Dairy proves resilient in tough times
JUFO recorded a topline of EGP1,781 million in 4Q19, +2.7% YoY but -3.4% QoQ. Sequential topline contraction was expected as the first quarter has seasonally weaker volumes across JUFO’s core segments. On an annual basis, JUFO saw a modest expansion in volumes on the back growth in the dairy (+7.9% YoY) and yogurt (+2.0% YoY) segments which constitute c.75% of the quarter’s revenues.
Margin gains supported by lower COGS, SG&A and financing expense, along with strong March sales
1Q20 gross profit came in at EGP544 million (+8.1% YoY and +1.7% QoQ), reflecting an annual and sequential gross margin gain of 1.5pps reaching 30.5%. Margin expansion on the gross profit level comes as revenue growth outpaced COGS growth (+0.5% YoY and -5.5% QoQ) owing to strong boost in March sales, and cost savings as JUFO managed to secure cheaper SMP stock at the beginning of 2019. EBITDA margin recorded 18.3% (+2.1pps YoY and +5.4pps QoQ), owing to the decline in the SG&A Expense/Revenues ratio by 0.3pps YoY and 3.8pps QoQ to reach 16.3% in 1Q20. JUFO management had previously outlined cost-cutting on the SG&A level to be one of their main targets for FY20.
Attributable net profit for the quarter amounted to EGP114 million, up +58.7% YoY and +207.8% QoQ. This translates into a NPM of 6.4% (+2.2pps YoY and +4.4pps QoQ), recording growth on the back of a 48.2% YoY and 20.0% QoQ decline in net interest expense reflecting a decline in effective interest rate to 3.3% of net debt (- 1.9pps YoY and -0.9pps QoQ) on account of a EGP331 million YoY drop in net debt balance and the recent cuts in interest rate. Additionally, the decline in JUFO’s effective tax rate (-3.4pps YoY and -17.6pps QoQ) provided further aid for their bottom line.
Maintain FV at EGP10.75/share
We expect the spike in staple goods demand, due to the stockpiling by consumers which started mid-March, to serve JUFO well. The company could register higher volumes and margins in 2Q20, which coincides with Ramadan that is the peak season for the high-margin yogurt segment.
It is notable that JUFO managed to decrease their working capital days to 35 in 1Q20 versus 66 days in 1Q19 and 44 days in 4Q19. This is due to JUFO’s strategy, starting mid-2019, to trim inventory pile-up and liquidate unutilized assets. However, the recent developments will have JUFO revert back to accumulating inventory to hedge against any RM or foreign currency shortage or fluctuation. This may reflect in a higher working capital balance over the near future, albeit at a lower cost of financing.
JUFO is currently trading at a 2020 P/E of 13.4x and EV/EBITDA of 6.2x vs local and emerging market peer average of 16.3 and 8.9x, respectively.