You are on page 1of 14
Research Report 12/28/2011

Research Report 12/28/2011

Jarir Marketing Co (JARIR)

Jarir Marketing Co (JARIR)

139.50 SAR 1.25 UP 0.90%

As of 08:30 on 12/28/2011

Jarir Marketing Company wholesales and retails stationery, school supplies, office machines, computer supplies, books, and art and engineering supplies. The Company owns and operates the Jarir Bookstore retail chain in Saudi Arabia, Qatar and Abu Dhabi, and wholesale showrooms in Saudi Arabia.

 

Tadawul Ticker

= 4190

In an attempt to build a comprehensive thesis on the prospects of Jarir’s future, we have chosen to analyze them from a Macro Economic perspective, Industry specific perspective, and a company specific perspective.

Bloomberg Ticker = JARIR:AB

● Tadawul Exchange: Saudi Arabia

● Sector: Consumer, Cyclical

● Industry: Retail

● Sub-Industry: Retail-Office Supplies

The issues we covered include both supply risks

 

and

and demand risks on a variety of levels. Our

   

Value Price Target SAR 217

Value (PEGY) Formula = 13.5 / (15 +5.9) = .64 then 139/.64 = 217

Macro view on the demand for the Jarir product

mix

growth of the population in the

and services is primarily based upon the

Growth

SAR 154

Growth (PEG) Formula= 13.5/ 15 =0.9 then 139/0.9 = 154

Price Target

 

Page 1

Components of Formulas:

 
 

Current Price = 139

CAGR = 15

Forecast P/E 12E = 13.5

Dividend Yield= 5.9%

PEG = 0.9

PEGY =.64

GCC and in the KSA specifically. The Ministry of Education is opening up new schools

GCC and in the KSA specifically. The Ministry of Education is opening up new schools to meet the demand of the rapidly growing population. According to the Ministry of Health, their is 66% of the population in between the ages of 15 and 65, and 32% are under 15 years of age. Both those age groups are focused on educating their children and buying the latest tablets, smart phones and electronic gadgets. Therefore we see the regional pursuit of higher education as a proactive component for demand of the Jarir product mix.

a proactive component for demand of the Jarir product mix. Weaknesses and risks in our Macro
a proactive component for demand of the Jarir product mix. Weaknesses and risks in our Macro
a proactive component for demand of the Jarir product mix. Weaknesses and risks in our Macro
a proactive component for demand of the Jarir product mix. Weaknesses and risks in our Macro
a proactive component for demand of the Jarir product mix. Weaknesses and risks in our Macro
a proactive component for demand of the Jarir product mix. Weaknesses and risks in our Macro

Weaknesses and risks in our Macro View are found in the following areas:

● Strong Japanese Yen can hinder the importers ability to buy the merchandise. Mitigation of the currency risks can be attained through a variety of hedging solutions that are available at most local banks in the KSA.

Natural Disasters hindering the supply chain as manufacturing plants are closing in Japan and Thailand. While at first glance the costs might seem to be a temporary problem, after careful analysis we have found both the cost of insurance and interest rates to be on the rise in the disaster stricken zones.

Interest rate risk due to Capital Market Flux: This type of risk is due to Sovereign debt issues in the US and Europe. The fact of the matter is that the international community is linked either due to the Bretton Woods Agreement or due to currency peg to

Page 2

Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's
Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's
Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's
Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's
Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's
Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's
Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's
Bretton Woods Agreement or due to currency peg to Page 2 Today Open: Previous Close: Day's

Today Open:

Previous Close:

Day's Range:

52wk Range:

Volume:

1-Yr Rtn:

VALUATION

Market Cap (M SAR)

Price/Book (mrq)

Price/Sales (ttm)

PEG Ratio (3 year expected)**

Enterprise Value (M SAR)

Enterprise Value/Revenue (ttm)

Enterprise Value/EBITDA (ttm)

EARNINGS

Earnings Per Share (SAR) (ttm)

P/E Ratio (ttm)

Relative P/E (ttm)

Estimated P/E (12/11)

Next Earnings Announcement

(ttm) Estimated P/E (12/11) Next Earnings Announcement 138.00 138.25 138.00 - 140.75 80.50 - 148.50 89,326

