Stock Price Shoots Up
July 10, 2017 Rating 12- Month Target Price
Neutral SAR 61.00
ALMARAI COMPANY 2Q2017 Preview
Stock Price Shoots Up Expected Total Return Price as on July-09, 2017
SAR 82.54
Upside to Target Price
-26.1%
Expected Dividend Yield
1.2%
Expected Total Return
-24.9%
Market Data SAR 51.50/98.30
52 Week H/L
SAR 66,032 million
Market Capitalization
800 million
Shares Outstanding
36.32%
Free Float
721,414
12-Month ADTV
1-Year Price Performance 190
The Ramadan effect is likely to help attain a topline of SAR 4.3 billion (+6.8% Y/Y on a like for like basis) for Almarai in 2Q. We expect gross margins at 36.5% this quarter, an improvement over 34.8% in 1Q2017 but lower Y/Y. The Company has been able to manage costs and increase efficiency for the past few quarters. Our net income forecast stands at SAR 668 million (EPS SAR 0.83), +6% growth Y/Y. Turnaround continues in the poultry segment with an expected EBIT breakeven this year while the currency situation for its Egyptian operations is much more stable now. The stock has shot up +17% since April, versus a rise in the TASI of 2%, largely based on qualitative factors, in our view. Trading at a 2017E P/E of 31.1x versus TASI’s 14.4x with a dividend yield under 1.5%, we find valuations to be stretched. For now, we maintain a neutral stance on the stock with substantial price volatility at the Tadawul and will take a more in-depth look post 2Q results.
Ramadan to boost fresh dairy demand In nominal terms, fresh dairy will continue to be the primary contributor to revenues but Y/Y growth is expected to be led by bakery and poultry segments. Ramadan historically witnesses heightened demand of fresh milk, laban and yogurt, which augments segment sales. Infant nutrition is another area which has done well in the first quarter and likely to continue in 2Q as well. A topline of SAR 4.3 billion would be a mid-single digit growth Y/Y, on a like for like basis.
Gross profit expected at SAR 1.6 billion
170
We anticipate gross margins of 36.5% in 2Q, an improvement over 1Q2017 but lower than last year. In general, the Company has focused on efficiency improvements and cost controls given rising costs from the energy and human resources front. An upcoming fresh round of energy price hikes later in the year can potentially pressure margins. Almarai has received some of its subsidy dues in 1Q, expect gradual inflows through the year. Gross profit is likely to be almost flat at SAR 1.57 billion. Savings on the operating expenses end are likely to occur in 2Q and beyond.
150 130 110
90 70 J
A
S
O
N D J Almarai
F
M
A
M TASI
J
J
Source: Bloomberg
6M
1Y
Poultry EBIT breakeven this year The Egyptian subsidiary had witnessed some turmoil recently as the Pound devalued leading to losses in SAR terms. However, the situation is stable now with strong growth in Pound terms. The bakery segment has new capacity leading to growth for the Company. Low mortality rates have benefitted the poultry segment and although frozen poultry poses a challenge, fortunes are looking much brighter now with an EBIT breakeven planned in 2017.
2Y
60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
Valuations hard to justify
Almarai
We expect a net income of SAR 668 million for 2Q, +6% growth Y/Y. Stock price has rocketed by +17% at the Tadawul since April. Almarai is trading at a 2017E P/E of 31.1x, valuations appear stretched to us. We await 2Q results for an indepth look, maintain Neutral for now.
