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Pharos recommends ‘equal-weight' on Juhayna
The research firm said that Eastern Co's still benefiting from low-cost dollar inventory
Published in Daily News Egypt on 29 - 10 - 2017

Pharos Research has maintained their target fair value (FV) for Eastern Co at EGP 390 per share, with an Equalweight recommendation, according to a recent report.
Eastern Co's gross profit margin rose 1% quarter-on-quarter and 10% year-on-year to reach 39% in the first quarter of fiscal year 2017/2018, beating Pharos' estimates of 25%.
The tobacco company reported an 18% quarter-on-quarter and 66% year-on-year surge in revenues of Q1 of FY17/18 to EGP 3.2 billion.
Cost of goods sold (COGS) stood at EGP 1.9 billion in Q1 of FY17/18, with an increase of 17% quarter-on-quarter and 44% year-on-year.
Net profit after tax amounted to EGP 1.04 billion from EGP 435 million in Q4 of FY16/17.
"Results show that the company is still benefiting from low-cost dollar inventory," Pharos added.
Despite Eastern Co has not revealed full details, Pharos claims that the company's bottom-line growth was driven by a "one-off reversal of provisions".
Meanwhile, Pharos Research has maintained the fair value (FV) of Juhayna Food Industries at EGP 8.88 per share, with an "Equalweight" recommendation.
The research firm forecasts Juhayna's purchasing power to gradually improve and go forward on the back of expectations of a stronger Egyptian pound.
Juhayna's bottom-line soared 139% quarter-on-quarter, backed by higher gross margin and the company's focus on raising cost efficiencies and running a leaner enterprise.
Pricing and higher revenues, particularly of the higher margin juice segment boosted gross margin by 220 basis points (bps), Pharos added.
"Selling, general and administrative expense (SG&A) declined by 130bps as a percentage of revenue leading to a 300 bps expansion in earnings before interest, taxes, depreciation and amortization (EBITDA) margin despite a EGP 22 million severance cost," the research firm noted.
In addition, net interest expense remained relatively stable during in the third quarter of 2017, as Juhayna's debt levels were reduced by 15.2%.
Top line rose 7% quarter-on-quarter and 30.8% year-on-year, bolstered by the juice and dairy segments.
Juhayna's yogurt production fell 22.9% quarter-on-quarter on seasonal factors, Pharos noted.
"There has been a slight recovery in the market," according to Juhayna's management.
Juhayna improved its working capital position in Q3-17, allowing it to cut total debt by 15.2% Quarter-on-quarter.
"Net debt to equity currently stands at 0.8x as of 3Q-17, versus 1.0x in 2Q-17," Pharos indicated.
The company reported a 12% year-on-year rise in consolidated profits of the third quarter of 2017 due to a growth in sales.
The company achieved profits of EGP 65.3 million in the three-month period ended September 2017, versus EGP 58.18 million in the prior-year period, Juhayna said in a filing to the Egyptian Exchange (EGX).
Sales surged 34% to EGP 1.68 billion in Q3-17 from EGP 1.25 billion in Q3-16.
At the level of the nine-month period ended September 2017, profits retreated to EGP 150.8 million, compared to EGP 168.43 million in the year-ago period.
Stand alone profits fell 18.35% to EGP 71.77 million in the nine-month period of 2017, versus EGP 87.9 million in the corresponding period of 2016.
Juhayna had previously posted that its consolidated profits dropped 8.5% year-on-year in Q2 due to higher expenses and cost of sales.
By the end of last week trading session, Juhayna's stock rose 11% to EGP9.1 at a turnover of EGP 556 million.


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