138.00

138.25

138.00 - 140.75

80.50 - 148.50

89,326

+46.98%

8,370.00 9.1201 2.1273 0.9824 8,366.34 2.13 16.59 8.1965 2.0300 8.0340 17.0194 1.2228 17.3637 2012-01-18
8,370.00
9.1201
2.1273
0.9824
8,366.34
2.13
16.59
8.1965
2.0300
8.0340
17.0194
1.2228
17.3637
2012-01-18

Key Statistics for Jarir Marketing Co (JARIR)

2012-01-18 Key Statistics for Jarir Marketing Co (JARIR) Quarter Estimated EPS (SAR) (mrq) Year Estimated EPS
Quarter Estimated EPS (SAR) (mrq) Year Estimated EPS (SAR) (12/11)
Quarter Estimated EPS (SAR) (mrq)
Year Estimated EPS (SAR) (12/11)

the US Dollar. As a result, the company may experience spikes in borrowing costs for working capital or for trade finance, unless they are using some kind of Islamic Finance product that shields them from the fluctuations in LIBOR or they could hedge with a variety of risk management tools.

On an Industry Specific level, the latest trend is found in diversification away from the iOS platform towards the various Android devices. The sheer flood and fresh variety of new Android devices is exciting the consumers and capturing their imaginations with all the new and different applications and features. One of the most interesting aspects of the new platform is that the Android applications work on all Android devices, unlike the iOS being limited to iPhone or iPad.

Another Industry specific issue can be either a downside risk or an upside risk depending upon whether Jarir takes up the initiative with regards to E-commerce. The fact of the matter is that E-Commerce has proven to be an efficient business model across the planet, brick and mortar companies like Jarir have been forced to build Online distribution outlets. We can make two more assumptions with regards to E- commerce. The first is that being first to market and establishing an online presence is a key part of capturing the market with brand recognition. The second aspect is about keeping customer loyalty by improving

Page 3

DIVIDENDS

 

Dividend Yield (SAR) (ttm)

4.8441

Last Dividend Reported (SAR)

2.2667

(2011-10-25)

Relative Dividend Yield

1.4108

ADDITIONAL

 

INFORMATION

Average Volume (5-day)

91,911

Average Volume (30-day)

76,427

Short Ratio

-

Short % of Float

-

Float (M)

32.53

Short Interest

-

Shares Short (% prior month)

-

● Abbreviations:

● mrq = Most Recent Quarter

● ttm = Trailing Twelve Months

● ** Bloomberg cites a 3 yr PEG in an attempt to increase volatility in their projections. We use the 5yr CAGR in our forecasts.

   

Value (PEGY) Formula= Forward P/E divided by the CAGR plus the dividend yield. Once you have the PEGY then you divide the Current price by the PEGY to get the Value Oriented Target Price.

the warranties on the products and services that are sold in the stores. That investment in customer satisfaction is going to be the key driver in terms of future sales.

Value (PEGY) Formula = 13.5 / (15 +5.9) = .64 then 139/.64 = Value Price Target SAR 217

The third issue on an Industry specific level is the sheer number of new entrants and competition into the market. The various electronic devices will be sold from a variety of sources, and the majority will compete based on price as opposed to quality of service. The fact of the matter is that there is a general fear of obsolescence in the industry, since there is a flood of new and improved products hitting the shelves.

Growth PEG Formula= Forward P/E divided by CAGR gives you PEG, then you take the current target price and divide by the PEG

Growth (PEG) Formula = 13.5/15 =0.9 then 139/0.9 =

Growth

Price target SAR 154

 
 
   

Forecasts:

10A

11E

12 E

CAGR*

Fundamental Analysis and Price Targets:

P/E (x)

21.8

16.4

13.5

15%

From a company specific perspective we see Jarir has a 10% upside potential to SAR 154 based on the PEG or growth formula; however, if you want the more conservative PEGY formula then we could include the value of the dividend yield as a part of the growth forecasts, which would give us a price target of SAR 217 on the assumption of a PEGY .64

P/B (x)

10.9

9.9

8.7

 

EV/EBITDA (x)

14.8

16.9

14.1

 

Div Yield (%)

5.2

5.9

6.2

 

* CAGR is based on the Industry standard 5yr.

