Earnings Report /
Egypt

Domty: 2Q22 – Flourishing topline backed by prices trickles down to margins

  • Juice segment achieving remarkable growth; Phasing out of agents finally paying off

  • Healthy margins and profitability despite high commodities prices

  • Positive outlook for cooling commodities movement while keeping a close eye on the EGP

Al Ahly Pharos Securities Brokerage
17 August 2022

Juice segment achieving remarkable growth; Phasing out of agents finally paying off

DOMT continued its track of top-line growth, recording EGP1,152 mn for the quarter, compared to EGP670 mn in 2Q21 and EGP1,112 mn in 1Q22, a hike of 72% YoY and 2.7% QoQ. 1H22 revenues booked EGP2,274 mn, compared to EGP1,317 mn, a sharp incline of 72.6%

Cheese segment remains the biggest contributor to revenues by 73% for 2Q22 by achieving revenues of EGP835 mn (+77.8% YoY, +3.9% QoQ). White cheese sales volume rose by 30.3% YoY, while mozzarella sales volume climbed by 6.4% YoY.

Juice segment revenues recorded EGP126 mn, rallying by 83.5% YoY and 65.4% QoQ. Juice sales volume rose by 53.4% YoY.

The bakery segment booked revenues of EGP190 mn, a YoY rise of 44.1%, and a sequential decline of 22.2% due to Ramadan seasonality and its effect on the segment. Sandwiches sales volume rose by 29.2% YoY.

Top-line strong performance was driven by a rise in both sales volumes and prices. The phasing out of agents allowed the company to pass on price increases to end consumers.

Healthy margins and profitability despite high commodities prices

Gross profit for the quarter recorded EGP284 mn, compared to EGP140 mn in 2Q21 and EGP270 mn in 1Q22 (+102.5% YoY, +5.3% QoQ), leading to a margin of 24.6% versus 20.9% in 2Q21 and 24.0% in 1Q22. Margin growth came despite a weak season for the bakery segment, rising costs, and inflationary pressures. 1H22 gross profit reached EGP553 mn, compared to a previous EGP273 mn in 1H21 (+102.8% YoY), leading to a GPM of 24.3% versus 20.7%.

2Q22 EBITDA came in at EGP111 mn, compared to EGP13 mn in 2Q21 and EGP113 mn in 1Q22. (+744.7% YoY, -1.6% QoQ), leading to a margin of 9.6%, versus 2.0% in 2Q21 and 10.0% in 1Q22. Sequential drop in EBITDA and its margin came backed by the rise in SG&A expenses where their percentage to sales reached 17.1% for the quarter, compared to 16.1% the previous quarter.

Interest expense reached EGP27 mn during 2Q22, a climb of 7.3% YoY and a drop of 24.1% QoQ, alleviating the pressure off bottom line where it recorded EGP61 mn for 2Q22, compared to EGP51 mn in 1Q22 and a net loss of EGP29 mn in 2Q21. NPM recorded 5.3% versus 4.5% in 1Q22 and -4.3% in 2Q21.

Positive outlook for cooling commodities movement while keeping a close eye on the EGP

DOMT was able to achieve record-breaking top and bottom lines despite the very challenging environment of high commodities, inflation, supply chain disruptions, and currency devaluation. The phasing out of agents proves to be a successful move as the passing on of increased selling prices allowed margins to grow on a sequential and annual basis. As commodities start to cool down, margins are expected to pick up further. However, a further devaluation of the EGP might reciprocate that effect.

The company’s new investments were subject to delay due to the global supply chain disruptions; the two bakery lines that have already been announced are expected to be in place in December 2022. One of the two lines will be used to produce croissants with a long shelf life to make them exportable as the company aims to increase its exports next year.

DOMT is targeting FY22 top-line of EGP4.5 bn and a bottom line of EGP200 mn.

DOMT is currently trading at a FY22 P/E of 8.9x and an EV/EBITDA of 6.5x.