A big miss vs. SFC and consensus estimates; Maintain Hold
`
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 2015
4Q14 review: A big miss vs. SFC and consensus estimates; Maintain Hold
Rating Summary
A big miss vs. SFC/consensus potentially from inventory revaluation and higher SG&A
Recommendation
Hold
Target price (SAR)
130.0
Upside/ (downside)
0%
expenses from new product launches: Sadafco reported 4Q14 headline net profit of SAR29m (-44% yoy, -3% qoq) that was a big miss vs. SFC (SAR56m) and consensus
Stock Details
(SAR60m) estimates. While revenue of SAR464m (20% yoy, 4% qoq) was c.9% ahead and
Closing price*
gross profit was c.31% ahead of our estimates, EBITDA/EBIT was c.29%/43% below our forecasts. While detailed financials have not been disclosed yet which prevents us from dissecting the quarterly earnings performance, management commentary accompanying
SAR
130.0
SAR mn
4,225
Mn
32.5
52-Week High
SAR
137.0
52-Week Low
SAR
98.3
Market capitalization Shares outstanding
4Q14 results suggests that downward revaluation of inventory (milk powder was purchased
Price chg. (3 months)
at peak prices in the beginning of the year which later fell c.40% from peak) and higher
EPS 2015E
SG&A expenses from new product launches (Laban, Laban Twist and Arabic Coffee)
Ticker (Reuters/ Bloomberg)
%
8.3
SAR
6.26
2270.SE
SADAFCO AB
impacted 4Q14 results and were potentially the key causes of the earnings miss despite solid
*Price as of April 21, 2015
c.20% yoy revenue growth.. A leader in its respective categories but muted earnings growth is the key issue: We
Key Shareholding (%)
see Sadafco as a KSA-focused (c.93% of revenues) player, primarily operating in the niche
Qurain Petrochemical Industries Co.
40.1
segments of long life milk (c.50% market share in a mature segment), tomato paste (c.40%
Al Sameh Trading Co.
11.7
share), and ice cream (c.20% share). However, long life milk is the mainstay accounting for
Public
48.2
c.64% of net profit, while tomato paste/ice cream accounts for c.10%/16% of net profit.
Source: Tadawul
Overall, while we like Sadafco’s market positioning in respective product categories and its near debt-free B/S/strong cash flows, we believe a narrow product suite coupled with a lack
Key Ratios 2015E
2016E
Furthermore, with increasing local production of fresh milk and consumer affinity to
P/E (x)
21.7
20.0
“seemingly healthier” and cheaper fresh milk category, we believe long life milk category is
EV/EBITDA (x)
14.7
13.9
likely to remain in slow growth mode leading to lower than sector average earnings growth
Dividend yield (%)
3.5
3.8
for Sadafco (c.7% CAGR between 2014–16E vs. KSA consumer average c.15%).
Source: Company, Saudi Fransi Capital analysis
of meaningful presence in the broader GCC region are key hindrances to mid-term growth.
Trades at 2015E P/E of 21.7x; Maintain Hold: After a c.6% Ytd increase in stock price (Tadawul Food c.7%), Sadafco trades at 2015E P/E of 21.7x (KSA Food & Agri 23.0x, EM
Stock price movement vs. TASI
peers 22.5x, DM peers 22.8x), which seems unattractive considering Sadafco’s narrow
250
product suite and muted earnings growth potential. In all, post publication of 4Q14 result, we
200
maintain our Hold rating on Sadafco with an unchanged SAR130/share target price.
