We review our coverage of SADAFCO and raise our target price to SAR 385.00 (previously, SAR 252.00), indicating an upside of 15.6% at the current market price. Hence, we assign an Accumulate rating on the stock. Backed by solid earnings expansion, the stock has surged 56% (+54% since Dec’22-end) since we rated it Accumulate on 21st Dec. 2022 with an upside of 18%. Currently, the stock trades at FY’23e P/E of 23.5x and EV/EBITDA of 16.5x, in line with its blended forward 3-year average daily P/E of 23.4x but slightly below the 3-year average blended forward daily EV/EBITDA of 17.1x.
Investment Thesis
1. SADAFCO registered solid earnings expansion over the past fiscal year, driven by healthy sales growth and margin expansion despite inflationary pressures.
2. Consistent market share gains across product categories in the domestic market indicate strong brand loyalty, which bodes well for future growth as SADAFCO continues to generate over 80% of its top line from the Kingdom.
3. Softening sales of the Polish subsidiary with normalization in commodity prices has been offset by strong sales growth in the GCC and other regions.
4. The stock has climbed ~59% since our last ‘Accumulate’ rating.