AlMarai-CompanyUpdate(Nov12) - Bank Audi

ENTITY OF AUDI SARADAR GROUP
CURRENT PRICE SAR 69.25
FAIR VALUE SAR 66.30
RATING HOLD
Stock Data
November 02, 2012
HIGHLIGHTS
Ticker Almarai AB
Bloomberg Median TP (SAR) 67.07
Market Cap (SAR mn) 27,700
Market Cap (USD mn) 7,387
Number of Shares (mn) 400.0
Av. Monthly Liquidity (SAR mn) 786
52 Week High (SAR) 72.00
52 Week Low (SAR) 49.45
YTD Return 23%
Ownership Structure
Stock Performance
Bloomberg Consensus
SECTOR COVERAGE
Alaa Ghanem, CFA, CVA
Senior Equity Analyst
Alaa.Ghanem@asib.com
Youssef Nizam, CFA
Head of Equity Research
Youssef.Nizam@asib.com
EQUITY RESEARCH
MINOR ADJUSTMENT TO FAIR VALUE - RETAIN HOLD RECOMMENDATION
We update our model to include the changes in the operational environment including the
consolidation of IDJ, the company’s 5 year expansion plan, the delay in the poultry plant, and
the increase in the input prices. Accordingly, we increase expected revenues for 2012 by 8%
to SAR 9,887 million but we lower our 2012 expected net income by 8% to SAR 1,394 million,
reflecting the likely increase in input cost in the fourth quarter . Furthermore, we lower our fair
value from SAR 66.71 to SAR 66.30, but we retain our recommendation to hold the stock.
HIGHER INPUT COSTS AND THE CONSOLIDATION OF IDJ PUT PRESSURES ON
PROFITABILITY MARGINS
IDJ performance is improving and it is reporting strong growth in Egypt as the political
situation is stabilizing. IDJ consolidation is boosting the revenues of Almarai, which confirms
that additional improvements related to the performance are needed. This will put some
pressure on the company’s net margin. Furthermore, margins are expected to be negatively
affected by higher input costs, as long as the company is not able to increase selling prices. We
do not believe that the acquisition of Fondomonte can hedge the company against the current
increase in input costs.
SAR 15.7 BILLION TO BE SPENT IN 5 YEARS
The company’s 5 year plan starting 2013 to invest SAR 15.7 billion in order to expand its
operations as well as its distribution fleet is in line with the company’s strategy. However, this
will be accompanied with an increase in debt which will necessitate a proper management
of the cash flow. This will increase the finance cost paid by the company and would result in
increased volatility as most of the debt bear variable interest rates. Net debt surpassed for the
first time total equity resulting in a net debt to equity ratio of 1.06, as of 30 September 2012.
Almarai mentioned that it is focusing on value added products that will increase the profitability
margins. However, expansion is usually accompanied with high cost that will adversely affect
margins in the short term. While the poultry business is showing above average growth, it is
still reporting negative contribution to the net income.
FINANCIAL DATA
COMPANY UPDATE
ALMARAI COMPANY
2011 2012e 2013e 2014e
Revenues SAR million 7,951 9,887 11,535 13,233
EBIT SAR million 1,518 1,615 1,773 2,230
NI SAR million 1,140 1,394 1,495 1,904
EPS SAR 2.85 3.48 3.74 4.76
PE 24.31 19.88 18.52 14.55
DPS SAR 1.29 1.39 1.50 1.90
Dividend Yield 1.9% 2.0% 2.2% 2.7%
BVPS SAR 29.47 20.65 22.89 25.72
PB 2.35 3.35 3.03 2.69
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ALMARAI COMPANY UPDATE
EQUITY RESEARCH
November 02, 2012
VALUATION
We value the company using the DDM and FCFE methods. An equal weight is assigned for each
method. We lower the cost of equity used by 101 bps to 10.67% and terminal growth rate by 85 bps
to 4.15% to account to the expected drop in sustainable ROE. Accordingly, we slightly lower our fair
value to SAR 66.30 from SAR 66.71 and we retain our recommendation to hold the stock.
