Saudia Dairy & Foodstuff Co. (Sadafco) A strong earnings beat from ...
Saudia Dairy & Foodstuff Co. (Sadafco) 4Q15 Earnings Review January 17, 2016 Rating Summary
A strong earnings beat from lower raw material costs and SG&A; Maintain Buy
Recommendation
Buy
12-Month Target price (SAR)
145
Upside/(Downside)
Solid earnings beat for our recently upgraded name
35%
Stock Details
Sadafco reported headline net profit of SAR68m (+126% y/y, +26% q/q) which was a solid beat Last Close Price SAR vs. SFC (ahead by 37%) and consensus estimate (+39%). While revenue of SAR496m (+11% Market Capitalization SAR mln y/y, +3% q/q) was in-line with our estimate, EBIT of SAR72m (+128% y/y, +24% q/q) came mln ahead of our estimate by 34%. In our view, the solid earnings beat was a function of 1/ lower cost Shares Outstanding 52-Week High SAR of raw materials (milk powder) as the base effect becomes more visible in earnings (until Mar ’15, SAR Sadafco was negatively affected by high cost of milk powder imported at close to peak prices) 52-Week Low and 2/ lower admin & marketing costs that decreased 8% q/q. In all, EBIT margin came in at a Price Change (3M) % solid 14.5% vs. SFC estimate of 10.7% and well ahead of the historical normalized 12% mark. 6-Mth ADTV mln Detailed financials have not been disclosed yet which prevents us from dissecting the quarterly EPS 2016E SAR earnings performance. However, management commentary following the quarterly results 2270.SE suggests sales of Sadafco’s dominant category UHT milk grew in double digits y/y while the Reuters / Bloomberg company has managed to regain No. 1 position in ice-cream. Source: Tadawul, *as of 16 Jan 2016
108.0 3,510 33 148.7 102.8 -23.7 5.2 7.72 SADAFCO AB
Defensive business, attractive valuation and decent dividend yield; Maintain Buy Key Shareholders (%)
In our 4Q15 consumer sector preview note, we upgraded Sadafco to Buy (from Hold) citing its defensive business model and earnings resilience. First, we like Sadafco for its defensive profile Qurain Petrochemical Industries Co. with long life milk, ice-cream and tomato paste accounting for roughly 70%, 10%, 10%, Al Sameh Trading Co. respectively, of revenues, and around 65%, 16% and 10%, respectively, of net profits. While Public defensive product suite and strong brand (40-50% market share in fresh milk, 40% in tomato Source: Tadawul paste and 20% in ice-cream) imply earnings are unlikely to be impacted in a low oil price environment, solid earnings growth in the previous nine months (+61% y/y) mean impact of high Price Multiples cost inventory on earnings is largely over while product prices remain sticky. Second, we believe 2016E the recent sell-off is largely unjustified. Although the company has not provided any guidance yet P / E 14.2x on cost increases from hike in fuel, electricity and water charges, given Sadafco’s business EV / EBITDA 9.5 model (milk powder imports mean no reliance on subsidies and long life milk mean lower Dividend Yield 4.2 restocking needs and hence lower transportation costs), we believe the earnings impact would be Source: SFC limited to 5-10%. Third, while balance sheet is strong with net cash accounting for around 5% of market cap, solid cash cow business means dividend is likely to stay healthy (2015E SFC est. 1-Year Share Performance SAR4.0/share, 3.7% dividend yield). Finally, after the sharp sell-off, the valuation has contracted 140 130 and the stock trades at 2016E P/E of 14.2x (EM Food 19.1x, DM Food 18.9x) which we find 120 110 attractive. In all, keeping in mind recent earnings trend, we increase 2016E-17E earnings 100 estimate by 13% and maintain Buy rating on the stock. 90
40 12 48
2017E 13.0 8.7 4.6
80 70
SAR mn
4Q15A
4Q15E
% dev
Cons
% dev
3Q15
% qoq
4Q14
%yoy
2016E
2017E
60
50 40
Revenues
496
502
-1%
Na
Na
482
3%
448
11%
2,214
2,418
J
F
M
A
M Sadafco
Gross Profit EBIT EBIT Margin Net Profit
172
166
4%
Na
Na
166
3%
127
35%
755
826
72
54
34%
