Saudi retail sector to recover in 2019 on government stimulus and consumer spending
Wage growth will support higher consumer spending, Arqaam Capital says
Saudi Arabia’s retail sector is expected to rebound in 2019 from last year, when consumer spending was dented from the introduction of 5 per cent VAT and higher energy prices, according to a new report.
The Saudi government’s initiatives such as allowances to public sector employees and increases in subsidies and social spending will help boost the purchasing power of Saudi citizens, Dubai's Arqaam Capital said in a new report on Tuesday.
“We expect wage growth and recovering consumer confidence to translate into growth in consumer spending and especially on discretionary goods and services,” it said.
“Government support should continue to fuel growth in spending in the consumer space, at least in financial year 2019 estimates.”
Saudi Arabia, the world’s biggest oil exporter and largest Arab economy, announced a 7.4 per cent increase in its 2019 budget to 1.1 trillion Saudi riyals (Dh1.08tn) in a bid to boost growth, which had languished in previous years due to fiscal consolidation efforts and low oil prices. The budget includes an increase in subsidies to 32 billion riyals from 12bn riyals in 2018, the continuation of public sector allowances introduced last year, and the Citizens Account that was created the same year to help offset the impact of VAT and higher energy prices for low-income earners.
“We expect retailers to post strong numbers in the first half estimates for 2019 with strong topline growth driving margin expansion, which should further be supported by cost discipline efforts done during 2018,” said the report.
Companies such as retailer Al Hokair, food company Savola, and Al Tayyar Travel Group are expected to benefit from these government policies. Arqaam Capital has a 'buy' recommendation for all three stocks.
“We put discretionary retailers in KSA on a strong 2019 financial year estimate [especially in the first half] as market consolidation plays out and consumer confidence rebounds off a low base in 2018 financial year,” the report said.
“We now add Al Hokair to our 'buy' list as we see strong earnings per share growth in financial year 2020 estimate [plus 25 per cent year-on-year] thanks to cost discipline and market stability in the apparel space with prices flattening, indicating that promotional activity in the market is subsiding.”
Updated: March 19, 2019 01:48 PM