Earnings Report /
Egypt

Juhayna: Solid topline; cost pressures margins; deleveraging supports bottomline

  • Green prevails across all segments; Juice lags sequentially

  • Costs pressure margins; SG&A spending reflects positively on market share; Deleveraging supports bottom line

  • Maintain FV at EGP11.00/share and Overweight recommendation

Al Ahly Pharos Securities Brokerage
17 July 2022

Green prevails across all segments; Juice lags sequentially

JUFO started the year with a solid topline despite 1Q being a quarter of relatively weak seasonality, recording EGP2,403 mn in revenues, a strong YoY hike of 29.1%, and 5.3% QoQ. Such a rise was mainly volume-driven, as consumer demand recovers post-pandemic.

All revenue streams came with a positive YoY change with the concentrates & agriculture segment recording the highest growth of 39.1% YoY and an even higher QoQ growth of 42.2%, mainly because of the small base, followed by the leading star, the dairy segment, recording YoY growth of 31.3% and a QoQ rise of 5.8%. The yogurt segment followed suit by hitting a YoY change of 28.3% and QoQ growth of 7.9%. The distribution segment recorded a change of 23.3% YoY and 19.4% QoQ. The juice segment comes last with a 22.8% growth YoY but recorded a decline of 5.7% QoQ, becoming the only segment with a negative change QoQ. The drop in juice revenues is mainly driven by price increase limitations due to fierce competition in the segment.

Costs pressure margins; SG&A spending reflects positively on market share; Deleveraging supports bottom line

Gross profit came in at EGP642 mn, compared to EGP543 mn in 1Q21 and EGP605 mn in 4Q21 (+18.3% YoY, +6.1% QoQ), leading to a GPM of 26.7% (a YoY decline of 2.4pps and QoQ minimal rise of 0.2pps). Such annual contraction in margins during 1Q22 is a result of the continuous global increase in raw materials, packaging materials, and supply chain disruptions with the increase in selling prices not enough to compensate for such a rally in costs.

SG&A expenses recorded a sharp incline YoY by 28% and 6.9% QoQ to record EGP450 mn with a marginal decline of its ratio to revenues YoY of 0.2pps and QoQ increase of 0.3pps to reach 18.7% as marketing spending was maintained to support the launch of the new drinkable flavored Greek yogurt and a marketing campaign for the dairy segment which raised market share in the segment by 5% to reach 63% during 1Q22. EBITDA for the quarter recorded EGP270 mn, a YoY rise of 2.8% while dropping QoQ by 0.7%, leading to an EBITDA margin of 11.2%, versus 14.1% in 1Q21 and 11.9% in 4Q21 (-2.9pps YoY, -0.7pps QoQ).

The bottom line recorded a remarkable EGP144 mn, compared to EGP123 mn in 1Q21 and a weak EGP37 mn during 4Q21, leading to a NP margin of 6%, versus 6.6% during 1Q21 and 1.6% in 4Q21 (-0.6pps YoY, +4.4pps QoQ). The annual margin contraction was made minimal by the company’s deleveraging efforts, as total debt reaches EGP750 mn by the end of 1Q22, compared to EGP793 mn by 1Q21 and EGP813 mn by 4Q21.

Maintain FV at EGP11.00/share and Overweight recommendation

We upgraded our FV for JUFO in June to EGP11.00/share from a previous EGP8.75/share. The rise was backed by multiple factors, including the appointment of a new CEO, which is expected to create a sense of stability and healthy stock price performance, especially in light of GCC investor interest. Another upgrade factor is the company’s pricing power over its competitors, giving it the first-mover position while the rest of the market follows. The company’s strategy to introduce two new premium products each year helps it to migrate towards higher price points that support margins. This plan is already in action as the company has already introduced the new drinkable Greek yogurt during 1Q22.

JUFO revisited its suggested dividend distribution from EGP0.20/share with a dividends yield of 3.2% and a payout ratio of 35.9% to EGP0.35/share implying a dividends yield of 4.8% and a payout ratio of 62.7%, to be distributed on two tranches of EGP0.05/share and EGP0.30/share when the needed liquidity is available.

JUFO is currently trading at a FY22 P/E of 15.7x and an EV/EBITDA of 5.8x.