Earnings Report /
Egypt

Cairo Poultry: 2Q22 – Record-breaking profitability backed by hikes in selling prices

  • Prices drive top line as volumes lag

  • Passing input cost increases to end consumers supports margins; Solid profitability trickles down to bottom line

  • Deja-vu: Rallying selling prices casts its shadows on volumes

Al Ahly Pharos Securities Brokerage
8 August 2022

Prices drive top line as volumes lag

Revenues for the quarter jumped up to EGP1,623 mn (+28.4% YoY, +11.1% QoQ). The climb came backed mainly by increasing selling prices, driven by global and local factors of commodities rally, currency devaluation, overall inflation, supply chain disruptions, and local supply shrinkage. 1H22 revenues recorded EGP3,084 mn compared to EGP2,426 mn in the previous period, showing a climb of 27.1% YoY.

Feed volumes during 2Q22 dropped by an average of 9% both YoY and QoQ, as demand for feed is currently under pressure which farmers are reluctant to cultivate due to rallying commodities prices which are not compensated for in the selling prices. Feed volumes declined by 1% in 1H22 compared to 2H21, however, the company managed to maintain its market share. 1H22 prices jumped by 30% YoY, on the back of commodity prices as well as EGP devaluation. Yet, the company was able to pass on such cost increase to end consumers.

Live birds’ volumes dropped 10% YoY and 5% QoQ as their prices climb by 31% YoY and 17.3% QoQ for 2Q22, as for 1H22 live birds’ volumes dropped by 9% YoY with their prices growing by 29.7% YoY. Broiler chicks’ volumes were able to break the trend and achieve volume growth of 14% YoY and 16% QoQ, yet still dropped by 4% during 1H21.

For the processing segment, volumes climbed by 19% YoY by the introduction of new products yet dropped by 3% QoQ. For 1H21, processing volumes climbed by 19% YoY with all products categories witnessing growth. Koki increased the overall average price for its products by 18% YoY during 1H21.

Passing input cost increases to end consumers supports margins; Solid profitability trickles down to bottom line

Gross profit for the quarter recorded EGP289 mn with a margin of 17.8%, compared to EGP111 mn in 2Q21 with a margin of 8.8% and EGP176 mn in 1Q22 with a margin of 12%. This came despite growth in COGS by 16% YoY and 4% QoQ as POUL were able to pass on most of the increase in costs to the end consumers. 1H22 gross profit came in at EGP465 mn, compared to EGP264 mn recorded in the previous period of 1H21, reflecting a YoY growth of 75.8% and leading to a GPM of 15.1%, versus 10.9% in 1H21 (+4.2pps YoY).

SG&A expenses came in at EGP85 mn (+17.6% YoY, -9.4% QoQ). The annual increase came mostly on the back of higher distribution and transportation expenses as a result of the growth in processing products sales volumes, leading to an EBITDA of EGP236 mn, compared to EGP66 mn in 2Q21 and EGP110 mn in 1Q22 and reflecting a margin of 14.6%, versus 5.3% in 2Q21 and 7.5% in 1Q22 (+9.3pps YoY, +7.0pps QoQ). EBITDA for 1H22 period recorded EGP346 mn, a YoY rise of 112.5% despite the increase in SG&A expenses by 14.4% YoY, leading to an EBITDA margin of 11.2%, versus 6.7% recorded in the previous period of 1H21.

Net interest expenses recorded EGP8 mn, compared to EGP9 mn in 2Q21 and EGP3 mn in 1Q22. For 1H22, it recorded EGP11 mn, compared to EGP17.7 mn in 1H21 (-38.2% YoY) supported by the management’s ability to utilize efficient leveraging strategies and the use of cash.

Net debt by June22 recorded EGP436 mn, higher than that recorded in March22 by 18.3% and higher than that recorded in June21 by 38.1%. This came mainly supported by the rise in credit facilities used in financing working capital needs during the period POUL increased purchases of raw materials in anticipation of futures and commodities increases.

Bottom line for the quarter reached an all-time high of EGP183.3 mn, compared to EGP27.5 mn in 2Q21 and EGP52.5 mn in 1Q22, leading to a NPM of 11.3%, versus 2.2% recorded in 2Q21 and 3.6% recorded in 1Q22. Such a spike in net profit was a result of a trickling down of the healthy income statement accounts. Attributable net profit for 1H22 recorded EGP236 mn compared to EGP79 mn in 1H21, leading to a NPM of 7.6%, versus 3.3% in 1H21.

Deja-vu: Rallying selling prices casts its shadows on volumes

POUL was able to achieve record-breaking results for the period, mainly driven by the ability to increase selling prices amidst a challenging time in the market. The increase in prices was driven by multiple global and local factors which include rallying commodities, currency devaluation, supply chain disruptions, rising overall inflation levels, and local supply shrinkage as rallying costs become unbearable to some suppliers. However, such hikes were obvious to take a toll on most segments' volumes as consumers bear most of those hikes, affecting their purchasing power. As commodities starts to steadily cool down globally -which is a positive aspect for POUL as it brings down their costs and can push volumes-, this positive effect shouldn’t necessarily be reflected locally due to a second round of weaker currency concerns and product unavailability. If 2Q22 global and local conditions continue throughout the remaining of 2022, we could see the same trends of increasing prices and declining volumes to proceed as well.

While 2Q22 profits were superb, we believe that 3Q and 4Q shall demonstrate slightly lower levels of profits due to volume weakness, and lower capacity for price increases. but 2022 in general shall continue to be a strong year for POUL.

POUL is currently trading at a FY22 P/E of 3.1x and EV/EBITDA of 2.9x.