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Shares in Saudi Arabia’s Herfy Food Services rose sharply on Sunday after the company announced a rise in net profit for the full year and fourth quarter (Q4) of the year 2018.
Full year 2018 net profit after zakat and tax at the company amounted to 204.2 million Saudi riyals ($54.4 million) - a 2.1 percent increase on the 200 million riyals profit for 2017.
Q4 2018 net profit was 52 million riyals, compared to 48 million riyals in Q4 2017, an increase of 8.3 percent, meeting Saudi Fransi Capital’s forecast.
Asim Bukhtiar, head of capital markets research at Saudi Fransi Capital, said in a note published on Sunday that Herfy announced “in-line and encouraging 4Q18 results.”
The company is 49 percent owned by Saudi food group Savola and operates a chain of fast food restaurants throughout the kingdom. In its results announcement to the Saudi stock exchange, Herfy Food Services said it opened four new restaurants in the fourth quarter of 2018, bringing the total number of new outlets opened in 2018 to 25.
“Store metrics are stabilising as net additions have decelerated from 2015 levels, reflecting longer maturing cycle,” Bukhtiar said, adding that he believes, however, that growth can be sustained by expanding beyond the Gulf Cooperation Council (GCC). The company announced the opening of its third restaurant in Bangaldesh last month.
Revenue in the final quarter of 2018 rose 8.6 percent year-on-year, reaching 325 million riyals, compared to 299 million riyals in Q4 2017, beating Saudi Fransi Capital’s estimate of 318 million riyals.
“Key risk in KSA will be low double-digit wage inflation through (to) 2020 pressuring margins lower in the absence of productivity gains,” Saudi Fransi Capital’s Bukhtiar noted.
The company's gross margin for Q4 2018 stood at 27.9 percent, compared to 29.9 percent in the same period a year earlier.
“Two trends worth highlighting were employee costs and rents. Total employee costs increased 11% in 2018, versus 0.3% in 2017, driven by higher proportion of Saudis and foreign worker fees. Second, rents were negotiated down, indicating benign environment,” Bukhtiar added.
The company’s stock was trading 2.03 percent higher at 50.2 riyals on Sunday at 12:53 GST and has gained 10.09 percent so far in 2019.
Bukhtiar reiterated his “Buy” recommendation on the stock, with a target price of 58 riyals.
(Reporting by Gerard Aoun; Editing by Michael Fahy)
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