Earnings Report /
Egypt

Cairo Poultry: 1Q22 – Prices and volumes support top line; provisions pressure bottom line

  • Prices and volumes boost top line

  • Margins pressured by the rise in costs despite price increases

  • Decline in net interest expenses not enough to offset provisions

Marina William

Prices and volumes boost top line 

Revenues jumped significantly, especially YoY to amount to EGP1,461 mn, (+25.8% YoY, +8.8% QoQ). Such a hike came on the back of higher prices across all sectors in light of soaring global commodity prices, as well as higher feed and processing volumes.

  • Feed volumes rose by 9% YoY, backed by a recovery in cattle feed volumes which climbed by 28% YoY. Poultry and aqua feed volumes witnessed an increase of 3% and 8% YoY, respectively. On a sequential basis, volumes dropped by 5% driven solely by the drop in aqua feed volumes due to the seasonality of the business. However, poultry and cattle feed volumes climbed by 3% and 55% QoQ, respectively. 1Q22 prices hiked by 19% YoY on the back of higher commodity prices.

  • When it comes to the poultry division, parent chicks’ prices climbed by 5% YoY to reach EGP65/chick. Prices for broiler chicks jumped by 39% YoY to reach EGP10/chick, bringing volumes down by 19% YoY and 6% QoQ, respectively. Live bird prices climbed by 28% YoY, hitting EGP29/kg, resulting in declining volumes by 8% YoY and 5% QoQ.

  • 1Q22 volumes for the processing and further processing division climbed by 20% YoY, based on a 25% increase in further processing volumes and only a 2% increase in processed volumes. Overall sequential volume increase for the segment came in at 33% QoQ. Prices for segments recorded a 16% rise YoY, driven by the partial pass-on of increasing costs to end consumers.

Margins pressured by the rise in costs despite price increases

POUL was able to partially pass on the increase in costs to the end consumers, reaching a gross profit of EGP176 mn, compared to EGP153 mn in 1Q22 and EGP184 mn in 4Q21 (+14.6% YoY, -4.4% QoQ), leading to a GPM of 12.0%, versus 13.2% in 1Q21 and 13.7% in 4Q21.

SG&A expenses climbed by 11.6% YoY and 0.6% QoQ, yet their percentage to sales dropped to 6.4% compared to a previous 7.3% in 1Q21 and 7% in 4Q21. Such a rise was backed by higher distribution and transportation expenses. EBITDA recorded EGP194 mn, a positive shift of 10.6% YoY, yet a drop of 1.4% QoQ, to reach a margin of 13.3% in 1Q22, versus 15.1% in 1Q21 and 14.7% in 4Q21.

Decline in net interest expenses not enough to offset provisions

Net interest expense witnessed a slump of 71.6% YoY and 65.9% QoQ to reach EGP3 mn during 1Q22, on the back of management’s attempts at utilizing efficient leveraging strategies. Yet, net debt recorded EGP368 mn by March 2022, climbing upwards by 1.5% YoY and a full 86.8% QoQ. Such rising debt levels are a point of concern as interest rates continue to rise.

Attributable net profit recorded EGP52.5 mn, a YoY upward shift of 1.3% while dropping by 13.3% QoQ. Bottom-line was partially pressured by the jump in other expenses amounting to nearly EGP20 mn accounting for higher provisions to accommodate potential liquidity problems facing customers. NPM recorded 3.6%, versus 4.5% in both 1Q21 and 4Q21.

Maintain Overweight; Keeping an eye on seasonality and debt levels

POUL managed to pull a sable set of results for 1Q22, backed mainly by a rise in prices across all segments and volume recovery among some segments. 1H of the year is usually the strongest for the company due to seasonality and usually backed by volumes. Moving towards the second half of the year, we expected weaker volumes due to waning purchasing power as prices continue their rally and weak seasonality. The company's debt is mostly overdrafts, which alleviates pressure on the bottom line, especially during high-interest rate times. However, as the commodities rally continues along with overall inflation, we could see working capital financing needs rise until prices stabilize.

POUL is currently trading at a FY22 P/E of 6.2x and EV/EBITDA of 4.0x.