PRESS RELEASE by RENAISSANCE CAPITAL, CAIRO: We initiate on the Egyptian consumer sector with a BUY rating on Edita Food Industries SAE (TP EGP34.5/share, $22.6/GDR) and a HOLD rating on Juhayna Food Industries SAE (TP EGP9.4/share). We recently spent time with the management teams of listed and unlisted companies in Egypt, as well as conducting distribution checks in the country, and came away cautiously optimistic on the consumer growth story. We believe the macro environment over the next year will be pivotal in supporting a return to stronger consumer spending, and prefer to gain exposure to the low-end consumer segment.
It’s all about macro
Egypt has gone through its fair share of political and economic turmoil over the past five years. However, after our recent visit we are cautiously optimistic on the country. We found corporates hopeful for future growth and they believe policy changes will support the macro outlook. The strength of consumer disposable income will partially depend on how the government addresses the subsidy program for fuel, electricity and food, in our view.
Demographics and infrastructure in place; FDI has returned
We compared Egypt with other frontier markets (FM), such as Pakistan, Nigeria, Kenya, Vietnam and Saudi Arabia, and find it far better placed than most FMs in terms of road and retail infrastructure. Foreign direct investment (FDI) has also returned to Egypt, with firms such as Kellogg’s, Coca-Cola and Pepsi investing in the country. We believe the over 60,000 fast food retail outlets, both local and foreign (McDonald’s, Starbucks, Domino’s Pizza etc.), large and medium-sized malls (with the new Mall of Egypt set to cover 450,000 m2) and decent road connectivity across the nation, together with a young spending population (with 60% of the population under the age of 30), make for a strong consumer growth story.
Low-end consumer segment exemplifies growth: BUY Edita
The 2011 revolution clearly affected consumer spending, but there is a large industry focus on catering for Egypt’s ‘eating on the go’ culture, and snack food expenditure has not slowed, as products are cheaply priced at EGP1.5 ($0.23) or less. In 2014, sales of impulse-purchase food products in Egypt amounted to $3.5bn, higher than in Pakistan ($1.2 billion), Nigeria ($1.6 billion) and Kenya ($300 million), but lower than in Saudi Arabia ($6.5 billion). We initiate coverage on Edita with a BUY rating (TP EGP34.5/share, $22.6/GDR), as it is a pure play on this low-end segment, with a superior margin profile and a revenue CAGR of 19% in FY11-14.
We initiate coverage on Juhayna with a HOLD rating (TP EGP9.4/share), as the company displays a below-average return profile; in addition, the competitive environment has become tougher for the segments in which it operates, and despite the recent turnaround in earnings, we believe valuations are still high.
The previous was a press release by Renaissance Capital and does not reflect the editorial policy of The Cairo Post.