Saudi Arabia-based Jarir Marketing, a leader in office and school supplies, has posted a net profit of SR221.4 million ($59 million) for the first quarter (Q1) of 2017, as against SR174.1 million in Q1 2016, an increase of 27.2 per cent.

Revenues increased 20.3 per cent, hitting SR1,701 million during the period.

Jarir’s Q1 2017 results beat estimates led by higher than estimated revenue growth (20.3 per cent y-o-y vs. estimate of 16 per cent y-o-y) and gross margin (14.5 per cent reported vs. estimate of 13.8 per cent),noted Al Rajhi Capital, a top provider of financial services in Saudi Arabia.

Revenue growth was likely driven by aggressive new store roll outs (7 in the last 4 quarters, the highest ever y-o-y store additions), better than estimated LFL growth of old stores (~3 per cent y-o-y by our calculations vs. estimate of 0.5 per cent y-o-y decline), and higher than estimated wholesale revenue.

“We believe Jarir is in a sweet spot to benefit from aggressive store roll-outs as they are coming in an environment where smaller retailers are finding it difficult to operate, either due to regulations (mandatory Saudization of telecom shops by Sept 2016) or due to other headwinds such as lower payable days to suppliers/ costlier working capital credit from banks etc. This is leading to significant market share shift from smaller/ unorganized players to organized players such as Jarir and Extra, which we believe will continue to play out over the medium term,” Al Rajhi said.

“Additionally, electronic retailers stand to gain from the government’s recent reversal of allowance cuts, by way of better LFL growth rates, faster maturing of new stores and likely higher gross margins due to lower discounts. We incorporate the same in our estimates and arrive at the new target price of SR145.8 per share for Jarir (earlier SR127 per share).

“Our new target price implies 9.4 per cent upside, hence we rate the stock as Neutral. However, considering ~6.1 per cent dividend yield, the total return for the stock is an attractive 15.5 per cent. Hence we view Jarir as an attractive investment opportunity at the current market price,” Al Rajhi noted.-TradeArabia News Service