TASI
2Q2017E
SAR mln
Revenue
4,299
Gross Margin
36.5%
Operating Income
768
Net Income
668
EPS (SAR)
0.83
Key Financial Figures FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2016A 14,699 4,441 2,081 2.60 0.90
Key Financial Ratios 2017E 15,650 4,242 2,120 2.65 1.00
Muhammad Faisal Potrik
Abdullah A. Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2018E 16,793 4,424 2,097 2.62 1.00
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2016A 16.29 16.6% 7.4% 17.1x 31.7x
2017E 18.03 15.4% 6.4% 17.9x 31.1x
2018E 19.64 13.9% 5.6% 17.1x 31.5x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 2Q2017 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 closed joint stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
Neutral SAR 61.00
ALMARAI COMPANY 2Q2017 Preview
Stock Price Shoots Up Expected Total Return Price as on July-09, 2017
SAR 82.54
Upside to Target Price
-26.1%
Expected Dividend Yield
1.2%
Expected Total Return
-24.9%
Market Data SAR 51.50/98.30
52 Week H/L
SAR 66,032 million
Market Capitalization
800 million
Shares Outstanding
36.32%
Free Float
721,414
12-Month ADTV
1-Year Price Performance 190
The Ramadan effect is likely to help attain a topline of SAR 4.3 billion (+6.8% Y/Y on a like for like basis) for Almarai in 2Q. We expect gross margins at 36.5% this quarter, an improvement over 34.8% in 1Q2017 but lower Y/Y. The Company has been able to manage costs and increase efficiency for the past few quarters. Our net income forecast stands at SAR 668 million (EPS SAR 0.83), +6% growth Y/Y. Turnaround continues in the poultry segment with an expected EBIT breakeven this year while the currency situation for its Egyptian operations is much more stable now. The stock has shot up +17% since April, versus a rise in the TASI of 2%, largely based on qualitative factors, in our view. Trading at a 2017E P/E of 31.1x versus TASI’s 14.4x with a dividend yield under 1.5%, we find valuations to be stretched. For now, we maintain a neutral stance on the stock with substantial price volatility at the Tadawul and will take a more in-depth look post 2Q results.
Ramadan to boost fresh dairy demand In nominal terms, fresh dairy will continue to be the primary contributor to revenues but Y/Y growth is expected to be led by bakery and poultry segments. Ramadan historically witnesses heightened demand of fresh milk, laban and yogurt, which augments segment sales. Infant nutrition is another area which has done well in the first quarter and likely to continue in 2Q as well. A topline of SAR 4.3 billion would be a mid-single digit growth Y/Y, on a like for like basis.
Gross profit expected at SAR 1.6 billion
170
We anticipate gross margins of 36.5% in 2Q, an improvement over 1Q2017 but lower than last year. In general, the Company has focused on efficiency improvements and cost controls given rising costs from the energy and human resources front. An upcoming fresh round of energy price hikes later in the year can potentially pressure margins. Almarai has received some of its subsidy dues in 1Q, expect gradual inflows through the year. Gross profit is likely to be almost flat at SAR 1.57 billion. Savings on the operating expenses end are likely to occur in 2Q and beyond.
150 130 110
90 70 J
A
S
O
N D J Almarai
F
M
A
M TASI
J
J
Source: Bloomberg
6M
1Y
Poultry EBIT breakeven this year The Egyptian subsidiary had witnessed some turmoil recently as the Pound devalued leading to losses in SAR terms. However, the situation is stable now with strong growth in Pound terms. The bakery segment has new capacity leading to growth for the Company. Low mortality rates have benefitted the poultry segment and although frozen poultry poses a challenge, fortunes are looking much brighter now with an EBIT breakeven planned in 2017.
2Y
60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
Valuations hard to justify
Almarai
We expect a net income of SAR 668 million for 2Q, +6% growth Y/Y. Stock price has rocketed by +17% at the Tadawul since April. Almarai is trading at a 2017E P/E of 31.1x, valuations appear stretched to us. We await 2Q results for an indepth look, maintain Neutral for now.
TASI
2Q2017E
SAR mln
Revenue
4,299
Gross Margin
36.5%
Operating Income
768
Net Income
668
EPS (SAR)
0.83
Key Financial Figures FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2016A 14,699 4,441 2,081 2.60 0.90
Key Financial Ratios 2017E 15,650 4,242 2,120 2.65 1.00
Muhammad Faisal Potrik
Abdullah A. Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2018E 16,793 4,424 2,097 2.62 1.00
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2016A 16.29 16.6% 7.4% 17.1x 31.7x
2017E 18.03 15.4% 6.4% 17.9x 31.1x
2018E 19.64 13.9% 5.6% 17.1x 31.5x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 2Q2017 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 closed joint stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
