Savola group, an established player in Saudi Arabia's industrial sector, reported a net profit of SR284 million ($75.7 million) in Q3, a growth of 28% y-o-y driven by higher gross margin and operating efficiencies.

However it missed analysts estimates of SR296 million due to lower revenue compared to the forecast.

The companys revenue dipped 11% y-o-y to SR4.59 billion due to 1% decline in retail business as the pantry loading normalised in Q3 and 24% y-o-y decline in the food segment, according to Al Rajhi Capital Research.
The food segment revenue was impacted due to 33% and 14% y-o-y decline in oil and sugar segment revenue respectively. The pasta segment witnessed a 6% y-o-y increase in revenue driven by 16% y-o-y volume growth while frozen food business revenue grew 27% y-o-y.

The gross margins witnessed a notable improvement in both retail (+130bps y-o-y) and food business (+170bps) due to favourable product mix.

The Opex continued to reduce as Savola aims to achieve operational efficiencies especially in the retail business leading to a 170bps increase in the EBITDA margin.

Going forward the reduced purchasing power due to VAT increment and commodity price volatility creates a headwind for near term growth.

However, improvement in operating margins and deleveraging should improve the overall net margins in our view. Accordingly, Al Rajhi revises its forecast and increase the trading price to SR47/share from SR41/share but remains neutral on Savola.-- Tradearabia News Service

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