Na
Na
58
24%
32
128%
361
394
14.5%
10.7%
Na
Na
12.1%
12.1%
12.2%
68
50
49
39%
54
251
275
37%
Source: Company, Saudi Fransi Capital, Bloomberg
7.1% 26%
30
126%
J
J
A
S
O
N
D
J
TASI Food & Agri
Source: Bloomberg
Dipanjan Ray, CFA [email protected] +966 11 282 6861 AbdulAziz Jawdat [email protected] +966 11 282 6856
PUBLIC
Page 1
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA)
Saudia Dairy & Foodstuff Co. (Sadafco) Summary Financials
SAR mn, ending Dec 31-st
CAGR
Income Statement
2014
2015E
2016E
2017E
2018E
2013-15
2015-17
Revenues
1,807
2,009
2,214
2,418
2,640
14%
10%
Gross profit
552
695
755
826
904
19%
9%
EBITDA
227
342
361
394
430
19%
7%
EBIT
156
254
269
295
324
17%
8%
Net Income
141
236
251
275
303
17%
8%
33
33
33
33
33
Shares outstanding (mln) EPS (SAR)
4.35
7.26
7.72
8.47
9.33
DPS (SAR)
3.50
4.00
4.50
5.00
6.00
2014
2015E
2016E
2017E
2018E
66
86
166
266
Receivables
172
220
243
Inventories
353
396
26
26
Current assets
617
PP&E
*SFC estimate SAR mn, ending Dec 31-st Balance Sheet Cash and Equivalents
Other current assets
CAGR
2014
2015
2016E
2017E
2018E
Sales
16%
11%
10%
9%
9%
375
EBITDA
(6%)
51%
6%
9%
9%
265
289
EBIT
(15%)
63%
6%
10%
10%
437
477
521
Net Income
(17%)
67%
6%
10%
10%
26
26
26
0%
14%
13%
11%
20%
729
871
1,034
1,211
2014
2015E
2016E
2017E
2018E
592
609
602
584
564
31%
35%
34%
34%
34%
0
0
0
0
0
9%
13%
12%
12%
12%
1,209
1,338
1,473
1,617
1,775
13%
17%
16%
16%
16%
8%
12%
11%
11%
11%
2013-15
Grow th (y/y)
2015-17
DPS 7%
19% Margins
Other non-current assets Total assets
Gross Margin EBIT Margin 8%
10%
EBITDA Margin Net Margin
Accounts payable
109
138
152
166
181
Accrued expenses
51
51
51
51
51
0
0
0
0
0
17
-7
-7
-7
-7
176
181
195
209
225
Current portion of LT Debt Other current liabilities Current liabilities Long-term Debt
Valuation Multiples
16%
7%
0
0
0
0
0
Other non-current liabilities
84
84
84
84
84
Total non-current liabilities
84
84
84
84
84
2%
0%
950
1,073
1,194
1,325
1,466
8%
11%
2014
2015E
2016E
2017E
2018E
P/E
25.1
16.5
14.2
13.0
11.8
EV/EBITDA
16.5
10.1
9.5
8.7
8.0
P/Sales
2.1
1.7
1.6
1.5
1.3
P/BV
3.9
3.3
2.9
2.7
2.4
3.1%
3.7%
4.2%
4.6%
5.6%
Dividend Yield
Ratios Total equity Total liabilities & equity
1,209
1,338
1,474
1,618
1,775
SAR mn, ending Dec 31-st Cash Flow Statement
2014
2015
2016
2017
2018
229
261
295
327
357
(165)
(105)
(85)
(81)
(86)
Operating FCF
64
156
210
246
271
FCF after investing
67
156
210
246
271
(114)
(114)
(130)
(146)
(163)
CFO+WC change Capex
Dividends Debt Repayment/New debt
0
(23)
0
0
Others
0
0
0
0
0
(47)
20
80
100
109
Net Cash flow
8%
10%
2014
2015E
2016E
2017E
2018E
Net Debt/Equity
(7%)
(10%)
(16%)
(22%)
(27%)
Net Debt/EBITDA
(0.3)
(0.3)
(0.5)
(0.7)
(0.9)
RoE
15%
22%
21%
21%
21%
RoA
12%
18%
17%
17%
17%
Operating FCF/EBITDA
28%
46%
58%
62%
63%
Payout Ratio
81%
55%
58%
59%
64%
Working Capital/Sales
19%
21%
21%
21%
21%
0
Sources: Company, Saudi Fransi Capital
PUBLIC
Page 2
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA)
Research and Advisory Department Rating Framework
BUY Shares of the companies under coverage in this report are expected to outperform relative to the sector or the broader market.
HOLD Shares of the companies under coverage in this report are expected to perform in line with the sector or the broader market.
SELL Shares of the companies under coverage in this report are expected to underperform relative to the sector or the broader market.
Saudi Fransi Capital Call Center | 800 125 9999 www.sfc.sa Commercial Registration | 1010231217
Research and Advisory P.O. Box 23454 Riyadh 11426 Saudi Arabia Head Office | Riyadh [email protected]
PUBLIC PUBLIC PUBLIC PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
Research and Advisory Department 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 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 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 appl y 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 b ound by the foregoing limitations.
