Earnings Report /
Saudi Arabia

Extra: Strong results driven by higher sales and margins

  • Extra’s revenue increased by 12% yoy (+3.3% qoq) to SAR1.4bn

  • Gross margins expanded by 225bps yoy to 20.7% vs our estimates of 21.2%

  • Net non-operating expenses increased by 13.1% yoy to SAR13.2mn

SNB Capital
14 October 2021
Published bySNB Capital

Extra reported a strong set of Q3 21 results with a net income of SAR89mn, increasing by 66.7% yoy (-11.3% qoq). This compares to the SNB Capital and consensus estimates of SAR75mn and SAR90mn respectively. The variance in earnings was mainly driven by 1) better than expected revenue and 2) operational efficiencies as opex to sales stood at 13.2% vs our estimate of 14.4%. The key highlight of the results is the strong revenue growth of 12.1% yoy to SAR1.4bn (vs our estimate of SAR1.2bn). Gross margins expanded by 225bps to 20.7% (vs our estimate of 21.2%) which we believe is supported by strong growth in the retail and consumer financing business.

  • Extra’s revenue increased by 12% yoy (+3.3% qoq) to SAR1.4bn, higher than our estimates of SAR1.2bn. We believe the yoy growth and positive variance is driven by growth in the retail sector as the company continues to gain market share. Moreover, revenue was supported by growth in the consumer financing business which we estimate now contributes c6% of the top-line vs c3% in Q3 20.

  • Gross margins expanded by 225bps yoy to 20.7% vs our estimates of 21.2%. We believe the yoy improvement in gross margins is driven by the strong performance of the high margin consumer finance business.

  • While opex in absolute terms increased to SAR182mn (+13.1% yoy) and was higher than our estimates of SAR173mn, opex-to-sales stood at 13.2% and came lower than our estimates of 14.4%. We believe opex efficiencies were led by the lower promotional activities, which is a key positive.

  • Net non-operating expenses increased by 13.1% yoy to SAR13.2mn vs our estimates of SAR7.3mn. We believe the variance is mainly driven by higher finance charges and increased zakat expenses.

  • The strong growth in the consumer finance division supported earnings with the segment recording a net income of SAR35.5mn as compared to SAR6.0mn in Q3 20.

Outlook

Based on our latest update published in June 21, we are Neutral on Extra with a PT of SAR120.8. We believe the strong growth in high margin consumer finance business and sector consolidation remain the key growth drivers going ahead. However, we believe all positives are priced-in at the current levels. The stock is trading at a 2021f P/E and EV/EBITDA of 24.5x and 18.4x vs the peer group average of 23.4x and 15.9x, respectively.