150
100
4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
Revenues
464
428
9%
428
8%
448
4%
386
20%
Gross Profit
159
121
31%
Na
Na
127
25%
122
30%
54
76
-29%
Na
Na
49
10%
71
-24%
12%
18%
EBIT
34
59
-43%
Na
Na
32
7%
54
-37%
Net Profit
29
56
-47%
60
-51%
30
-3%
53
-44%
SAR mn
50
EBITDA (est) EBITDA margin
Na
11%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Jan-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Jun-14
Apr-14
Jan-14
Feb-14
Oct-13
Sadafco
Nov-13
Jul-13
Aug-13
Apr-13
May-13
Jan-13
Feb-13
0
Tadawul Food & Agri
Source: Tadawul
18%
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 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 c ompany 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 complete, 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 stat ements 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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 2015
4Q14 review: A big miss vs. SFC and consensus estimates; Maintain Hold
Rating Summary
A big miss vs. SFC/consensus potentially from inventory revaluation and higher SG&A
Recommendation
Hold
Target price (SAR)
130.0
Upside/ (downside)
0%
expenses from new product launches: Sadafco reported 4Q14 headline net profit of SAR29m (-44% yoy, -3% qoq) that was a big miss vs. SFC (SAR56m) and consensus
Stock Details
(SAR60m) estimates. While revenue of SAR464m (20% yoy, 4% qoq) was c.9% ahead and
Closing price*
gross profit was c.31% ahead of our estimates, EBITDA/EBIT was c.29%/43% below our forecasts. While detailed financials have not been disclosed yet which prevents us from dissecting the quarterly earnings performance, management commentary accompanying
SAR
130.0
SAR mn
4,225
Mn
32.5
52-Week High
SAR
137.0
52-Week Low
SAR
98.3
Market capitalization Shares outstanding
4Q14 results suggests that downward revaluation of inventory (milk powder was purchased
Price chg. (3 months)
at peak prices in the beginning of the year which later fell c.40% from peak) and higher
EPS 2015E
SG&A expenses from new product launches (Laban, Laban Twist and Arabic Coffee)
Ticker (Reuters/ Bloomberg)
%
8.3
SAR
6.26
2270.SE
SADAFCO AB
impacted 4Q14 results and were potentially the key causes of the earnings miss despite solid
*Price as of April 21, 2015
c.20% yoy revenue growth.. A leader in its respective categories but muted earnings growth is the key issue: We
Key Shareholding (%)
see Sadafco as a KSA-focused (c.93% of revenues) player, primarily operating in the niche
Qurain Petrochemical Industries Co.
40.1
segments of long life milk (c.50% market share in a mature segment), tomato paste (c.40%
Al Sameh Trading Co.
11.7
share), and ice cream (c.20% share). However, long life milk is the mainstay accounting for
Public
48.2
c.64% of net profit, while tomato paste/ice cream accounts for c.10%/16% of net profit.
Source: Tadawul
Overall, while we like Sadafco’s market positioning in respective product categories and its near debt-free B/S/strong cash flows, we believe a narrow product suite coupled with a lack
Key Ratios 2015E
2016E
Furthermore, with increasing local production of fresh milk and consumer affinity to
P/E (x)
21.7
20.0
“seemingly healthier” and cheaper fresh milk category, we believe long life milk category is
EV/EBITDA (x)
14.7
13.9
likely to remain in slow growth mode leading to lower than sector average earnings growth
Dividend yield (%)
3.5
3.8
for Sadafco (c.7% CAGR between 2014–16E vs. KSA consumer average c.15%).
Source: Company, Saudi Fransi Capital analysis
of meaningful presence in the broader GCC region are key hindrances to mid-term growth.
Trades at 2015E P/E of 21.7x; Maintain Hold: After a c.6% Ytd increase in stock price (Tadawul Food c.7%), Sadafco trades at 2015E P/E of 21.7x (KSA Food & Agri 23.0x, EM
Stock price movement vs. TASI
peers 22.5x, DM peers 22.8x), which seems unattractive considering Sadafco’s narrow
250
product suite and muted earnings growth potential. In all, post publication of 4Q14 result, we
200
maintain our Hold rating on Sadafco with an unchanged SAR130/share target price.
150
100
4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
Revenues
464
428
9%
428
8%
448
4%
386
20%
Gross Profit
159
121
31%
Na
Na
127
25%
122
30%
54
76
-29%
Na
Na
49
10%
71
-24%
12%
18%
EBIT
34
59
-43%
Na
Na
32
7%
54
-37%
Net Profit
29
56
-47%
60
-51%
30
-3%
53
-44%
SAR mn
50
EBITDA (est) EBITDA margin
Na
11%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Jan-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Jun-14
Apr-14
Jan-14
Feb-14
Oct-13
Sadafco
Nov-13
Jul-13
Aug-13
Apr-13
May-13
Jan-13
Feb-13
0
Tadawul Food & Agri
Source: Tadawul
18%
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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 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)
Saudia Dairy & Foodstuff Co. (Sadafco) KSA Consumer Sector | 4Q 2014 Preliminary Results | April 22, 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 c ompany 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 complete, 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 stat ements 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)
