Almarai 04 August 2016 PDF
August 4, 2016 Rating 12- Month Target Price
Neutral SAR 55.00
ALMARAI COMPANY 2Q2016 First Look
Favorable Commodity Prices Expected Total Return Price as on Aug-03, 2016
SAR 54.77
Upside to Target Price
0.4%
Expected Dividend Yield
1.5%
Expected Total Return
1.9%
Almarai sprung a surprise this quarter, massively beating analyst expectations with a net income of SAR 629 million (EPS SAR 0.79) versus Bloomberg consensus of SAR 545 million and our forecast of SAR 550 million. Revenues grew +10% Y/Y, breaching SAR 4.0 billion as majority of Ramadan occurred in 2Q. Gross margins expanded reaching almost 40% (despite higher energy costs) on lower feedstock prices. Trading at 21.2x 2016E earnings, valuations are demanding. We recommend a Neutral with a target price of SAR 55.00.
Revenues in line with estimates
Market Data SAR 73.50/40.90
52 Week H/L
SAR 43,816 million
Market Capitalization
800 million
Shares Outstanding Free Float
31.45%
12-Month ADTV
367,746
1-Year Price Performance
Almost the entire month of Ramadan fell in 2Q this year as compared to only a few days last year. Ramadan is historically been one of the best months as sales of dairy and juice segment shoot up. This year was no different with Almarai recording a +10% Y/Y and +17% Q/Q rise in revenues to SAR 4.02 billion, in line with our SAR 4.01 billion forecast. This also marked the highest-ever quarterly revenue to date. The largest contributor in nominal terms was dairy & juice followed by bakery segment. Fresh dairy continues to do well as compared to long-life. For the quarter, poultry has witnessed the highest growth rate at +20% followed by bakery at +16% and dairy & juice at 10%.
Gross margins grazing 40% Gross margins touching almost 40% was the biggest surprise for us in the result given an expected negative impact of higher energy costs. It appears that tail wind from lower feedstock costs have trumped leading to a +15% Y/Y and +30% Q/Q increase in gross profit to SAR 1.59 billion. Gross margins at 39.5% are the highest since 3Q2015 on the back of an ongoing slump in commodity prices as well as better operational efficiencies.
120
110 100 90 80 70 60 50 40
Poultry segment suffers
30 A
S
O
N
D
J
ALMARAI
F
M
A
M
J
TASI
J
A
TAFI
Source: Bloomberg
6M
1Y
2Y
Segment wise break up reveals an excellent quarter for dairy & juice, which was expected given Ramadan related sales. +86% increase in net income for the bakery segment was driven by higher production with the new plant and product launches. Poultry segment continues to suffer on dumping of frozen chicken products, rising costs and price promotions in the market. Segment losses were thus 40% higher.
20%
EPS up +19% Y/Y
10%
+16% growth in selling and distribution expenses continues to be a concern sequentially but a muted +2% rise in general and admin expense is bearable. Financial charges are up +30% Y/Y as the Company was impacted by rising interest rates and greater borrowings, which is another point of concern. Overall, a +19% Y/Y growth in net income to SAR 629 million; comprehensively beating all estimates, is encouraging but still does not justify further stock exposure given it is trading at a 2016E P/E of 21.2x. We maintain our Neutral stance and SAR 55.00 target price.
0%
-10% -20% -30% -40% -50%
ALMARAI
Fig in SAR mln MlnMMln Sales
Gross Profit
TASI
TAFI
RC Est. Estimates 4,014
Actuals
Key Financial Figures
4,025
1,473
1,591
FY Dec31 (SAR mln) Sales EBITDA Net Profit EPS (SAR) DPS (SAR)
Net Income
550
629
EPS (SAR)
0.69
0.79
2015A 13,795 3,687 1,916 2.39 0.86
Key Financial Ratios 2016E 15,167 4,110 2,074 2.59 0.80
2017E 16,949 4,563 2,290 2.86 1.10
Muhammad Faisal Potrik
Mansour A. Al-Ammari
[email protected] +966-11-203-6807
[email protected] +966-11-203-6815
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/E
2015A 15.07 16.5% 7.3% 14.6x 23.0x
2016E 16.74 16.3% 7.5% 13.1x 21.2x
2017E 18.78 16.1% 7.9% 11.8x 19.2x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
Neutral SAR 55.00
ALMARAI COMPANY 2Q2016 First Look
Favorable Commodity Prices Expected Total Return Price as on Aug-03, 2016
SAR 54.77
Upside to Target Price
0.4%
Expected Dividend Yield
1.5%
Expected Total Return
1.9%
Almarai sprung a surprise this quarter, massively beating analyst expectations with a net income of SAR 629 million (EPS SAR 0.79) versus Bloomberg consensus of SAR 545 million and our forecast of SAR 550 million. Revenues grew +10% Y/Y, breaching SAR 4.0 billion as majority of Ramadan occurred in 2Q. Gross margins expanded reaching almost 40% (despite higher energy costs) on lower feedstock prices. Trading at 21.2x 2016E earnings, valuations are demanding. We recommend a Neutral with a target price of SAR 55.00.
