Kingdom’s retail sector outlook remains strong

Updated 06 December 2012
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Kingdom’s retail sector outlook remains strong

The outlook of the Saudi retail sector remains strong with macro as well as micro factors supporting growth, said NCB Capital in a new report issued yesterday. Volume expansion through opening stores, margin support from economies of scale, and consolidation of fragmented markets are key drivers of growth. On the other hand, wage inflation pressures, execution risk and competition are key concerns for the retail sector.
The recent amendments to the Saudization program Nitaqat will continue to lead to wage inflation and impact margins of the Kingdom’s retail sector.
The latest amendment in November 2012 increased the cost of foreign work permits to SR 200 per month (SR2,400 per year). “We believe the retail sector will be among the most affected by Saudization rulings given the relatively low percentage of Saudis working at these companies. However, we acknowledge that the effective minimum wage rule of SR 3,000 a month for Saudis working in the private sector and increased hiring of Saudis will support retail spending, particularly in the discretional sector,” said Farouk Miah, head of equity research at NCB Capital.
NCB Capital upgraded Fawaz Abdulaziz Al-Hokair Company to Overweight with a PT of SR 116.6. The increase in estimates is driven by increased visibility and comfort on expansion plans, continued growth in Saudi Arabia, and stability and possible expansion in margins. Growth into the value fashion segment is a potential catalyst. Execution risk, volatility in other income and corporate governance remain key concerns.
NCB Capital remains Overweight on United Electronics Company (eXtra) with a PT of SR 108 and Neutral on both Jarir Marketing Co. with a PT of SR 155 and Al-Othaim Market with a PT of SR 93.8. NCB Capital believes eXtra will benefit from the consolidation of a fragmented sector and potential margin expansion. “We believe Jarir is a high quality company although many positives are currently priced in. Al-Othaim is well positioned in a strong growing sector, although lack of store expansion has held back growth,” said Miah.
Extra, Jarir and Al-Othaim are well positioned to benefit from fragmented sectors, which are dominated by independent stores. NCB Capital believes this is the main driver enabling these companies to aggressively expand store count and revenues. For Al-Hokair, growth in the mid-level branded fashion segment should remain steady with significant potential in the value-segment and expansion abroad.
The sector trades at an attractive 2013E P/E of 12.6x given the growth outlook of the sector. Al-Othaim is at a discount given growth concerns with Al-Hokair at a discount given the risks present in its expansion.
Although NCB Capital believes the e-commerce potential is significant for Saudi Arabia, any meaningful growth is at least 5–10 years away. “The primary reasons for this include the poor postal system in Saudi Arabia, low credit card penetration, and the importance of shopping outings for many Saudi families,” Miah added.
Despite the obstacles, NCB Capital notes many retail companies are investing in their online presence. Extra has initiated sales of products through its website and Jarir is currently working toward this. Al-Othaim has also recently commenced an online order service, although on a small scale.


Power-sucking Bitcoin ‘mines’ spark backlash

Updated 49 min 8 sec ago
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Power-sucking Bitcoin ‘mines’ spark backlash

  • Local US authorities pushing back against bitcoin miners as power prices rise
  • Firms insist they bring revenue, investment and talent to mining locations

NEW YORK: Bitcoin “miners” who use rows of computers whirring at the same time to produce virtual currencies began taking root along New York’s northern border a couple of years ago to tap into some of the nation’s cheapest hydroelectric power, offering an air of Silicon Valley sophistication to this often-snowy region.
But as the once-high-flying bitcoin market has waned, so too has the enthusiasm for bitcoin miners. Mining operations with stacks of servers suck up so much electricity that they are in some cases causing power rates to spike for ordinary customers. And some officials question whether it’s all worth it for the relatively few jobs created.
“We don’t want someone coming in, taking our resources, not creating the jobs they professed to create and then disappear,” said Tim Currier, mayor of Massena, a village just south of the Canadian border, where bitcoin operator Coinmint recently announced plans to use the old aluminum plant site for a mining operation that would require 400 megawatts — roughly enough to power 300,000 homes at once.
In Plattsburgh, where two cryptocurrency operations have been blamed for spiking electricity rates, the prospect of more cryptocurrency miners plugging in spooked officials enough in March to enact an 18-month moratorium on new operations. The small border village of Rouses Point also is holding off on approving new server farms and Lake Placid is considering a moratorium.
For local officials, the power struggle has been a crash course in the esoteric bitcoin mining business in which miners earn bitcoins by making complex calculations that verify transactions on the digital currency’s public ledger.
Since it often uses hundreds of computers that throw off tremendous heat and burn a lot of power, it has tended to gravitate toward cooler places with cheap electricity, such as geothermal-rich Iceland or along the Columbia River region of Washington state.
The stretch of New York near the Canadian border similarly fits the bill. Cheap hydropower from a dam spanning the St. Lawrence River is doled out by a state authority to local businesses that promise to create jobs. Additionally, some municipalities such as Massena and Plattsburgh receive cheap electricity from a separate hydropower project near Niagara Falls.

 

In Plattsburgh, electricity is so cheap most residents use it instead of oil or wood to heat their homes. The couple of commercial cryptocurrency mines here can get an industrial rate of about 3 cents per kilowatt hour — less than half the national average.
But Plattsburgh Mayor Colin Read said its largest operator, Coinmint, which has two plants employing 20 or fewer people, can consume about 10 percent of Plattsburgh’s 104 megawatt cheap electricity quota. When the city exceeded its allocation like it did this winter, customers ended up paying $10 to $30 more a month for the extra electricity. For a major employer like Mold-Rite Plastics plant, it cost them at least $15,000 in February.
State regulators have since given municipal utilities the ability to charge higher rates to cryptocurrency miners. At least one bitcoin miner in Plattsburgh says he’s working with the city on solutions to the power worries.
Ryan Brienza, founder and CEO of the hosting company Zafra, said those could include mining on behalf of the city for an hour a day or harnessing the heat from mining computers to warm up large spaces.
While the direct number of jobs associated with mines can be small, Brienza said they can bring revenue, investments and talent to the city while employing local contractors.
“It can start snowballing,” Brienza said.
Coinmint’s plans for a new plant in Massena, for example, come with a promise of 150 jobs. That’s welcome in an area that in the past decade has suffered though the loss of aluminum-making jobs and the closure of a General Motors powertrain plant.
“J-O-Bs. Yup. What we need up here,” said Steve O’Shaughnessy, Massena town supervisor.
Coinmint had asked for a cheap power allocation from the New York Power Authority for Massena for part of its energy needs, but that request was deferred.
The power authority has separately enacted its own moratorium on allocating hydropower to cryptocurrency operations — mirroring municipalities that have effectively pushed the “pause” button on a rush of miners coming in.
Coinmint representatives said this month they hope to begin the Massena operation in the second part of this year. The company stressed that mines can be a good fit for this job-hungry area.
“They’re also going to get substantially more efficient over time,” said Coinmint spokesman Kyle Carlton. “So to the extent that Plattsburgh or Massena or anybody else can get in on that and establish themselves on the ground floor, I think that’s going to help those cities to be successful.”

Decoder

Bitcoin mining is the process used to verify transactions and add them to the currency's public ledger (blockchain). It involves compiling pending transactions and turning them into a computationally difficult, mathematical puzzle. The first computer to solve the puzzle claims a transaction fee and a newly-released bitcoin.