Equity Analysis /
Saudi Arabia

Jarir: A dividend play in a maturing market

  • Store expansion and e-commerce to drive growth

  • Consumer spending pressure vs ease in supply chains

  • Robust cash generation to support generous dividend payout

SNB Capital
20 December 2022
Published bySNB Capital

We maintain our Neutral rating on Jarir with a revised PT of SAR164.8. We believe the company’s stable business model, strong cash generation and relatively attractive dividend yield are the key advantages. However, the emergence of other spending avenues is a major downside risk. We expect Jarir to record a 4-year earnings CAGR of 6.0%, with a proportionate increase in dividends (2023f DY of 5.6%). The stock is trading at 2023f P/E and EV/EBITDA of 17.1x and 15.6x vs the peer group average of 16.6x and 10.7x, respectively.

  • Store expansion and e-commerce to drive growth: During 2022f ytd, Jarir opened three new stores and closed two, taking the total store count to 68. The management plans to open 4-6 new stores annually, along with expanding some product lines. It also plans to expand consumer financing and buy-now-pay-later options to improve its market share. In-line with the management’s strategy, we expect Jarir to open an average of 4 stores/year to take the total store count to 76 by 2024f. In addition, Jarir is expanding its e-commerce sales which increased to 10.5% of sales in 9M 22 vs 8.8% in 9M 21. We expect Jarir’s e-commerce sales to grow at a 12.7% CAGR during 2021-24f, to reach 12.6% of total sales in 2024f.

  • Consumer spending pressure vs ease in supply chains: Pressure on consumer spending given, the ongoing inflationary trends along with emergence of alternative spending avenues (such as Riyadh Season), are expected to impact Jarir’s revenues. Electronic segment sales declined by 4.9% yoy in 9M 22 while stationary business grew by 18.7% yoy following to the reopening of schools in January 2022. Moreover, we believe the easing of global supply chain issues will lead to better products availability while the anticipated growth in population will drive demand in the medium to long term. Hence, we expect revenues/store to grow by 1.25% yoy and 1.75% yoy in 2023f and 2024f, respectively. Consequently, we expect total revenues to grow at a CAGR of 5.0% in 2021-2024f to reach SAR10.53bn by 2024f.

  • Robust cash generation to support generous dividend payout: Jarir’s margins were pressured in the past 2 years due to higher discounts and increased logistics costs. We believe the recovery in stationery sales and the decline in logistics cost, due to easing supply chain conditions, will support margins expansion. We expect EBITDA margins to improve from 12.1% in 2022f to 12.8% in 2024f. Consequently, we project net income to grow by 2021-24f CAGR of 6.0% to reach SAR1.18bn by 2024f. We believe Jarir’s cash generation ability will remain strong. We expect Jarir to generate FCF of SAR3.03bn during 2021-24f. This will allow it to maintain a generous dividend payout ratio of 95%, translating into a dividend yield of 4.9% in 2022f and growing to 6.1% by 2024f.

  • Remain Neutral with a revised PT of SAR164.8: We remain Neutral on Jarir with a PT of SAR164.8. We believe stable business model, strong cash generation and relatively attractive dividend yield are the key stock positives while pressure on the consumer spending is the key risk. The stock trades at 2023f P/E and EV/EBITDA of 17.1x and 15.6x, vs the peer group average of 16.6x and 10.7x, respectively.