The Equity Story: BinDawood Holding ‘next logical step’

“The dream” for many entrepreneurs of any scale of business is to go public. What it means is to offer shares of a private company to the public in a new stock issuance – an Initial Public Offering (IPO).

Going public is considered a logical ‘next step’ for successful companies that are looking to improve credibility, assess market worth, and take advantage of the rich pools of liquidity and capital. However, the right timing and more importantly, a well-thought-out strategy is vital before becoming publicly listed.

The Middle East’s IPO market has seen an upward trajectory in the past few years, which gained more momentum and interest in the GCC after the landmark Saudi Aramco deal at the end of 2019 that took the company to a valuation of $2 trillion. Last year, the GCC raised a total $986 million by the first half of 2019. Although the beginning of 2020 looked promising with three IPOs in the first half in the GCC, the pandemic did slow down the process since March, with $734 million raised, according to PWC.

Saudi Arabia’s Tadawul listed two of these IPOs – Dr Sulaiman Al- Habib Medical Services raised $700 million whilst Sumou Real Estate Company raised $8 million. The third IPO, Aman Real Estate Investment Fund, took place in Oman’s Muscat Securities Market with proceeds of $25.6 million.

The interest in entering the capital market has been ripe in the Kingdom with 15 applications for new listings in the Saudi stock market. One of them that has successfully gone public in the third quarter of this year is Saudi Arabian retailer BinDawood Holding. With a 50-year trading legacy, BinDawood Holding is one of the biggest retail chains in the Kingdom that manages the BinDawood and Danube retail brands across 73 hypermarkets and supermarkets in major Saudi Arabian cities.

The company got listed on Tadawul in October this year for an offering price of SAR 96. More than a month into its historic market debut, the company is enjoying an incredible response. BinDawood Holding’s nine months 2020 financial results revealed that their revenues increased by 11.6% to SAR 4 billion and net profit rose to SAR 390 million, an increase of 32% compared to the same period last year.

“From the moment we pressed the bell, standing on the platform at the Saudi Stock Exchange (Tadawul), we have had a great response. The share price has appreciated as the demand for shares is robust. The trading for the first three days was strong. And to date, it has been robust. Volumes are good, which is pleasing. Investors are beginning to understand the equity story and thesis around our business and wanting to buy the shares for the long-term”, said Ahmad AR. BinDawood, CEO of BinDawood Holding.

It must be noted that it comes at a time of not just a global pandemic that made the overall economy sluggish, but also when VAT rates in KSA have increased to 15% from 5% previously. With traditional retailers disrupted like never before, record unemployment and some indicators suggesting that there is an economic recession happening already, businesses have had to diversify their offerings or “pivot” their business models altogether. While this indeed has posed its own unique challenges to many retailers across the region, certain verticals of the industry were reaping – what’s now called – the “pandemic profit”.

BinDawood Holding having two grocery retail chains, was one of the more secure retail categories. Recent research has shown the market is valued at SAR 57 billion and is expected to grow by 5% per annum through to 2024.

“We have a positive, long-term view of the grocery retail market in Saudi Arabia. This year we have opened four stores already and have one more to launch before year-end.
Despite the imposition of VAT which has partially curtailed our sales at our BinDawood stores, our Danube stores have outperformed. They have seen sales rise by 23.5% in the first nine months in response to growing demand in premium food”, he said.

However, that’s not to say that grocery retailers are entirely immune to the crisis. They certainly have the upper hand considering they sell essential items to their customers. Still, the competition is so high that grocery retailers too will have to innovate, invest in customer service, and as is most important now, have a robust online presence.

“We are one of the leading online grocery retail operators in the Kingdom through our two e-commerce platforms and apps – Danube Online and the BinDawood App. Direct to consumer shopping exploded when the pandemic hit. We responded and rapidly scaled the business. We went from delivering from 13 stores online to 31. And this number will grow in the future as we optimise and implement new technologies, integrate further our operations, and train our staff”, he said.

But it’s not just how they’ve been shopping that has changed. What consumers shopped for also changed drastically during the lockdown period and has had a spill over effect to date. With the onslaught of the pandemic, there has been a change in customer behaviour. For one,
people prepared more meals at home during the lockdown periods, so pantry type goods
such as flour for baking etc. rose significantly. Even post-lockdown many people still prefer to cook at home.

“Last month, we ran a hugely successful cooking campaign whereby celebrity
chefs led Danube shoppers in demonstrations in-store and online on how to cook an array of dishes. The campaign was hugely popular across both Danube’s and the chefs’ social media channels with a total viewer engagement of over 1 million. At Danube we stock the widest range of imported products in the Kingdom, many of which are exclusive to our stores”, he said.

But why did BinDawood Holding decide to go public now?

“BinDawood Holding has grown from a small trading business to one of the leading retailers in Saudi Arabia. Opening the business to public investors will consummate the process of growth we have undertaken under family ownership. Given the positive direction of the Saudi market generally (and the Saudi retail sector in particular), an IPO now will allow us to deliver optimal returns to our existing shareholders. It will also give new investors a solid platform for future capital growth”, he explained.

The company always faces challenges, whether it is an IPO or any significant new step, but the key, according to Ahmad AR. BinDawood, is knowing what to expect and to plan for it well in advance.

“We have had a great reception from investors, locally and around the world, and we plan to execute our long-term growth strategy and reward our loyal shareholders” he concluded.