Almarai 25 December 2016 PDF
December 25, 2016 Rating 12- Month Target Price
Neutral SAR 55.00
ALMARAI COMPANY 4Q2016 Preview
Healthy Bottomline Growth Expected Total Return Price as on Dec-22, 2016
SAR 67.75
Upside to Target Price
-18.8%
Expected Dividend Yield
1.6%
Expected Total Return
-17.2%
Market Data SAR 68.00/40.90
52 Week H/L
SAR 54,200 million
Market Capitalization
800 million
Shares Outstanding Free Float
39.79%
12-Month ADTV
726,861
1-Year Price Performance
4Q is likely to be a good quarter led by some decent growth in the Dairy & Juice and bakery segments. We expect a topline growth of +6.5% Y/Y to SAR 3.8 billion for the quarter taking the full year sales number to SAR 14.9 billion (+8.1% Y/Y). Benefitting from lower input costs, gross margin is forecasted at 39.5% in 4Q as compared to 37.3% for the similar quarter last year. Net income is likely to come in at SAR 567 million (EPS SAR 0.71), +17% Y/Y, leading to full year earnings to SAR 2.2 billion, a record high for Almarai. Advantage on the feedstock costs have managed to keep higher energy costs in check. The stock has outperformed TASI with YTD increase of +17.3% versus TASI’s +2.6%. 2017E P/E of 24.5x is at a premium to TASI’s 15.3x and sector’s 18.7x, while dividend yield is low at 1.6%. We maintain our Neutral rating with a SAR 55.00 target price.
Revenue to grow over 6.5% Y/Y in 4Q We expect revenue growth to reach +6.5%, as a result of robust growth in the Company’s main segments such as Dairy & Juice and Bakery while expect a decline in Poultry and others (other activities are less than 1% of sales). We forecast revenues of SAR 3.8 billion for 4Q as compared to SAR 3.6 billion last year and a similar number in 3Q. At this rate, full year revenue growth would accrue at +8.1%.
Better cost management Cost of sales witnessed a drop by -1.1% Y/Y in 3Q16 despite an increases in fuel, electricity and water tariffs as input costs decreased coupled with better efficiencies. Gross margins in 3Q at 43% were one of the highest in history. While we do not expect a repeat of this in 4Q, gross margins are expected at 39.5%, more than 200bps expansion over 37.3% last year. Gross profit of SAR 1.5 billion for the quarter is an increase of +12.7% Y/Y. We believe a normal rise in admin expenses is likely, an operating income of SAR 657 million is predicted.
120
110 100 90 80 70 60 50 40 30 D
J
F
M
A
M
Almarai
J
J
A
S
O
TASI
Poultry segment continues to pain
N TAFI
Almarai reported a net loss for the poultry segment at SAR (252) mln, an increase of +53% Y/Y for the nine months of 2016. 4Q does not look too promising either as Almarai is being hit by low price of frozen chicken in the market (Almarai’s products are fresh) whereby more promotions have to be offered although internal issues such as birds mortality are under better control now. Poultry segment’s breakeven appears to be an elusive goal right now.
Source: Bloomberg
6M
1Y
2Y
120% 100% 80%
DPS of SAR 0.90 for 2016
60%
A net income for the quarter at SAR 567 million would imply a +17% Y/Y growth. Almarai has announced a DPS of SAR 0.90 for 2016, a slight improvement over an adjusted DPS of SAR 0.86 in 2015. Stock price has outperformed the market by 14.7% recently. Dividend yield of 1.6% coupled with a 2017E P/E of 24.5x is not enticing at this point. We recommend a Neutral with a SAR 55.00 target price.
