4Q14 review: Earnings miss estimates from inventory revaluation ...
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Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 2015
4Q14 review: Earnings miss estimates from inventory revaluation; Maintain Hold
Rating Summary
4Q14 net profit misses estimates from inventory revaluation: Sadafco reported 4Q14
Recommendation
Hold
Target price (SAR)
122.0
Upside/ (downside)
2%
headline net profit of SAR30m (-37% yoy, -22% qoq) that has missed both SFC/consensus estimate by c.24%. Revenues/gross profit was c.13%/4% ahead of our estimates while
Stock Details
EBITDA/EBIT was c.20%/27% lower than our forecasts. While yoy results were impacted by
Closing price*
increase in SG&A expenses from wage hikes and increase in number of Saudi nationals in the employee mix, management commentary suggests that the miss (vs. SFC/consensus) could be attributed to downward revaluation (no further details on the magnitude) of inventory
SAR
119.0
SAR mn
3,868
Mn
32.5
52-Week High
SAR
131.4
52-Week Low
SAR
76.8
Market capitalization Shares outstanding
(milk powder price down c.45% since 2014 beginning) that was bought at close to peak
Price chg. (3 months)
prices. Having said that, after inventory revaluation in 4Q14, management has guided to
EPS 2015E
increase in gross margin in the coming quarter originating from a lower inventory cost base. A leader in its respective categories but muted earnings growth is the key issue: We see Sadafco as a KSA-focused (c.93% of revenues) player, primarily operating in the niche segments of long life milk (c.50% market share in a mature segment), tomato paste (c.40%
Ticker (Reuters/ Bloomberg)
%
-2.2
SAR
5.82
2270.SE
SADAFCO AB
*Price as of January 20, 2015 Key Shareholding (%)
share), and ice cream (c.20% share). However, long life milk is the mainstay accounting for
Qurain Petrochemical Industries Co.
40.1
c.64% of net profit, while tomato paste/ice cream accounts for c.10%/16% of net profit.
Al Sameh Trading Co.
11.7
Overall, while we like Sadafco’s market positioning in respective product categories and its
Public
48.2
near debt-free B/S/strong cash flows, we believe a narrow product suite coupled with
Source: Tadawul
absence in key dairy categories such as laban/fast growing fresh milk and lack of meaningful presence in the broader GCC region are key hindrances to mid-term growth. Furthermore,
Key Ratios
with increasing local production of fresh milk and consumer affinity to “seemingly healthier”
2015E
2016E
and cheaper fresh milk category, we believe long life milk category is likely to remain in slow
P/E (x)
20.8
19.4
growth mode leading to lower than sector average earnings growth for Sadafco (c.7% CAGR
EV/EBITDA (x)
14.4
13.4
between 2014–16E vs. KSA consumer average c.15%).
Dividend yield (%)
3.8
4.2
Source: Company, Saudi Fransi Capital analysis
Trades at 2015E P/E of 20.8x; Maintain Hold: After a c.38% increase since 2014 beginning (Tadawul Consumer c.32%), Sadafco trades at 2015E P/E of 20.8x (KSA consumer Avg. 20.6x, EM peers 21.1x, DM peers 22.3x), which seems close to full considering Sadafco’s narrow product suite and muted earnings growth potential. In all, post publication of 4Q14,
Stock price movement vs. TASI 210 190
we maintain our Hold rating on Sadafco with an unchanged SAR122/share target price.
170 150
4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
Revenues
448
395
13%
389
15%
395
13%
386
16%
Gross Profit
127
122
4%
Na
Na
118
8%
130
-2%
48
60
-20%
61
-21%
60
-20%
71
-32%
10.8%
15.3%
15.7%
-31%
15.3%
EBIT
32
44
-27%
Na
Na
41
-23%
52
-39%
Net Profit
30
40
-24%
40
-24%
39
-22%
48
-37%
SAR mn
130 110 90
EBITDA (est) EBITDA margin
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
18.4%
Jan-13 Jan-13 Mar-13 Apr-13 May-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
70
Sadafco
Tadawul
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 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.
