyad Capital's dividend forecast hinges on an average 77 percent payout through 2015 suggesting dividend growth at 16 percent CAGR and earnings at 12 percent CAGR.
The report said Jarir is likely to proceed with the 50 percent capital increase following the expected shareholder approval on Dec. 25. Shares outstanding will rise to 60 million from the current 40 million, without ownership dilution.
Riyad Capital raised the target price for Jarir to SR245 and reiterated its Buy rating. Revenue outlook for 2012 was increased by 37 percent to SR4.9 billion. In its newly issued report, Riyad Capital expects an average dividend payout ratio of 77 percent through 2015, which suggests that dividends should increase at 16 percent CAGR over the next four years on double-digit earnings growth. Dividends are becoming an added attraction for this growth story as Jarir adds a further 6 showrooms through 2013.
Analysts at Riyad Capital expect Jarir's planned capital increase to SR600 million to proceed following shareholders' meeting later this month, a move that will likely boost liquidity.
The report said one new showroom was added in Makkah taking the total to 30 retail outlets and 6 more showrooms are expected through 2013. Sales per store reached SR40.3 million versus quarterly average of SR26.9 million and SR25.1 in 2010 and 2009, respectively. Sales growth was primarily attributed to robust demand for tablets and smartphones as Jarir aims to become the leading retailer of these devices.
Margins have contracted on greater composition of electronics sales since 2008. Interestingly the spread between gross margins and net margins has narrowed from 4.4 percent in 2009 to 2.8 percent through first 9 months of 2011 on lower overhead and distribution expenses. Further, financing charges have been slashed on lower net debt which turned into net cash of SR4 million in Q3. The Riyad Capital report said, the planned expansion will be internally financed and do not project material shift in leverage.
Capital increase
Jarir announced plans to increase capital from SR400 million to SR600 million by issuing 1-for-2 bonus shares, resulting in 60 million outstanding shares from the current 40 million. Shareholders are expected to vote on the move on Dec. 25. The reports highlights financial impact in Q1, 2012 results with a transfer of SR122.5 million from retained earnings and SR77.5 million from statutory reserve. Given the quarterly dividend payout, Q1, 2012 dividend will be a combination of cash and shares. No dilution in ownership will result, with the Agil brothers retaining 45 percent while liquidity improves from increased share count.
The report added that management appears to be targeting a steady payout ratio, suggesting highly attractive future dividends as earnings grow, which in the last quarter achieved 49 percent Y/Y clip to SR153 million.
Sales
For 2012 and 2013, Riyad Capital revised its sales forecast upward by 37 percent and 46 percent to SR4.9 billion and SR5.6 billion, respectively. Increased disposable income and the announced job creation and education programs will spur demand for Jarir's products, it said. Launch of iPhone 5 and next generation iPad coupled with increased Arabic content can be near-term catalysts.
Riyad Capital's outlook for Jarir's EBITDA margins has been drastically reduced by 190 bps and 240 bps for the next two years, largely as a result of higher electronics sales mix and weak pricing guidance by major laptop manufacturers such as HP. The report said volume-focused business strategy should gain momentum as Jarir targets market leadership. It said Mobily, a telecom operator, reported strong gains on smartphone sales during H1, 2011, but retrenched from hardware in the second half citing margin concerns - Jarir may have been a beneficiary of this move as evidenced by Q3 sales.
© Arab News 2011
