Saudi Arabia's Jarir Marketing may lose the premium it had as the only listed electronics company in the kingdom after a key domestic rival announced plans to go public, NCB Capital, based in Riyadh, said.
United Electronics Company, also known as eXtra, will launch a 30 per cent offering throughout next week. HSBC Saudi Arabia is the lead manager and lead underwriter for the initial public offering, with Blominvest Saudi Arabia as the co-underwriter. The offering will help to fund store expansion in Saudi Arabia and the wider Middle East.
"Some people may move out of Jarir and into eXtra, and new investors now have a choice between Jarir and eXtra, whereas before there was only Jarir," said Farouk Miah, an analyst at NCB Capital.
Jarir was downgraded to "neutral" from "overweight", with a price target of 217 Saudi riyals, on valuation grounds. The stock trades at 13 times earnings and has outperformed the country's market index by 56 per cent since March.
"Jarir remains in a strong position with the electronic segment," Mr Miah said. "However, as a stock we believe Jarir has limited room for upside from current levels given the full valuation."
Driven by a rising population, improving education and changing lifestyle, Saudi Arabia's retail sector is expected to continue growing. Jarir has a strong position in books, office and school supplies, and electronics.
The two-month salary bonus provided by King Abdullah bin Abdulaziz Al Saud to employees in the government sector, designed to cool social and political disquiet in the kingdom, has played a vital role in driving sales growth.
Two key product launches expected next year could move the stock price, Mr Miah said. Sony is set to launch its successor to the PlayStation Portable in the form of the PlayStation Vita. Amazon is rumoured to be launching a smartphone by the end of next year, which should perform well.