Table 3: DDM
SAR unless otherwise stated 2012e 2013e 2014e 2015e
EPS 3.48 3.74 4.76 6.11
DPS 1.40 1.60 2.00 5.10
PV of DPS 1.39 1.43 1.62 3.73
PV of TV 59.67
Cost of Equity 10.67%
Shares Outstanding million 400
Terminal Growth Rate 4.15%
Fair Value 67.84
Table 4: FCFE Valuation
SAR million unless otherwise stated 2012e 2013e 2014e 2015e
NI 1,394 1,495 1,904 2,442
NCC 675 756 858 953
Capex 2,800 3,100 3,100 3,040
Change in WC 735 165 211 43
Change in Debt 2,015 1,560 1,250 1,650
FCFE 548 546 701 1,962
PV of FCFE 544 489 568 1,435
PV of TV 22,911
Cost of Equity 10.67%
Shares Outstanding million 400
Fair Value SAR 64.87
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ALMARAI
November 02, 2012
CHANGES TO OUR FORECASTS
COMPANY UPDATE EQUITY RESEARCH
SAR million unless otherwise stated Changes to Our Forecasts
2011 2012e 2013e 2014e 2015e 2012e 2013e 2014e 2015e
Sales 7,951 9,887 11,535 13,233 14,524 8% 7% 6% 8%
Sales Growth 14.7% 24.4% 16.7% 14.7% 9.8%
COGS (4,954) (6,367) (7,565) (8,482) (8,990) 12% 14% 11% 10%
Gross Profit 2,997 3,521 3,970 4,751 5,534 1% -4% -2% 5%
Gross Margin 37.7% 35.6% 34.4% 35.9% 38.1%
Selling & Distribution
Expenses
(1,213) (1,582) (1,811) (2,078) (2,222) 13% 10% 9% 9%
G&A Expenses (266) (323) (386) (443) (479) 4% 7% 6% 8%
Share of Loss from
Associates
(42) (26) 0 20 50 -15% 0% 0% 0%
EBIT 1,518 1,615 1,773 2,230 2,833 -8% -16% -11% 2%
EBIT Margin 19.1% 16.3% 15.4% 16.9% 19.5%
Bank Charges (135) (157) (231) (287) (367) -4% 14% 19% 25%
Zakat (33) (43) (39) (49) (63) 10% -20% -15% -1%
Impairment of
Investments
Income before
Minority Interest
(160) 0 0 0 0 0% 0% 0% 0%
1,147 1,390 1,503 1,914 2,452 -9% -20% -15% -1%
Minority Interest (7) 4 (8) (10) (10) -158% 0% 0% 0%
Net Income 1,140 1,394 1,495 1,904 2,442 -8% -20% -15% -1%
NI Growth -11.4% 22.3% 7.3% 27.4% 28.3%
Net Margin 14.3% 14.1% 13.0% 14.4% 16.8%
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ALMARAI
November 02, 2012
COMPANY UPDATE EQUITY RESEARCH
SAR million Changes to Our Forecasts
2011 2012e 2013e 2014e 2015e 2012e 2013e 2014e 2015e
Cash & Equivalents 272 202 228 276 279 -27% -24% -16% -25%
Inventories 1,697 2,165 2,496 2,799 2,922 12% 14% 11% 8%
Others 624 1,080 1,174 1,323 1,409 75% 89% 110% 135%
Total Current Assets 2,593 3,446 3,898 4,398 4,609 22% 25% 26% 26%
PPE net 10,508 13,373 15,637 17,779 19,747 7% 10% 14% 19%
Biological Assets 818 900 980 1,080 1,200 -8% -11% -11% -7%
Goodwill 821 1,383 1,383 1,383 1,383 65% 61% 59% 59%
Others 917 345 324 277 286 -63% -66% -70% -67%
Total Non Current
Assets
13,064 16,001 18,324 20,519 22,616 5% 7% 11% 15%
Total Assets 15,656 19,447 22,222 24,918 27,225 7% 10% 13% 17%
Short Term Loans 1,209 1,609 1,785 1,880 2,144 28% 36% 34% 40%
Payables & Accruals 1,516 1,700 1,967 2,205 2,364 12% 28% 52% 58%
Others 96 101 94 97 103 0% 0% 0% 0%
Total Current
Liabilities
2,821 3,410 3,846 4,182 4,611 19% 31% 42% 47%
Long Term Loans 5,717 7,331 8,715 9,870 11,256 3% 8% 15% 20%
Employees' Termination
Benefits
Total Non Current
Liabilities
243 300 360 430 500 9% 23% 43% 62%
6,058 7,777 9,221 10,446 11,902 4% 10% 16% 22%
Total Liabilities 8,879 11,187 13,067 14,628 16,513 8% 15% 23% 28%
Total Equity 6,778 8,260 9,155 10,290 10,712 6% 4% 2% 3%
2011 2012e 2013e 2014e 2015e
ROAA 8.1% 7.9% 7.2% 8.1% 9.4%
ROAE 17.7% 19.5% 18.7% 21.3% 25.2%
Net Debt to Equity 1.0 1.1 1.1 1.1 1.2
Interest Coverage Ratio 2.9 3.0 1.4 1.0 1.1
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ALMARAI
FAIR VALUE DEFINITION
November 02, 2012
RATING GUIDE
ISSUER
COMPANY UPDATE EQUITY RESEARCH
It is an unbiased estimate of the 12-month potential market price of the stock
SELL REDUCE HOLD ACCUMULATE BUY
Downside -30% -10% +10% +30% Upside
BUY: Upside potential in share price is more than 30%
ACCUMULATE: Upside potential in share price is between 10 and 30%
HOLD: Upside or downside potential in share price less than 10%
REDUCE: Downside potential in share price is between 10 and 30%
SELL: Downside potential in share price is more than 30%
Audi Saradar Investment Bank
Audi Saradar Investment Bank SAL • Lebanese joint stock company with a registered capital of
10,000,000,000 Lebanese Pounds • Commercial Registrar in Beirut: 30812 • Holding number 33 on
the Central Bank’s Banks List.