40% 20% 0% -20% -40%
Almarai
TASI
Key Financial Figures
TAFI
4Q2016E
SAR mln
Revenue
3,817
Gross Margin
39.5%
Operating Income
657
Net Income
567
EPS (SAR)
0.71
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 13,795 3,687 1,916 2.39 0.86
Key Financial Ratios 2016E 14,906 4,166 2,159 2.70 0.90
Muhammad Faisal Potrik
Khalid Almadhyan
[email protected] +966-11-203-6807
[email protected] +966-11-203-6813
2017E 16,742 4,506 2,258 2.82 1.10
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 13.00 18.5% 7.00% 12.5x 28.3x
2016E 14.75 18.3% 7.07% 11.3x 25.1x
2017E 16.51 16.7% 6.85% 10.2x 24.5x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 4Q2016 Preview
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 4Q2016 Preview
Healthy Bottomline Growth Expected Total Return Price as on Dec-22, 2016
SAR 67.75
Upside to Target Price
-18.8%
Expected Dividend Yield
1.6%
Expected Total Return
-17.2%
Market Data SAR 68.00/40.90
52 Week H/L
SAR 54,200 million
Market Capitalization
800 million
Shares Outstanding Free Float
39.79%
12-Month ADTV
726,861
1-Year Price Performance
4Q is likely to be a good quarter led by some decent growth in the Dairy & Juice and bakery segments. We expect a topline growth of +6.5% Y/Y to SAR 3.8 billion for the quarter taking the full year sales number to SAR 14.9 billion (+8.1% Y/Y). Benefitting from lower input costs, gross margin is forecasted at 39.5% in 4Q as compared to 37.3% for the similar quarter last year. Net income is likely to come in at SAR 567 million (EPS SAR 0.71), +17% Y/Y, leading to full year earnings to SAR 2.2 billion, a record high for Almarai. Advantage on the feedstock costs have managed to keep higher energy costs in check. The stock has outperformed TASI with YTD increase of +17.3% versus TASI’s +2.6%. 2017E P/E of 24.5x is at a premium to TASI’s 15.3x and sector’s 18.7x, while dividend yield is low at 1.6%. We maintain our Neutral rating with a SAR 55.00 target price.
Revenue to grow over 6.5% Y/Y in 4Q We expect revenue growth to reach +6.5%, as a result of robust growth in the Company’s main segments such as Dairy & Juice and Bakery while expect a decline in Poultry and others (other activities are less than 1% of sales). We forecast revenues of SAR 3.8 billion for 4Q as compared to SAR 3.6 billion last year and a similar number in 3Q. At this rate, full year revenue growth would accrue at +8.1%.
Better cost management Cost of sales witnessed a drop by -1.1% Y/Y in 3Q16 despite an increases in fuel, electricity and water tariffs as input costs decreased coupled with better efficiencies. Gross margins in 3Q at 43% were one of the highest in history. While we do not expect a repeat of this in 4Q, gross margins are expected at 39.5%, more than 200bps expansion over 37.3% last year. Gross profit of SAR 1.5 billion for the quarter is an increase of +12.7% Y/Y. We believe a normal rise in admin expenses is likely, an operating income of SAR 657 million is predicted.
120
110 100 90 80 70 60 50 40 30 D
J
F
M
A
M
Almarai
J
J
A
S
O
TASI
Poultry segment continues to pain
N TAFI
Almarai reported a net loss for the poultry segment at SAR (252) mln, an increase of +53% Y/Y for the nine months of 2016. 4Q does not look too promising either as Almarai is being hit by low price of frozen chicken in the market (Almarai’s products are fresh) whereby more promotions have to be offered although internal issues such as birds mortality are under better control now. Poultry segment’s breakeven appears to be an elusive goal right now.
Source: Bloomberg
6M
1Y
2Y
120% 100% 80%
DPS of SAR 0.90 for 2016
60%
A net income for the quarter at SAR 567 million would imply a +17% Y/Y growth. Almarai has announced a DPS of SAR 0.90 for 2016, a slight improvement over an adjusted DPS of SAR 0.86 in 2015. Stock price has outperformed the market by 14.7% recently. Dividend yield of 1.6% coupled with a 2017E P/E of 24.5x is not enticing at this point. We recommend a Neutral with a SAR 55.00 target price.
40% 20% 0% -20% -40%
Almarai
TASI
Key Financial Figures
TAFI
4Q2016E
SAR mln
Revenue
3,817
Gross Margin
39.5%
Operating Income
657
Net Income
567
EPS (SAR)
0.71
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 13,795 3,687 1,916 2.39 0.86
Key Financial Ratios 2016E 14,906 4,166 2,159 2.70 0.90
Muhammad Faisal Potrik
Khalid Almadhyan
[email protected] +966-11-203-6807
[email protected] +966-11-203-6813
2017E 16,742 4,506 2,258 2.82 1.10
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 13.00 18.5% 7.00% 12.5x 28.3x
2016E 14.75 18.3% 7.07% 11.3x 25.1x
2017E 16.51 16.7% 6.85% 10.2x 24.5x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 4Q2016 Preview
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