Saudi Fransi Capital LLC C.R. 1010231217 P.O Box 23454 Riyadh 11426 Saudi Arabia Head Office | Riyadh
PUBLIC PUBLIC PUBLIC PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
A strong earnings beat from lower raw material costs and SG&A; Maintain Buy
Recommendation
Buy
12-Month Target price (SAR)
145
Upside/(Downside)
Solid earnings beat for our recently upgraded name
35%
Stock Details
Sadafco reported headline net profit of SAR68m (+126% y/y, +26% q/q) which was a solid beat Last Close Price SAR vs. SFC (ahead by 37%) and consensus estimate (+39%). While revenue of SAR496m (+11% Market Capitalization SAR mln y/y, +3% q/q) was in-line with our estimate, EBIT of SAR72m (+128% y/y, +24% q/q) came mln ahead of our estimate by 34%. In our view, the solid earnings beat was a function of 1/ lower cost Shares Outstanding 52-Week High SAR of raw materials (milk powder) as the base effect becomes more visible in earnings (until Mar ’15, SAR Sadafco was negatively affected by high cost of milk powder imported at close to peak prices) 52-Week Low and 2/ lower admin & marketing costs that decreased 8% q/q. In all, EBIT margin came in at a Price Change (3M) % solid 14.5% vs. SFC estimate of 10.7% and well ahead of the historical normalized 12% mark. 6-Mth ADTV mln Detailed financials have not been disclosed yet which prevents us from dissecting the quarterly EPS 2016E SAR earnings performance. However, management commentary following the quarterly results 2270.SE suggests sales of Sadafco’s dominant category UHT milk grew in double digits y/y while the Reuters / Bloomberg company has managed to regain No. 1 position in ice-cream. Source: Tadawul, *as of 16 Jan 2016
108.0 3,510 33 148.7 102.8 -23.7 5.2 7.72 SADAFCO AB
Defensive business, attractive valuation and decent dividend yield; Maintain Buy Key Shareholders (%)
In our 4Q15 consumer sector preview note, we upgraded Sadafco to Buy (from Hold) citing its defensive business model and earnings resilience. First, we like Sadafco for its defensive profile Qurain Petrochemical Industries Co. with long life milk, ice-cream and tomato paste accounting for roughly 70%, 10%, 10%, Al Sameh Trading Co. respectively, of revenues, and around 65%, 16% and 10%, respectively, of net profits. While Public defensive product suite and strong brand (40-50% market share in fresh milk, 40% in tomato Source: Tadawul paste and 20% in ice-cream) imply earnings are unlikely to be impacted in a low oil price environment, solid earnings growth in the previous nine months (+61% y/y) mean impact of high Price Multiples cost inventory on earnings is largely over while product prices remain sticky. Second, we believe 2016E the recent sell-off is largely unjustified. Although the company has not provided any guidance yet P / E 14.2x on cost increases from hike in fuel, electricity and water charges, given Sadafco’s business EV / EBITDA 9.5 model (milk powder imports mean no reliance on subsidies and long life milk mean lower Dividend Yield 4.2 restocking needs and hence lower transportation costs), we believe the earnings impact would be Source: SFC limited to 5-10%. Third, while balance sheet is strong with net cash accounting for around 5% of market cap, solid cash cow business means dividend is likely to stay healthy (2015E SFC est. 1-Year Share Performance SAR4.0/share, 3.7% dividend yield). Finally, after the sharp sell-off, the valuation has contracted 140 130 and the stock trades at 2016E P/E of 14.2x (EM Food 19.1x, DM Food 18.9x) which we find 120 110 attractive. In all, keeping in mind recent earnings trend, we increase 2016E-17E earnings 100 estimate by 13% and maintain Buy rating on the stock. 90
40 12 48
2017E 13.0 8.7 4.6
80 70
SAR mn
4Q15A
4Q15E
% dev
Cons
% dev
3Q15
% qoq
4Q14
%yoy
2016E
2017E
60
50 40
Revenues
496
502
-1%
Na
Na
482
3%
448
11%
2,214
2,418
J
F
M
A
M Sadafco
Gross Profit EBIT EBIT Margin Net Profit
172
166
4%
Na
Na
166
3%
127
35%
755
826
72
54
34%
Na
Na
58
24%
32
128%
361
394
14.5%
10.7%
Na
Na
12.1%
12.1%
12.2%
68
50
49
39%
54
