Earnings Report /
Egypt

Domty: 3Q22 – Weak base supports growth numbers; profitability pressured by expenses

  • Steady revenue growth backed by volumes and prices

  • Heightened SG&A and interest expenses pressure margins and profitability

  • Saved by the base effect; Margins recovery on the horizon

Al Ahly Pharos Securities Brokerage
16 November 2022

Steady revenue growth backed by volumes and prices

Revenues for the quarter climbed by 37.9% and 14.5% to record EGP1,319 mn. Total white cheese sales recorded EGP853 mn with a YoY volume increase of 2%, mozzarella and creamy sales recorded EGP110 mn. Mozzarella volumes climbed by 7% YoY and the creamy volumes by 4% YoY. Juice and milk segment recorded EGP116 mn with a drop in volumes by 10% YoY, while the bakery segment recorded EGP238 mn with a volume rise of 13.5%.

9M22 revenues recorded EGP3,592 mn compared to EGP2,273 mn recorded in 9M21, a rise of 58% YoY. The dairy segment revenues for the period recorded EGP2,590 mn (72.1% of 9M22 top-line), the juice segment recorded EGP315 mn (8.8% of 9M22 top-line), and the bakery segment recorded EGP688 mn (19.1% of 9M22 top-line).

Heightened SG&A and interest expenses pressure margins and profitability

Gross profit for 3Q22 recorded a solid EGP301 mn (+35.1% YoY, +6.1% QoQ) backed by the implemented price increase in the quarter, leading to a margin of 22.8% in 3Q22, versus 23.3% in 3Q21 and 24.6% in 2Q22 (-0.5pps YoY, -1.8pps QoQ). The drop in margins is mainly due to heightened production costs backed by inflation and supply shortages.

9M22 gross profit reached EGP854 mn compared to EGP496 mn in 9M21, a YoY incline of 72.3%, reflecting a margin of 23.8% versus a previous 21.8% (+2.0pps YoY).

SG&A expenses climbed by 39.1% YoY and 12% QoQ to reach EGP220.5 mn for the quarter, leading to a sequentially weakened EBITDA despite the growth in gross profitability. 3Q22 EBITDA came in at EGP104 mn, compared to EGP86 mn in 3Q21 and EGP111 mn in 2Q22 (+20.8% YoY, -5.9% QoQ), with a margin of 7.9% versus 9% in 3Q21 and 9.6% in 2Q22.

9M22 EBITDA climbed to EGP327 mn from a previous EGP117 mn, leading to a margin of 9.1% versus 5.2% in 9M21.

Net interest expense for the quarter climbed to further pressure bottom-line, recording EGP22.7 mn, compared to EGP17.4 mn in 3Q21 and EGP21 million in 2Q22 (+30% YoY, +8.3% QoQ).

Net debt levels reached EGP978 mn compared to EGP968 mn in 2Q22 (+1% QoQ) and EGP881 mn in 3Q21 (+11.1% YoY).

Saved by the base effect; Margins recovery on the horizon

DOMT achieved a steady quarter, mainly backed annually by the weak base effect of 2021. The raw materials shortage and heightened prices took a toll on margins despite the higher sales driven by an incline in both selling prices and selling volumes. DOMT is expected to continue steadily raising prices to counter the devaluation effect, and by the removal of import restrictions and cooling-down of commodities prices, margins and profitability are expected to pick up once more.

DOMT is currently trading at a FY23 P/E of 5.2x and an EV/EBITDA of 5.1x.