Al Rajhi Capital has decreased Almarai Co’s target price (TP) to SAR 51 per share instead of SAR 51.60 a share.
“We continue to value Almarai on equal weights for DCF (3.0% terminal growth, 36% debt in capital structure and 7.3% WACC) and relative valuation (26x FY19 EPS), yielding the target price of SAR51 per share, implying ~1% downside from the current price,” Al Rajhi Capital said in a report on Tuesday.
Currently, the stock is traded at a P/E of 26.8x, lower than its 3-year average P/E of 28.1x.
“We are Neutral on the stock, given the likely continuation of the operating challenges, even as the company continues to rely on the growing Poultry and bakery segments to partially offset the impact of lacklustre consumer spending and rising input costs,” the statement highlighted.
Bakery segment profits in the food and beverage firm are expected to grow to 12% in the first half of 2019, compared to 11% in H1-18, supported by the increased penetration in high-profit-margin, while the poultry segment is expected to increase by 15% year-on-year.
“This is expected to partially offset higher input cost. Moreover, improved operating cash flow (22% in H1 2019) due to better working capital management supported by a strong balance sheet enables the company to look for potential M&As, driving synergies,” the financial services company added.