Egyptian consumer goods Strong 1Q FY15 results support our view

Juhayna Food Industries and Edita Food Industries have reported their 1Q FY15 results. Beyond bottom-upimprovements for both companies, the results bolster our viewthat consumer growth will continue to recover post a toughFY14. Top-line growth has strengthened and margins haveimproved. We reiterate our BUY and EGP34.5/common andEGP22.6/GDR TP on Edita and increase our TP for Juhayna toEGP10.6/share (from EGP9.4), based on adjustments to ourmodel, and maintain our HOLD rating.

Improving top-line and marginsBoth Juhayna and Edita have witnessed growth in the top line, which has been driven byvolumes and pricing, according to management. For Juhayna, revenue and grossprofitgrew by 6.7% and 31.5% YoY, respectively. For Edita, revenue and gross profit grew by17.3%and 22.8% YoY, respectively. We take this as a positive sign for the improvingconsumer environment in Egypt, given that between them, the companies represent thelower-to-upper end of the consumer segment.

Not only was revenue growth supportive, but Juhayna and Edita have been efficient in SKU and raw material sourcingmanagement, with gross margins across segments having improved. Edita saw overallgross margins expand by 1 ppt YoY to 38%, and by 1-9 ppts on a per-segment basis. ForJuhayna, gross margins improved by c. 6 ppts YoY to 33.1% for 1Q FY15, and by 4-12ppts on a per-segment basis, apart from concentrates, which declined.

Upgrade TP for Juhayna but maintain HOLDWe updated our model to factor in the higher margin profile Juhayna has exhibited inits 1Q FY15 results: top-line and bottom-line numbers were in line with our annualrun rate. Thus we raise our TP to EGP10.6/share, from EGP9.4/share, and maintainour HOLD rating. We continue to believe the company will face pressure in the juicesegment as competition has intensified.

Reiterate BUY on EditaAfter listening to the conference call and reviewing numbers, we are more optimisticon Edita. In quarters to come, further capacity will build up and this growth will bevisible from 2Q, in our view. EBIT was subdued purely owing to 1Q FY14 havingminimal marketing expenses vs this year post the IPO.

SKU management hasallowed for further margin improvement and exports are growing faster than thecompany anticipated. Furthermore, management guided that the new products that ithas signed on with Hostess will be in production in FY16, but that we could see someof these rolled out by the end of FY15. We maintain our EGP34.5/common and EGP22.6/GDR TP and reiterate our BUY/BUY rating.

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