Positive annual and sequential top line perfromance
JUFO recorded a topline of EGP2,017mn in Q2 19, up 4.6% yoy and 16.3% qoq. Annually, top line growth was both volume (+5% yoy) and price-driven. The double digit qoq top line growth was purely price-driven, as the price hikes enacted in Q1 19 reflected on the financial performance of this quarter. The growth was particularly notable given that Q2 19 included more Ramadan days, a typically high season for the yogurt segment.
Promotions pressure profitability
GPM expanded to 32.2%, up 1.5ppts yoy and 3.2ppts qoq, on the back of the aforementioned price hike and the shift in sales mix towards the high-margin yogurt segment. EBITDA margin came in at 15.4% (-2.1ppts yoy, flat qoq) as Selling & Distribution expenses grew significantly (+27.3% yoy and 43.5% qoq), following the promotions during Ramadan. Weaker NPM (5.4% in Q2 19 vs 8.2% in Q2 18) was a result of: 1) +5% yoy increase in the net interest expense balance due to an 18.9% yoy increase in net debt, and 2) +140% yoy increase in income tax given the resumption of taxes on its tax-exempt subsidiaries following a five-year hiatus.
Maintain Equalweight on FV of EGP12.73
JUFO launched new packaging for dairy products during July starting in the North Coast and will launch the same in Cairo by September 2019. According to management, a 10% price increase was planned for FY 19, 3.5% increase was implemented in Q1 19 and the remaining 6.5% is to be implanted during H2 19. Margins could improve in Q3 19, with the back-to-school season, price increases and normalized S&D expenses.
JUFO is trading at a P/E19 of 16.8x and EV/EBITDA19 of 8.0x vs local and emerging market peer average of 20.5x and 11.8x, respectively. We maintain our FV of EGP12.73 and an Equalweight recommendation.