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 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)
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 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)
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 2015
4Q14 review: Earnings miss estimates from inventory revaluation; Maintain Hold
Rating Summary
4Q14 net profit misses estimates from inventory revaluation: Sadafco reported 4Q14
Recommendation
Hold
Target price (SAR)
122.0
Upside/ (downside)
2%
headline net profit of SAR30m (-37% yoy, -22% qoq) that has missed both SFC/consensus estimate by c.24%. Revenues/gross profit was c.13%/4% ahead of our estimates while
Stock Details
EBITDA/EBIT was c.20%/27% lower than our forecasts. While yoy results were impacted by
Closing price*
increase in SG&A expenses from wage hikes and increase in number of Saudi nationals in the employee mix, management commentary suggests that the miss (vs. SFC/consensus) could be attributed to downward revaluation (no further details on the magnitude) of inventory
SAR
119.0
SAR mn
3,868
Mn
32.5
52-Week High
SAR
131.4
52-Week Low
SAR
76.8
Market capitalization Shares outstanding
(milk powder price down c.45% since 2014 beginning) that was bought at close to peak
Price chg. (3 months)
prices. Having said that, after inventory revaluation in 4Q14, management has guided to
EPS 2015E
increase in gross margin in the coming quarter originating from a lower inventory cost base. A leader in its respective categories but muted earnings growth is the key issue: We see Sadafco as a KSA-focused (c.93% of revenues) player, primarily operating in the niche segments of long life milk (c.50% market share in a mature segment), tomato paste (c.40%
Ticker (Reuters/ Bloomberg)
%
-2.2
SAR
5.82
2270.SE
SADAFCO AB
*Price as of January 20, 2015 Key Shareholding (%)
share), and ice cream (c.20% share). However, long life milk is the mainstay accounting for
Qurain Petrochemical Industries Co.
40.1
c.64% of net profit, while tomato paste/ice cream accounts for c.10%/16% of net profit.
Al Sameh Trading Co.
11.7
Overall, while we like Sadafco’s market positioning in respective product categories and its
Public
48.2
near debt-free B/S/strong cash flows, we believe a narrow product suite coupled with
Source: Tadawul
absence in key dairy categories such as laban/fast growing fresh milk and lack of meaningful presence in the broader GCC region are key hindrances to mid-term growth. Furthermore,
Key Ratios
with increasing local production of fresh milk and consumer affinity to “seemingly healthier”
2015E
2016E
and cheaper fresh milk category, we believe long life milk category is likely to remain in slow
P/E (x)
20.8
19.4
growth mode leading to lower than sector average earnings growth for Sadafco (c.7% CAGR
EV/EBITDA (x)
14.4
13.4
between 2014–16E vs. KSA consumer average c.15%).
Dividend yield (%)
3.8
4.2
Source: Company, Saudi Fransi Capital analysis
Trades at 2015E P/E of 20.8x; Maintain Hold: After a c.38% increase since 2014 beginning (Tadawul Consumer c.32%), Sadafco trades at 2015E P/E of 20.8x (KSA consumer Avg. 20.6x, EM peers 21.1x, DM peers 22.3x), which seems close to full considering Sadafco’s narrow product suite and muted earnings growth potential. In all, post publication of 4Q14,
Stock price movement vs. TASI 210 190
we maintain our Hold rating on Sadafco with an unchanged SAR122/share target price.
170 150
4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
Revenues
448
395
13%
389
15%
395
13%
386
16%
Gross Profit
127
122
4%
Na
Na
118
8%
130
-2%
48
60
-20%
61
-21%
60
-20%
71
-32%
10.8%
15.3%
15.7%
-31%
15.3%
EBIT
32
44
-27%
Na
Na
41
-23%
52
-39%
Net Profit
30
40
-24%
40
-24%
39
-22%
48
-37%
SAR mn
130 110 90
EBITDA (est) EBITDA margin
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
18.4%
Jan-13 Jan-13 Mar-13 Apr-13 May-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
70
Sadafco
Tadawul
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 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.
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 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)
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 21, 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)
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)
