2Q15 review: Earnings ahead of SFC and consensus; Maintain Hold
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National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
2Q15 review: Earnings ahead of SFC and consensus; Maintain Hold
Rating Summary
2Q15 earnings ahead of SFC/consensus estimate: Nadec reported 2Q15 net profit of
Recommendation
Hold
Target price (SAR)
36.0
Upside/ (downside)
6%
SAR35m (+25% yoy, +34% qoq) that has beaten SFC/consensus estimate by c.10%. While revenues of SAR686m (+19% yoy, +28% qoq) came c.5% ahead of our estimate, gross
Stock Details
profit/EBITDA/EBIT came c.2%/8%/15% ahead of our estimates. At the segment level, while
Closing price*
dairy & food revenues grew c.12% yoy (and c.15% qoq) and came in broadly in-line with our expectation, the earnings beat seems to have come from its seasonal agricultural products business where revenues grew c.63% yoy (c.39% yoy) and came ahead of our forecasts.
SAR
34.0
SAR mn
2,618
Mn
70
52-Week High
SAR
44.4
52-Week Low
SAR
24.2
Market capitalization Shares outstanding
Mid-sized player with potentially high capex to build scale and distribution: Nadec is a
Price chg. (3 months)
mid-sized KSA based food & dairy producer with dairy & juice/KSA accounting for
EPS 2015E
c.86%/82% of revenues. While Nadec accounts for c.4-15% market share in KSA across
Ticker (Reuters/ Bloomberg)
categories (vs. c.20-60% for Almarai) and is expected to grow broadly in line with the
*Price as of July 12, 2015
%
-0.3
SAR
1.59
6010.SE
NADEC AB
industry, given the nature of competitive intensity among mid-sized players coupled with polarization by the largest player, material market share gains are unlikely. Furthermore,
Key Shareholding (%)
while high debt/solvency ratios (gearing c.130%, net debt/EBITDA c.4.2x) limit the company’s
Public Investment Fund
scope to aggressively grow, the company also needs to invest a substantial part of cash flow from operations in building scale/distribution to effectively compete with larger competitors meaning potentially soft FCF generation.
20.0
Sulaiman Bin Abdulaziz Al Rajhi
6.1 8.3
Abdullah Bin Abdulaziz Al Rajhi Public/Others
65.6
Source: Tadawul
Valuation not cheap enough to warrant a more constructive view; trades at 2015E P/E of 21.4x; Maintain Hold: Ytd, Nadec (c.22%) has strongly outperformed Tadawul Food &
Key Ratios
Agri index (c.2%) and Tadawul (c.11%) and the stock currently trades at 2015E P/E of 21.4x
2015E
2016E
21.4
18.2
(KSA Food & Agri 21.9x, EM peers 22.8x, DM peers 22.3x) which in our view, is not
P/E (x)
attractive enough for a more constructive view. All in all, post publication of 2Q15 results, we
EV/EBITDA (x)
9.8
8.9
Dividend yield (%)
1.8
2.1
maintain our Hold rating with a SAR36/share target price.
Source: Company, Saudi Fransi Capital analysis 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
Revenues
686
650
5%
Na
Na
534
28%
576
19%
Gross Profit
253
246
2%
Na
Na
202
25%
210
21%
EBITDA (est)
111
102
8%
Na
Na
96
16%
90
23%
16%
16%
Na
Na
18%
EBIT
50
43
15%
Na
Na
37
36%
35
44%
Net Profit
35
32
10%
32
10%
26
34%
28
25%
SAR mn
Stock price movement vs. TASI 230 210
EBITDA margin
190 170 150
16%
130 110 90
Nadec
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Food & Agri
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the company that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
2Q15 review: Earnings ahead of SFC and consensus; Maintain Hold
Rating Summary
2Q15 earnings ahead of SFC/consensus estimate: Nadec reported 2Q15 net profit of
Recommendation
Hold
Target price (SAR)
36.0
Upside/ (downside)
6%
SAR35m (+25% yoy, +34% qoq) that has beaten SFC/consensus estimate by c.10%. While revenues of SAR686m (+19% yoy, +28% qoq) came c.5% ahead of our estimate, gross
Stock Details
profit/EBITDA/EBIT came c.2%/8%/15% ahead of our estimates. At the segment level, while
Closing price*
dairy & food revenues grew c.12% yoy (and c.15% qoq) and came in broadly in-line with our expectation, the earnings beat seems to have come from its seasonal agricultural products business where revenues grew c.63% yoy (c.39% yoy) and came ahead of our forecasts.
SAR
34.0
SAR mn
2,618
Mn
70
52-Week High
SAR
44.4
52-Week Low
SAR
24.2
Market capitalization Shares outstanding
Mid-sized player with potentially high capex to build scale and distribution: Nadec is a
Price chg. (3 months)
mid-sized KSA based food & dairy producer with dairy & juice/KSA accounting for
EPS 2015E
c.86%/82% of revenues. While Nadec accounts for c.4-15% market share in KSA across
Ticker (Reuters/ Bloomberg)
categories (vs. c.20-60% for Almarai) and is expected to grow broadly in line with the
*Price as of July 12, 2015
%
-0.3
SAR
1.59
6010.SE
NADEC AB
industry, given the nature of competitive intensity among mid-sized players coupled with polarization by the largest player, material market share gains are unlikely. Furthermore,
Key Shareholding (%)
while high debt/solvency ratios (gearing c.130%, net debt/EBITDA c.4.2x) limit the company’s
Public Investment Fund
scope to aggressively grow, the company also needs to invest a substantial part of cash flow from operations in building scale/distribution to effectively compete with larger competitors meaning potentially soft FCF generation.
20.0
Sulaiman Bin Abdulaziz Al Rajhi
6.1 8.3
Abdullah Bin Abdulaziz Al Rajhi Public/Others
65.6
Source: Tadawul
Valuation not cheap enough to warrant a more constructive view; trades at 2015E P/E of 21.4x; Maintain Hold: Ytd, Nadec (c.22%) has strongly outperformed Tadawul Food &
Key Ratios
Agri index (c.2%) and Tadawul (c.11%) and the stock currently trades at 2015E P/E of 21.4x
2015E
2016E
21.4
18.2
(KSA Food & Agri 21.9x, EM peers 22.8x, DM peers 22.3x) which in our view, is not
P/E (x)
attractive enough for a more constructive view. All in all, post publication of 2Q15 results, we
EV/EBITDA (x)
9.8
8.9
Dividend yield (%)
1.8
2.1
maintain our Hold rating with a SAR36/share target price.
Source: Company, Saudi Fransi Capital analysis 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
Revenues
686
650
5%
Na
Na
534
28%
576
19%
Gross Profit
253
246
2%
Na
Na
202
25%
210
21%
EBITDA (est)
111
102
8%
Na
Na
96
16%
90
23%
16%
16%
Na
Na
18%
EBIT
50
43
15%
Na
Na
37
36%
35
44%
Net Profit
35
32
10%
32
10%
26
34%
28
25%
SAR mn
Stock price movement vs. TASI 230 210
EBITDA margin
190 170 150
16%
130 110 90
Nadec
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Food & Agri
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Agri Development Co. (Nadec) KSA Consumer Sector | 2Q 2015 Preliminary Results | July 13, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the company that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
