In a better spot vs. peers, but valuation is rich
Initiate at Neutral, TP of SAR87/share. Spending rationalisation position Herfy ahead of competitors among low and mid-income families due to its affordability (avg. meal is SAR18 vs. SAR15-25 for McDonald’s). Herfy historically refrained from outright price increases and we expect a continued drop in restaurant yields (↓11% y-o-y in 1Q17), albeit at a lower rate (-3.9% in 2017e and +0.4% in 2018e), on branch cannibalisation in the central region (62% of revenue). Herfy trades on 2017e and 2018e P/Es of 16.5x and 15.3x, while our valuation implies a 2017e P/E of 17.8x relatively in line with the stock’s trailing multiple. Upsides to our EPS estimates could stem from higher-than-expected branch maturity and cost-cutting.
Herfy Food Services Co SJSC (HFS) is a Saudi Arabia-based public shareholding company that is engaged in the food industry. The Company owns and operates a chain of fast-food restaurants, sweets and chocolate shops, bakery outlets, three bakery factories, and a meat processing plant. The Company's operations are structured into four business segments: the operation of restaurants and provision of supply services; production and sale of meat products; production and sale of Shaboura products, and production and sale of bread. HFS, through its restaurants and outlets, provides varied foods menus under the brand name Herfy, including 19 combo meals as well as 30 individual items such as hamburgers, chicken, seafood, soft drinks and different side orders. Furthermore, the Company sells various products produced by its factories to the local and regional consumers under the brand name Herfy Foods, including maamoul breads and cooked frozen chicken tenders, among others.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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