Earnings Report /
Saudi Arabia

Extra: Q4 19 – Strong 'Mega Sale' supports results

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

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    SNB Capital
    20 January 2020
    Published bySNB Capital

    Extra reported a strong set of Q4 19 results, with net income increasing +14.6% yoy to SAR72.3mn, coming higher than our estimates of SAR63mn. The variance is mainly due to a record high top-line of SAR1.88bn (+16.2% yoy), coming higher than our estimates of SAR1.68bn, which we believe is mainly due to higher than expected sales from Mega Sale. Gross margins contracted by 67bps yoy, likely due to higher discounting, while opex came in line with our estimates.

    NCBC view on the results 

    Extra reported a strong set of Q4 19 results, with net income increasing 14.6% yoy to SAR72.3mn. This compares with the NCBC and consensus estimates of SAR63mn and SAR65mn, respectively. The variance primarily came from a higher than expected top-line of SAR1.88bn (+16.2% yoy) vs our estimates of SAR1.68bn, which we believe is due to higher than expected sales from the Mega Sale. Gross margins came in at 16.0% (-67 bps yoy), lower than our estimates of 16.9%, which is likely due to higher discounts offered during the Mega Sale. 

    Sales increased 16.2% yoy to SAR1,881mn, higher than our estimates of SAR1,682mn. This is the highest quarterly top-line on record, mainly supported by higher than expected sales during the Mega Sale, which supported the LFL growth. We believe the sector consolidation also supported LFL growth given the implementation the Saudisation regulations on 12 retail subsectors, including electronics. Top-line growth is also attributed to store expansion, with Extra increasing its store count 47 in Q4 19 vs 43 in Q4 18. 

    Gross margins contracted by 67bps to 16.0%, coming lower than our estimates of 16.9%. We believe the contraction in margins is due to the Mega Sale discounts, in addition to the introduction of the cash financing services by the company. Opex increased +4.3% yoy to SAR209mn in Q4 19, coming in-line with our estimates of SAR207mn. We believe the yoy increase in opex is mainly due to new stores openings. Opex-to-sales declined to 11.1% in Q4 19 vs our estimates of 12.3% and Q4 18 levels of 12.4%. 

    We are Neutral on Extra with a PT of SAR73.6. We believe the growth in the consumer financing business will be a key revenue and margin driver going forward. The record high revenues and opex efficiencies are key positives of the results. Extra trades at a 2020f PE of 19.6x vs covered peers at 17.9x