251
275
37%
Source: Company, Saudi Fransi Capital, Bloomberg
7.1% 26%
30
126%
J
J
A
S
O
N
D
J
TASI Food & Agri
Source: Bloomberg
Dipanjan Ray, CFA [email protected] +966 11 282 6861 AbdulAziz Jawdat [email protected] +966 11 282 6856
PUBLIC
Page 1
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA)
Saudia Dairy & Foodstuff Co. (Sadafco) Summary Financials
SAR mn, ending Dec 31-st
CAGR
Income Statement
2014
2015E
2016E
2017E
2018E
2013-15
2015-17
Revenues
1,807
2,009
2,214
2,418
2,640
14%
10%
Gross profit
552
695
755
826
904
19%
9%
EBITDA
227
342
361
394
430
19%
7%
EBIT
156
254
269
295
324
17%
8%
Net Income
141
236
251
275
303
17%
8%
33
33
33
33
33
Shares outstanding (mln) EPS (SAR)
4.35
7.26
7.72
8.47
9.33
DPS (SAR)
3.50
4.00
4.50
5.00
6.00
2014
2015E
2016E
2017E
2018E
66
86
166
266
Receivables
172
220
243
Inventories
353
396
26
26
Current assets
617
PP&E
*SFC estimate SAR mn, ending Dec 31-st Balance Sheet Cash and Equivalents
Other current assets
CAGR
2014
2015
2016E
2017E
2018E
Sales
16%
11%
10%
9%
9%
375
EBITDA
(6%)
51%
6%
9%
9%
265
289
EBIT
(15%)
63%
6%
10%
10%
437
477
521
Net Income
(17%)
67%
6%
10%
10%
26
26
26
0%
14%
13%
11%
20%
729
871
1,034
1,211
2014
2015E
2016E
2017E
2018E
592
609
602
584
564
31%
35%
34%
34%
34%
0
0
0
0
0
9%
13%
12%
12%
12%
1,209
1,338
1,473
1,617
1,775
13%
17%
16%
16%
16%
8%
12%
11%
11%
11%
2013-15
Grow th (y/y)
2015-17
DPS 7%
19% Margins
Other non-current assets Total assets
Gross Margin EBIT Margin 8%
10%
EBITDA Margin Net Margin
Accounts payable
109
138
152
166
181
Accrued expenses
51
51
51
51
51
0
0
0
0
0
17
-7
-7
-7
-7
176
181
195
209
225
Current portion of LT Debt Other current liabilities Current liabilities Long-term Debt
Valuation Multiples
16%
7%
0
0
0
0
0
Other non-current liabilities
84
84
84
84
84
Total non-current liabilities
84
84
84
84
84
2%
0%
950
1,073
1,194
1,325
1,466
8%
11%
2014
2015E
2016E
2017E
2018E
P/E
25.1
16.5
14.2
13.0
11.8
EV/EBITDA
16.5
10.1
9.5
8.7
8.0
P/Sales
2.1
1.7
1.6
1.5
1.3
P/BV
3.9
3.3
2.9
2.7
2.4
3.1%
3.7%
4.2%
4.6%
5.6%
Dividend Yield
Ratios Total equity Total liabilities & equity
1,209
1,338
1,474
1,618
1,775
SAR mn, ending Dec 31-st Cash Flow Statement
2014
2015
2016
2017
2018
229
261
295
327
357
(165)
(105)
(85)
(81)
(86)
Operating FCF
64
156
210
246
271
FCF after investing
67
156
210
246
271
(114)
(114)
(130)
(146)
(163)
CFO+WC change Capex
Dividends Debt Repayment/New debt
0
(23)
0
0
Others
0
0
0
0
0
(47)
20
80
100
109
Net Cash flow
8%
10%
2014
2015E
2016E
2017E
2018E
Net Debt/Equity
(7%)
(10%)
(16%)
(22%)
(27%)
Net Debt/EBITDA
(0.3)
(0.3)
(0.5)
(0.7)
(0.9)
RoE
15%
22%
21%
21%
21%
RoA
12%
18%
17%
17%
17%
Operating FCF/EBITDA
28%
46%
58%
62%
63%
Payout Ratio
81%
55%
58%
59%
64%
Working Capital/Sales
19%
21%
21%
21%
21%
0
Sources: Company, Saudi Fransi Capital
PUBLIC
Page 2
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA)
Research and Advisory Department Rating Framework
BUY Shares of the companies under coverage in this report are expected to outperform relative to the sector or the broader market.
HOLD Shares of the companies under coverage in this report are expected to perform in line with the sector or the broader market.
SELL Shares of the companies under coverage in this report are expected to underperform relative to the sector or the broader market.
Saudi Fransi Capital Call Center | 800 125 9999 www.sfc.sa Commercial Registration | 1010231217
Research and Advisory P.O. Box 23454 Riyadh 11426 Saudi Arabia Head Office | Riyadh [email protected]
PUBLIC PUBLIC PUBLIC PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
Research and Advisory Department 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 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 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 appl y 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 b ound by the foregoing limitations.
Saudi Fransi Capital LLC C.R. 1010231217 P.O Box 23454 Riyadh 11426 Saudi Arabia Head Office | Riyadh
PUBLIC PUBLIC PUBLIC PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
