The share of Jarir Marketing Company (Jarir) on the bourse – a market leader in retail and wholesale of IT products, books and office and school supplies in Saudi Arabia, which has a presence elsewhere in the GCC – is currently underpriced and has a potential over the next six to 12 months, the Riyadh-based Jadwa Investment said in its analysis of the company's performance and potentials. Jadwa recommended a “buy” at a fair value price of SR199 from the current price of SR152. It closed on Saturday on Tadawul at SR154. The report noted that management decisions are based on highly sophisticated practices and information systems benchmarked against those of leading global retailers, adding that standards of transparency and disclosure are among the highest in Saudi Arabia. It further said that Jarir's “high visibility stores and active marketing, combined with good customer service” contribute to a strong image and reputation in the market place. Jarir is active in five lines of business: school supplies, office supplies, IT products, books and publications. Jadwa estimates the combined value of the market of these five business lines at SR11.6 billion in 2008, about 14 percent of the overall retail/wholesale sector. Of this, information technology accounts for 87 percent (IT and consumer electronics are perhaps the fastest growing sector of the retail/wholesale industry). Publications, office and school supplies account for the remainder. Jarir's net profits totaled SR276 million in 2007 compared with SR243 million in 2006. In line with the slowdown in sales growth, net profits grew by only 13.6 percent in 2007 versus 38.1 percent a year earlier. As a percent of total sales, net profit was 15.9 against 16.2 the previous year. Other measures of profitability, such as gross margin and return on assets also deteriorated. Return on equity improved, however, since shareholders equity was lower than that of the previous year. Jadwa added that the opening of new stores should support sales growth of around 20 percent per year over the medium term. With IT products one of the fastest growing sectors for retailers, Jarir has its own range of products under two separate brands that are sold widely by competing retailers. Jarir's dividend payout ratio was 80 percent in 2007, Jadwa also said. According to official statistics, the overall value of the retail/wholesale market in Saudi Arabia totaled SR68 billion ($18.1 billion) in 2006, which accounts for 5.2 percent of GDP. “Assuming the 10-year average annual growth rate of 6.1 percent is maintained, we estimate that the retail/wholesale market is currently worth SR76.4 billion and that it will reach SR86 billion by the end of the decade,” Jadwa pointed out. Jarir's total assets grew by 26 percent in 2007, the highest rise since the company went public four years earlier and double that of 2006, reflecting the company's recent acquisitions of property as part of its diversification strategy. The land, property and equipment balance, which grew by 52 percent last year, accounted for 45 percent of Jarir's total assets. Net inventory was the second largest asset category with a 35.3 percent share at year-end. Accounts payable was the largest category in current liabilities with a 19.1 percent share, followed by amounts due to banks with 17.8 percent. The latter has increased considerably due to the increase in short-term borrowing to finance the company's real estate deals. Taking into account the outlook for the economy, the growth in population, the retail/wholesale business cycle and Jarir's planned expansion, Jadwa projected that sales growth will continue to be strong for most of the next 10 years. __