Bank Audi Plaza • Bab Idriss • Beirut 2021 8102 Lebanon • P.O. Box 11-2560 • Beirut 1107 2808 •
Lebanon. Phone: +961 1 964072 • Fax: +961 1 970403 • Email: contactus@asib.com
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ALMARAI
November 02, 2012
DISCLAIMER
COMPANY UPDATE EQUITY RESEARCH
“All rights reserved. This research document (the “Document”) is prepared by Audi Saradar Investment Bank SAL (“ASIB”),
being an entity of Audi Saradar Group, for the use of the clients of ASIB and/or the clients of any entity within the Audi
Saradar Group.
This Document is disclosed to you on a confidential basis. Receipt and/or review of this Document constitute your agreement
not to copy, modify, redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information
contained in this Document prior to public disclosure of the same by ASIB or the Audi Saradar Group or without the express
prior written consent of ASIB.
This Document is not intended for dissemination, distribution to, or use by, any person or entity in any country or jurisdiction
which would subject ASIB or any entity within the Audi Saradar Group, to any registration or licensing requirements within
these jurisdictions or where it might be considered as unlawful. Accordingly, this Document is for distribution solely in
jurisdictions where permitted and to persons who may receive it without breaching any applicable legal or regulatory
requirements. In any case, this Document shall not be distributed in the Republic of Egypt.
Your attention is drawn to the fact that you should not access this Document if the regulations of your country of citizenship
and/or residency or any applicable regulations prohibit it. In any case, persons who are subject to any restrictions in any
country, such as US persons are not permitted to access information contained herein.
Neither the information, nor any opinion expressed herein constitutes an offer or an invitation or a recommendation to
make an offer, to buy or sell any security or other investment product related to such security or investment. This Document
provides general information only, is not intended to provide personal investment advice or recommendation and does not
take into account the specific investment objectives, financial situation and the particular needs of any specific person who
may receive it. You should seek financial, legal or tax advice regarding the appropriateness and suitability in investing in any
security, other investment or investment strategy discussed or forecasted in this Document.
You should carefully read the definitions of the Rating Guide provided in this Document. In addition you should read this
Document in its entirety and not conclude its contents from the ratings solely.
The information herein was obtained from various public sources believed in good faith to be reliable. Neither ASIB nor any
entity within the Audi Saradar Group represents that the information contained in this Document is complete, accurate
or free from any error and makes no representations or warranties whatsoever as to the data, information and opinions
provided herein.
This Document and any information, opinion and prospect contained herein reflect a judgment at its original date
of publication by ASIB and are subject to change without notice. ASIB and/or any entity within the Audi Saradar Group
may have issued, and may in the future issue, other research documents that are inconsistent with, and reach different
conclusions from, the information, opinions and prospects presented in this Document.
This Document reflects the different assumptions, views and analytical methods of the analysts who prepared them; ASIB,
and the Audi Saradar Group are under no obligation to ensure that such other research documents are brought to the
attention of any recipient of this Document.
ASIB, any entity within the Audi Saradar Group, one or more of their affiliates and/or their officers (including but not limited
to their strategists, analysts and sales staff) may have a financial interest in securities of the issuer(s) or related investments,
may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in
this Document and may take a view that is inconsistent with that taken herein.
The price, value of and income from any of the securities or financial instruments mentioned in this Document can fall as well
as rise. The value of securities and financial instruments is subject to market conditions, volatility, exchange rate fluctuation
and credit quality of any issuer that may have a positive or adverse effect on the price or income of such securities or
financial instruments. Any forecasts on the economy, stock market, bond market or the economic trends of the markets are
not necessarily a guide to future returns. You should understand that statements regarding future prospects may not be
realized. Past performance should not be taken as an indication or guarantee of future performance, and no representation
or warranty, express or implied, is made regarding future returns. As a result of the preceding, you may lose, as the case may
be, the amount originally invested.
None of ASIB, any entity within the Audi Saradar Group, any of their affiliates and/or their officers (including but not limited
to their strategists, analysts and sales staff) shall be held liable for any loss or damage that may arise, directly or indirectly,
from any use of the information contained in this Document nor for any decision or investment made on the basis of
information contained herein.”
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