Flash Report /
Egypt

Edita: 4Q19 conference call highlights

  • FY19 topline recorded a 6.6% YoY growth, but muted 4Q19 results overall

  • Market share restoration across segments is Edita’s priority for FY20

  • Edita plans leverage on its market knowledge to enter the local biscuit market

Al Ahly Pharos Securities Brokerage
1 March 2020

Results overview 

EFID 4Q19 reported a topline of EGP1.1 billion, flat YoY and QoQ, dual-driven by the contraction in consumer spending and market share loss across Edita’s segments. This was a result of muted sequential and annual volume growth and lower selling price per pack as a result of higher competition.

According to management, FY19 saw market share contraction on the back of:

  • Cake (44% of FY19 revenues): -7pps YoY drop in market share to 46%, due to weakness in the layered cakes SKU
  • Croissants (34% of FY19 revenues): -4pps YoY drop in market share to 60%, driven by a shift towards the growth of the savoury sub-segment in which Edita’s presence was limited prior to the recent launch of its Molto Sandwich product 
  • Rusks (10% of FY19 revenues): a slight expansion of market share to 44% (+3pps YoY) despite operating at full capacity 
  • Wafers (8% of FY19 revenues): -2pps YoY drop in market share to 10%, as the company doubled its quantity directed for exports to Morocco
  • Candy (4% of FY19 revenues): flat YoY market share growth in the candy segment of 8%.

FY19 recorded GPM growth, up 3% YoY to 35%, with all of Edita’s segments recording margin expansion owing to 1) +0.5% gains due to the EGP appreciation, 2) +1.5% due to better sourcing of direct materials, 3) +2.0% due to better efficiency in production as a result of the introduction of smaller packages and 4) -1.0% due to higher salaries and overheads.

FY19 saw Edita hike its SG&A Expense/Revenues to 22.0% in FY19 versus 18.5% in FY18 as company secured two sponsorship agreements related to the 2019 Total African Cup of Nations hosted by Egypt.

FY20 Guidance

Market share restoration across segments is Edita’s priority for FY20, supported by heavy investment in marketing and distribution. On a segmental basis:

  • In the cake segment, management is targeting to regain 8pps–10pps market share in the cake segment in FY20 by launching new product offerings and repacking (aka: the Todo Max, Twinkies Zigzag and coffee-flavored HOHOs in 1Q20), providing further price segmentation across its portfolio and aggressively investing in advertising for the new launches
  • In the croissant segment, management hopes the recently launched Molto Magnum and Molto Sandwich through the modification of an existing production line will enable better penetration into the fast-growing bakery segment, especially in the Greater Cairo and Delta regions since Molto enjoys a higher shelf-life than its competitors
  • In the wafer segment, new capacity additions in 2Q20 should support more sales volumes
  • In the candy segment, the company is expecting to bear the fruits of its FY19 investments and product launches to regain market share.

Edita also plans leverage on its market knowledge to enter into the local biscuit market, which is highly fragmented, with the largest player ‘Ulker’ commanding a market share of c.23% according to management. Edita’s biscuit product range, to be produced under a new brand name, is set to launch in April prior to Ramadan. Management is expecting a capacity utilization rate of 50%–60% of the 6.8k tpa production line in the first year of operation. Gross margins are expected to fall in the 30%–32% range.

Management has guided for an aggressive CAPEX budget of EGP500mn to be invested in its Egyptian operations, of which a large portion will be directed to the new wafer production line (EGP100-125 million) and the remainder towards addition of c.200 new distribution vehicles and around 5 new distribution centers to reinforce the firm’s sales capabilities in light of the new product additions. 

For the Moroccan operations, Edita has plans to invest EGP200mn to finance the construction of buildings and the acquisition of the first production line. Construction of the new facility is currently underway, with the facility slated to begin operations in FY20. 

We are Overweight on Edita with a fair value of EGP19.02.