Revenues in line with estimates
Market Data SAR 73.50/40.90
52 Week H/L
SAR 43,816 million
Market Capitalization
800 million
Shares Outstanding Free Float
31.45%
12-Month ADTV
367,746
1-Year Price Performance
Almost the entire month of Ramadan fell in 2Q this year as compared to only a few days last year. Ramadan is historically been one of the best months as sales of dairy and juice segment shoot up. This year was no different with Almarai recording a +10% Y/Y and +17% Q/Q rise in revenues to SAR 4.02 billion, in line with our SAR 4.01 billion forecast. This also marked the highest-ever quarterly revenue to date. The largest contributor in nominal terms was dairy & juice followed by bakery segment. Fresh dairy continues to do well as compared to long-life. For the quarter, poultry has witnessed the highest growth rate at +20% followed by bakery at +16% and dairy & juice at 10%.
Gross margins grazing 40% Gross margins touching almost 40% was the biggest surprise for us in the result given an expected negative impact of higher energy costs. It appears that tail wind from lower feedstock costs have trumped leading to a +15% Y/Y and +30% Q/Q increase in gross profit to SAR 1.59 billion. Gross margins at 39.5% are the highest since 3Q2015 on the back of an ongoing slump in commodity prices as well as better operational efficiencies.
120
110 100 90 80 70 60 50 40
Poultry segment suffers
30 A
S
O
N
D
J
ALMARAI
F
M
A
M
J
TASI
J
A
TAFI
Source: Bloomberg
6M
1Y
2Y
Segment wise break up reveals an excellent quarter for dairy & juice, which was expected given Ramadan related sales. +86% increase in net income for the bakery segment was driven by higher production with the new plant and product launches. Poultry segment continues to suffer on dumping of frozen chicken products, rising costs and price promotions in the market. Segment losses were thus 40% higher.
20%
EPS up +19% Y/Y
10%
+16% growth in selling and distribution expenses continues to be a concern sequentially but a muted +2% rise in general and admin expense is bearable. Financial charges are up +30% Y/Y as the Company was impacted by rising interest rates and greater borrowings, which is another point of concern. Overall, a +19% Y/Y growth in net income to SAR 629 million; comprehensively beating all estimates, is encouraging but still does not justify further stock exposure given it is trading at a 2016E P/E of 21.2x. We maintain our Neutral stance and SAR 55.00 target price.
0%
-10% -20% -30% -40% -50%
ALMARAI
Fig in SAR mln MlnMMln Sales
Gross Profit
TASI
TAFI
RC Est. Estimates 4,014
Actuals
Key Financial Figures
4,025
1,473
1,591
FY Dec31 (SAR mln) Sales EBITDA Net Profit EPS (SAR) DPS (SAR)
Net Income
550
629
EPS (SAR)
0.69
0.79
2015A 13,795 3,687 1,916 2.39 0.86
Key Financial Ratios 2016E 15,167 4,110 2,074 2.59 0.80
2017E 16,949 4,563 2,290 2.86 1.10
Muhammad Faisal Potrik
Mansour A. Al-Ammari
[email protected] +966-11-203-6807
[email protected] +966-11-203-6815
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/E
2015A 15.07 16.5% 7.3% 14.6x 23.0x
2016E 16.74 16.3% 7.5% 13.1x 21.2x
2017E 18.78 16.1% 7.9% 11.8x 19.2x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
