Bank butters up Egypt dairy company rating

Egypt's largest player in the dairy and yogurt market was cited as a "top pick" at EFG-Hermes Holding yesterday.

Juhayna Food Industries was upgraded to "buy" from "neutral" as a defensive play during market turbulence.

"The limited downside risk to Egyptian consumer stocks' operations makes the sector one of the most resilient in the current environment," EFG-Hermes said in a note to clients.

Egypt, the most populous country in the region, has among the lowest milk consumption rates per capita in the world.

Juhayna could produce strong earnings growth due to the country's favourable demographics, as well as increased awareness of the health benefits of drinking milk.

The company is positioning itself to capture growth in the sector by investing in logistics. It owns and operates 532 vans and 22 distribution centres across the country, allowing it to reach about 70 per cent of the retail market, and plans to add about 240 vans and six more distribution centres this year.

The company managed to raise milk prices by 10 per cent during the second quarter with little effect on sales.

Juhayna raised 999 million Egyptian pounds in an initial public offering (IPO) in July. Those proceeds are mostly being invested in dairy farms with the goal of producing 50 per cent of the company's raw materials, up from 10 per cent.

Shares of Juhayna have declined 1 per cent since the IPO and have outperformed the EGX30 Index by 20 per cent since January.

"Juhayna will remain among Egypt's most defensive stocks," said Hatem Alaa, an analyst at AlembicHC in Cairo. Mr Alaa forecasts the company to show 28 per cent earnings growth until 2015.

Juhayna is preferred over its regional competitor, Saudi Arabia's Almarai, Mr Alaa said.

"We see greater upside potential for Juhayna in the medium term given the huge potential for Egypt's dairy market versus Saudi Arabia's, where annual growth is capped between 10 and 12 per cent."

halsayegh@thenational.ae