 

Khalid I Natto Head of Equity Research The KIN Consortium Tel: +9665 686 100 43 Email: khalid@kinconsortium.com

Page 4

 

Quarterly Income Statement for Jarir Marketing Co (JARIR)

http://www.bloomberg.com/quote/JARIR:AB/income-statement All Values in Millions SAR (except Per Share) FQ3 2011

All Values in Millions SAR (except Per Share)

FQ3 2011

FQ2 2011

FQ1 2011

FQ4 2010

Period End Date

9/30/2011

6/30/2011

3/31/2011

12/31/2010

Revenue

1,208.91

968.26

945.63

811.80

-

Cost of Revenue

1,024.91

840.46

782.95

678.84

Gross Profit

183.99

127.80

162.68

132.95

-

Operating Expenses

33.10

30.58

27.15

32.18

Operating Income

150.90

97.22

135.53

100.77

- Interest Expense

0.81

2.31

2.63

2.87

- Net Non-Operating Losses (Gains)

-7.45

-7.72

-7.39

-8.71

Income Before XO Items

152.88

98.52

136.77

103.62

- Extraordinary Loss Net of Tax

0.00

0.00

0.00

0.00

- Minority Interests

0.00

0.00

0.00

0.00

Net Income

152.88

98.52

136.77

103.62

-

Total Cash Preferred Dividends

0.00

0.00

0.00

0.00

Net Inc Avail to Common Shareholders

152.88

98.52

136.77

103.62

Abnormal Losses (Gains)

0.00

0.00

0.00

0.00

Normalized Income

152.88

98.52

136.77

103.62

Basic EPS Before Abnormal Items

2.55

1.64

2.28

1.73

Basic EPS Before XO Items

2.55

1.64

2.28

1.73

Basic EPS

2.55

1.64

2.28

1.73

Basic Weighted Avg Shares

60.00

60.00

60.00

60.00

Diluted EPS Before Abnormal Items

2.55

1.64

2.28

1.73

Diluted EPS

2.55

1.64

2.28

1.73

Diluted Weighted Avg Shares

60.00

60.00

60.00

60.00

Quarterly Balance Sheet for Jarir Marketing Co (JARIR)

http://www.bloomberg.com/quote/JARIR:AB/balance-sheet All Values in Millions SAR (except Per Share) FQ3 2011

All Values in Millions SAR (except Per Share)

FQ3 2011

FQ2 2011

FQ1 2011

FQ4 2010

Period End Date

9/30/2011

6/30/2011

3/31/2011

12/31/2010

Assets

       

+ Cash & Near Cash Items

103.66

36.82

89.33

52.28

+ Accounts & Notes Receivable

209.57

190.01

204.54

211.85

+ Inventories

548.54

573.59

421.36

543.05

+ Other Current Assets

44.92

45.05

37.71

35.67

Total Current Assets

906.69

845.47

752.94

842.85

+ LT Investments & LT Receivables

35.37

35.44

35.51

35.58

+ Net Fixed Assets

628.08

594.98

581.54

555.02

Total Long-Term Assets

663.45

630.42

617.05

590.60

Total Assets

1,570.14

1,475.89

1,369.99

1,433.45

Liabilities & Shareholders' Equity

       

+ Accounts Payable

397.77

388.63

267.60

317.38

+ Short-Term Borrowings

50.00

36.92

16.67

50.11

+ Other Short-Term Liabilities

114.76

100.73

111.57

133.59

Total Current Liabilities

562.53

526.28

395.84

501.08

+ Long-Term Borrowings

50.00

66.67

83.33

100.00

+ Other Long-Term Liabilities

39.85

38.07

36.47

34.79

Total Long-Term Liabilities

89.86

104.74

119.80

134.79

Total Liabilities

652.38

631.02

515.64

635.87

+ Total Preferred Equity

0.00

0.00

0.00

0.00

+ Minority Interest

0.00

0.00

0.00

0.00

+ Share Capital & APIC

400.00

400.00

400.00

400.00

+ Retained Earnings & Other Equity

517.76

444.88

454.35

397.58

Total Equity

917.76

844.88

854.35

797.58

Total Liabilities & Equity

1,570.14

1,475.89

1,369.99

1,433.45

Page 7

Quarterly Cash Flow for Jarir Marketing Co (JARIR)

