EUR 34.18 For Business Accounts Only

EXTRA AB | Still our Saudi retail top pick, with compelling story

Buyers of robust growth prospects. eXtra is positioned, on an accelerated growth path (2020-22e EPS CAGR of c22%), boosted by its consumer finance venture, and solid retail performance, on margin-accretive market share gains. Tasheel Finance turned profitable in 9M20 (SAR6.2mn vs. loss of SAR15.7mn in 9M19), with room for improvement, as the portfolio ramps up, making up 28% of NI by 2022e (vs. 5% in 2020e). We raise our 12M TP by 20% to SAR100/share, as the DCF roll over offset the c11% cut in 2020-24e EBITDA, on weaker retail margins and slower ramp up of loan bookings. eXtra trades on a 2021e P/E of c16x, c3% below peers, while offering an ideal exposure to Saudi’s underpenetrated retail and consumer finance markets.

Consolidation plays out, despite demand pressures. eXtra is well-positioned to garner more market share in 2021e (+3.1pp y-o-y to 19.8% in 8M20), particularly in the white goods segment, at the expense of unorganised players, unable to sustain pressures from the adverse market dynamics. That said, we expect 2021e retail sales to remain flat (+c4% p.a. beyond 2021e), as accelerated consolidation should mitigate the expected discretionary spending pressures, and 2020e high base post its stellar performance on pre-VAT hike buying. Online sales contribution surged to 23% of 9M20 (31% in 2Q20), achieving eXtra’s medium-term target of cSAR1bn sales, compensating for the lost store traffic, mostly in 2Q20, amid mobility restrictions.

Easy access to finance entices demand. Operating in a market with limited personal loan offerings by NBFCs and low banking penetration paves the way for Tasheel to grow its portfolio (2020-22e CAGR of 50%). This is fuelled by the ramp up of cash loans, with limited growth for the instalment book, on faster-than-expected cannibalisation from the cash loans offered in stores (and currently online). While we see adequate provisions (c9% over 2021-25e) cushioning against potential asset deterioration (we assume NPLs of 6% for cash loans), we believe granting credit to public sector employees (c70% of book), with strict credit controls, alleviates this risk.

Set to uplift margins to new levels. We expect EBITDA margin to reach a new higher level of 9.6% in 2022e (vs. 6.8% in 2019), supported by rising contribution of the high margin consumer finance segment, abating any unforeseen weakness in retail margins. We anticipate the retail GPM margin to improve by 2022e to 16.4% and normalise at 16.6% (vs. 16% in 2020e and 18% previously), supported by a better sales mix, on rising contribution of white goods, mitigating pressures from the lower margin sales mix of the online store, low mobile margins, and offered promotions.