Weak seasonality prevails; Dairy marching ahead
JUFO recorded a topline of EGP2,282 mn in 4Q21, a drop of 6.3% QoQ but a solid rise YoY of 24.8%. The fourth quarter has been historically one of a relatively weak ones, especially when compared to the third one, recording a sequential drop from topline all the way down to bottom-line.
The dairy segment was the only one holding its grounds sequentially, while the others witnessed a drop, some more severe than the others. Dairy segment sales recorded EGP1,228 mn in 4Q21, a rise of 3.4% QoQ and a full 20.2% YoY. While the Yogurt segment was not as fortunate, recording EGP542 mn, a drop of 11.1% QoQ, yet was able to achieve a YoY rise of 12.5%. The juice segment reached EGP405 mn, a deep drop of 20.9% QoQ and a rise of 18.5% YoY. Concentrates and & Agriculture segment dropped by 25% QoQ and 72.7% YoY to record EGP45 mn. The distribution segment showed a QoQ decline of 7.5% and a rise of 19.2% YoY, recording EGP62 mn.
On the annual basis, for FY2021, revenues recorded EGP8,806 mn, versus EGP7,496 mn in FY20, a YoY rise of 17.5%. Management states that such growth in top-line during FY21 is mainly volume-driven as consumer demand recovered during the period. However, going forward we expect any growth witnessed to be driven more price-driven, rather than volumes as inflationary pressures start affecting purchasing power.
Rallying costs hit margins; Interest income not enough to offset seasonality and heightened expenses
Gross profit came in at EGP605 mn in 4Q21, a sequential drop of 8.6% and an annual rise of 7.7%, leading to a GPM of 26.5%, versus 27.2% in 3Q21 and 30.7% in 4Q20. This margin contraction witnessed, is a result of the global rally in commodities, raw milk, packaging prices, and global supply chain disruptions, with the increase in selling prices not yet enough to compensate for such pressure. For FY2021, the same gross profit trends was followed, with FY21 recording a gross profit of EGP2,527 mn, a YoY rise of 5.2%, reflecting to a GPM of 28.7%, versus 32.1% in FY20. Such a drop in gross margin was a result of increasing costs and lagging price increases.
SG&A expenses peaked during 4Q21, recording EGP435 mn, a QoQ rise of 8.1%, and 20.9% YoY. This is mainly due to the continued marketing expenditure to support the launch of the company’s new innovations. SG&A/sales for the quarter reached 19.1%, versus 16.5% in 3Q21 and 19.7% in 4Q20. In turn, EBITDA dropped both sequentially and annually to reach EGP257 mn (-27.9% QoQ, -13.9% YoY), leading to an EBITDA margin of 11.3% in 4Q21, versus 14.7% in 3Q21 and 16.4% in 4Q20.
The company was able to bring down its full-year SG&A expenses by 11.8% YoY to reach EGP272 mn with their percentage to sales dropping as well to reach 3.1%. Despite that drop in SG&As, EBITDA was still affected by inflated costs, recording EGP1,243 mn, with a YoY decline of 6%, leading to an EBITDA margin of 14.1%, versus 17.7% in FY20.
Attributable net profit for the quarter came in at a weak EGP37 mn, a very steep decline QoQ by a full 78.9% and 18.1% YoY. The rise in expenses and weak seasonality had a stronger effect on the bottom-line than net financing expenses account turning green for the quarter, recording EGP14 mn, compared to an expense of EGP16 mn in 3Q21 and EGP37 mn in 4Q20.
FY21 bottom-line climbed to reach EGP526 mn, a YoY rise of 22.8%, backed by the sharp decline in interest expenses by 57.7% and in other expenses by 53.8%, leading to an NPM of 6.0%, versus 5.7% in FY20.
Net debt was brought down by a full 56.5% YoY to reach EGP359 mn in December 2021. If management is able to continue this strategy, of bringing down debt levels, this will alleviate some of the pressure on the bottom line as interest rates increases.
Prices increase is key; Maintain OW on MT potential
Despite the impressive full-year results, the weak performance in 4Q21 raises some concerns regarding the upcoming quarter. Since sales were mainly volume-driven during that period, without sufficient increase in prices throughout 2022 to offset the inflationary pressure on costs, as well as local currency depreciation, margins will be definitely pressured. In addition, with 1Q being as well a quarter of relatively weak seasonality, Q and 3Q should drive full-year results.
While the introduction of new products with higher price points supports top-line and margins over the long term (which the company is planning to continue doing in 2022), the marketing campaigns for such products are raising the company’s expenses noticeably.
Despite short-term challenges driven by the macro picture, we continue to maintain a positive medium-term view on the company.
The BoD declared a dividend distribution of EGP0.20/share, implying a dividend yield of 3.0% and a payout ratio of 35.9%.
JUFO is currently trading at an FY22 P/E of 12.3x and an EV/EBITDA of 4.6x.