Co (JARIR) http://www.bloomberg.com/quote/JARIR:AB/cash-flow All Values in Millions SAR (except Per Share) FQ3 2011

All Values in Millions SAR (except Per Share)

FQ3 2011

FQ2 2011

FQ1 2011

FQ4 2010

Period End Date

9/30/2011

6/30/2011

3/31/2011

12/31/2010

Cash From Operating Activities

       

+ Net Income

152.88

98.52

136.77

103.62

+ Depreciation & Amortization

5.27

4.66

4.88

5.04

+ Other Non-Cash Adjustments

4.41

4.06

3.39

1.18

+ Changes in Non-Cash Capital

26.16

-37.35

53.45

-27.86

Cash From Operations

188.72

69.90

198.50

81.97

Cash From Investing Activities

       

+ Disposal of Fixed Assets

0.00

0.04

0.00

0.04

+ Capital Expenditures

-38.30

-18.03

-31.33

-3.56

+ Increase in Investments

0.00

0.00

0.00

0.00

+ Decrease in Investments

0.00

0.00

0.00

0.00

+ Other Investing Activities

0.00

0.00

0.00

0.00

Cash From Investing Activities

-38.30

-17.99

-31.33

-3.53

Cash from Financing Activities

       

+

Dividends Paid

-80.00

-108.00

-80.00

-80.00

+ Change in Short-Term Borrowings

-3.58

3.58

-50.11

-0.21

+ Increase in Long-Term Borrowings

0.00

0.00

0.00

0.00

+ Decrease in Long-term Borrowings

0.00

0.00

0.00

0.00

+ Increase in Capital Stocks

0.00

0.00

0.00

0.00

+ Decrease in Capital Stocks

0.00

0.00

0.00

0.00

+ Other Financing Activities

0.00

0.00

0.00

0.00

Cash from Financing Activities

-83.58

-104.42

-130.11

-80.21

Net Changes in Cash

66.84

-52.51

37.05

-1.77

Annual Income Statement for Jarir Marketing Co (JARIR)

All Values in Millions SAR (except Per Share) FY 2010

All Values in Millions SAR (except Per Share)

FY 2010

FY 2009

Period End Date

12/31/2010

12/31/2009

 

Revenue

3,014.57

2,555.31

-

Cost of Revenue

2,512.99

2,068.93

Gross Profit

501.58

486.38

-

Operating Expenses

105.90

101.92

Operating Income

395.68

384.46

- Interest Expense

11.41

13.49

- Net Non-Operating Losses (Gains)

-28.90

-13.65

Income Before XO Items

400.74

373.97

- Extraordinary Loss Net of Tax

N/A

0.00

- Minority Interests

0.00

0.00

Net Income

400.74

373.97

-

Total Cash Preferred Dividends

0.00

0.00

Net Inc Avail to Common Shareholders

400.74

373.97

Abnormal Losses (Gains)

0.00

0.00

Normalized Income

400.74

373.97

Basic EPS Before Abnormal Items

6.68

6.23

Basic EPS Before XO Items

6.68

6.23

 

Basic EPS

6.68

6.23

Basic Weighted Avg Shares

60.00

60.00

Diluted EPS Before Abnormal Items

6.68

6.23

Diluted EPS

6.68

6.23

Diluted Weighted Avg Shares

60.00

60.00

Annual Balance Sheet for Jarir Marketing Co (JARIR)

http://www.bloomberg.com/quote/JARIR:AB/balance-sheet All Values in Millions SAR (except Per Share) FY 2010

All Values in Millions SAR (except Per Share)

FY 2010

FY 2009

Period End Date

12/31/2010

12/31/2009

Assets

   

+ Cash & Near Cash Items

52.28

39.66

+ Accounts & Notes Receivable

211.85

181.18

+ Inventories

543.05

421.42

+ Other Current Assets

35.67

36.84

Total Current Assets

842.85

679.11

+ LT Investments & LT Receivables

35.58

35.86

+ Net Fixed Assets

555.02

535.44

Total Long-Term Assets

590.60

571.31

Total Assets

1,433.45

1,250.42

Liabilities & Shareholders' Equity

   

