Abdullah Al Othaim Markets -Equity Report -28-06-2012

Still attractive

Alothaim remains one of the attractive stocks in the Saudi retail industry, which has delivered solid top-line growth and has healthy expansion plans. Although the company has struggled to maintain its net margins due to high labour costs and marketing activities, its top-line growth has remained healthy. We expect Alothaim to clock positive growth in both its top and bottom-line considering stable food prices and ongoing expansion program. Further, the company is keen to acquire the remaining shares of its real estate arm Abdulla Alothaim Real Estate Investment & Development Company(OREIDCO). We believe this acquisition will enable Alothaim to generate synergies and efficiencies. We remain Overweight on Alothaim with an unchanged target price of SAR109.4.

Conclusion. We believe Alothaim will continue its growth phase and attain respectable results based on its same-store sales results, expansion plans and the proposed acquisition of OREIDCO, which will most likely take place later this month. Nevertheless, we have not included the impact of the acquisition in our valuation but we believe it will further put the company on a strong footing. We reiterate our Overweight rating on the stock and our target price of SAR109.4, implying a 25.7% upside potential. Alothaim trades at a 2012 EV/EBITDA multiple of 7.4x and a PE ratio of 12.5x.