Earnings Report /

Juhayna: 9M 21 – Strong results backed by new products and cost optimisation

  • Recovering consumer spending and newly introduced products drive sales upwards

  • Margins squeezed by rising costs; cost optimisation & deleveraging saved bottom-line

  • Maintain Overweight on FV of EGP8.75/share

Al Ahly Pharos Securities Brokerage
17 January 2022

Recovering consumer spending & newly introduced products drive sales upwards 

JUFO recorded a strong topline for 9M21, achieving EGP6,524 mn, compared to EGP5,629 mn in 9M20, a rise of 15.9% YoY. Management attributed this growth to a recovery in consumer spending after the destabilising effects of the pandemic, rising volumes noticeably. Another major contributor to this growth is the introduction of two new ranges of products which are the “Nuts and Grains” non-dairy/vegan milk with 5 different SKUs (almond, coconut, oat, soy, and hazelnut). It is also worth mentioning that JUFO is the first Egyptian company to introduce a full UHT plant-based milk range to the market. The second product that was introduced during 2021 is the flavored Greek yogurt with 4 different SKUs, which-according to management- received a great success in the market. Both products are considered premium products, with higher prices range than regular milk or yogurt. 

In 3Q21, top-line recorded a solid EGP2,435 mn, compared to EGP2,227 mn in 2Q21, a 9.3% rise QoQ, and compared to EGP1,987 mn in 3Q20, a YoY hike of 22.5%. The dairy segment contributed to 3Q21 revenues by EGP1,188 mn, rising both sequentially and annually by 26.2% and 19.9%, respectively. Yogurt segment recorded EGP610 million, witnessing a sequential drop of 21.5%, however rising by 21.8% YoY. The juice segment showed a solid performance for 3Q21, achieving EGP512 mn, a sharp rise of 31.5% QoQ and 23.8% YoY. Concentrates & agriculture segment recorded EGP60 mn, dropping 9.8% QoQ, yet showing a strong incline YoY by 56.6%. Distribution segment reached EGP67 mn, positively growing sequentially and annually by 21.8% and 48.9%, respectively.

Margins squeezed by rising costs; cost optimisation and deleveraging saved bottom-line 

Gross profit for 9M21 recorded EGP1,922 mn, compared to EGP1,803 mn in 9M20, a YoY rise of 6.6%. However, GPM dropped YoY by 2.6pps to reach 29.5%. This drop in GPM is a result of the increasing costs of raw materials and packaging expenses, however, management expects these effects to fade away in the coming period as the company start to gradually pass on the cost hikes to the end consumer. 

SG&A spending witnessed an increase during 9M21 of 18.4% YoY, recording EGP1,178 mn, compared to EGP994 mn in 9M20. This rise is backed by the increased marketing spending to support the launch of the two new products, bringing SG&A/Sales to 18.1%, compared to 17.7% in 9M20, a 0.4pps rise YoY. 

9M21 EBIT recorded EGP745 mn, compared to EGP808 mn in 9M20, a YoY drop of 7.9%, due to the increase in marketing expenses and pressured gross margins backed by rise in raw material costs, leading to an EBIT margin of 11.4%, compared to 14.4% in 9M20, a YoY drop of 2.9pps.  

Net profit for 9M21 reached EGP490 mn, compared to EGP384 mn in 9M20, an incline of 27.8%, leading to a NPM of 7.5%, compared to 6.8% in 9M20, a 0.7pps rise. This positive change in bottom line can be mainly attributed to the company’s cost optimisation strategy as well as deleveraging efforts, dropping net debt from EGP1,022 mn in 9M20 to EGP310 mn in 9M21, as well as lower financing costs after the CBE dropped lending rates. 

Maintain Overweight on FV of EGP8.75/share 

JUFO showed solid 9M performance across all accounts. The introduction of new products gave a strong boost to the top-line, and as costs rise be gradually passed on to consumers, margins are on track to recover over time.  

With the return of schools and universities and gradual recovery in the hospitality segment, the juice segment is expected to show continuous improvement. We expect the company though to maintain a relatively higher level of SG&A/sales to continue promoting their new products as well as revitalising demand in the weaker segments in light of the lingering effect of the pandemic.  

Management disclosed that their cost-cutting strategy is still ongoing and will see leaner inventory and debt levels. 

JUFO is currently trading at 2022 P/E of 11.3x and EV/EBITDA of 4.4x.