+ Accounts Payable

317.38

243.29

+ Short-Term Borrowings

50.11

37.05

+ Other Short-Term Liabilities

133.59

102.00

Total Current Liabilities

501.08

382.34

+ Long-Term Borrowings

100.00

100.00

+ Other Long-Term Liabilities

34.79

45.24

Total Long-Term Liabilities

134.79

145.24

Total Liabilities

635.87

527.58

+ Total Preferred Equity

0.00

0.00

+ Minority Interest

0.00

0.00

+ Share Capital & APIC

400.00

400.00

+ Retained Earnings & Other Equity

397.58

322.84

Total Equity

797.58

722.84

Total Liabilities & Equity

1,433.45

1,250.42

Annual Cash Flow for Jarir Marketing Co (JARIR)

Co (JARIR) http://www.bloomberg.com/quote/JARIR:AB/cash-flow All Values in Millions SAR (except Per Share) FY 2010

All Values in Millions SAR (except Per Share)

FY 2010

FY 2009

Period End Date

12/31/2010

12/31/2009

Cash From Operating Activities

   

+ Net Income

400.74

373.97

+ Depreciation & Amortization

19.68

18.64

+ Other Non-Cash Adjustments

10.09

14.05

+ Changes in Non-Cash Capital

-66.04

33.26

Cash From Operations

364.47

439.92

Cash From Investing Activities

   

+ Disposal of Fixed Assets

0.07

0.33

+ Capital Expenditures

-38.97

-31.88

+ Increase in Investments

0.00

0.00

+ Decrease in Investments

0.00

0.00

+ Other Investing Activities

0.00

0.00

Cash From Investing Activities

-38.91

-31.55

Cash from Financing Activities

   

+ Dividends Paid

-326.00

-338.00

+ Change in Short-Term Borrowings

13.06

-4.97

+ Increase in Long-Term Borrowings

0.00

0.00

+ Decrease in Long-term Borrowings

0.00

-50.00

+ Increase in Capital Stocks

0.00

0.00

+ Decrease in Capital Stocks

0.00

0.00

+ Other Financing Activities

0.00

0.00

Cash from Financing Activities

-312.94

-392.97

Net Changes in Cash

12.62

15.40

Important information The authors of this document hereby certify that the views expressed in this
Important information The authors of this document hereby certify that the views expressed in this
Important information The authors of this document hereby certify that the views expressed in this
Important information The authors of this document hereby certify that the views expressed in this
Important information The authors of this document hereby certify that the views expressed in this

Important information

The authors of this document hereby certify that the views expressed in this document accurately reflect their personal views regarding the securities and companies that are the subject of this document. The authors also certify that neither they

regarding the securities and companies that are the subject of this document. The authors also certify
regarding the securities and companies that are the subject of this document. The authors also certify
regarding the securities and companies that are the subject of this document. The authors also certify
regarding the securities and companies that are the subject of this document. The authors also certify
regarding the securities and companies that are the subject of this document. The authors also certify

nor their respective spouses or dependants (if relevant) hold a beneficial interest in the securities that are the subject of this document. Funds managed by The KIN Consortium and its subsidiaries for third parties may own the

securities that are the subject of this document.The KIN Consortium or its subsidiaries may own securities in one or more of the aforementioned companies, or funds or in funds managed by third parties The authors of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. The Investment Banking division of The KIN Consortium may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this document or are mentioned in this document.

This document is issued to the person to whom The KIN Consortium has issued it. This document is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This document is not intended as an offer or solicitation with respect to the purchase or sale of any security. This document is not intended to take into account any investment suitability needs of the recipient. In particular, this document is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this document. The KIN Consortium strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this document take into account both risk and expected return. Information and opinions contained in this document have been compiled or arrived at The KIN Consortium from sources believed to be reliable, but The KIN Consortium has not independently verified the contents of this document and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. To the maximum extent permitted by applicable law and regulation, The KIN Consortium shall not be liable for any loss that may arise from the use of this document or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this document may not be realized. All opinions and estimates included in this document constitute The KIN Consortium’s judgment as of the date of production of this document, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the price, and currencies of securities, can go down as well as up. An investor may get back less than he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this document may be reproduced without the written permission of The KIN Consortium. Neither this document nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations.