Savola likely to leave investors grumbling

The Saudi food products maker, which also owns more than 100 supermarkets, is feeling the effects of global raw sugar prices hitting a 30-year high.

The fourth quarter is expected to leave investors hungry for greater profits at Savola Group, the Saudi food products maker.

The firm, which also owns more than 100 supermarkets, is feeling the effects of global raw sugar prices hitting a 30-year high.

"In Egypt specifically, this has been exacerbated by Savola's use of global cane sugar against other local players who rely on local beet [sugar], where prices have not increased by as much, thus leading to losses at the Egyptian sugar businesses," said Farouk Miah, an analyst at NCB Capital in Riyadh.

"With Savola's beet sugar plant expected to open late next year, this pressure is expected to persist," he said.

Mr Miah said in a note to clients yesterday he retained a "neutral" rating and an unchanged price target of 33.10 Saudi riyals a share for Savola, "due to short-term issues in Egypt and the retail division".

Shares of Savola have declined almost 9 per cent since September, closing on Wednesday at 32.70 riyals on the Saudi Tadawul All-Share Index.

Savola has endured a tough few quarters with the fourth expected to follow suit, Mr Miah said. While sales growth is expected to be reasonable, Savola's gross and reported net margins are expected to decline.

Mr Miah forecasts net income in the fourth quarter at 228 million Saudi riyals against the 230m riyals anticipated by the company. The company's Panda supermarket chain has shown disappointing profit growth this year, with margins continuing to decline. Savola's management highlighted the costs of integrating newly-acquired stores and opening new hypermarkets, which take longer to reach maximum efficiency.

Savola bought 11 Geant supermarkets last year and plans to have a total of 120 supermarkets and 40 hypermarkets by 2012.

"Expanding margins at Panda had been our key catalyst for the stock this year and it has not occurred," Mr Miah said.