Research by Hermes Investment Bank anticipates that Egyptian dairy products companies Domty, Obourland, Juhayna, and Edita will see their 2020 revenues grow an average of 23%.
The significant growth has been attributed to customers hoarding due to the ongoing coronavirus (COVID-19) pandemic.
There has also been an expected jump in consumption as a larger portion of income has been allocated to food spending, with lower spending on other aspects due to self-isolation measurers.
Hermes projects that the four companies will achieve 11% profit growth in 2020, most notably due to the absence of cost pressures, with lower prices for production inputs. There has also been an improvement in the status of the local currency, and lower interest rates.
Hermes added that the four companies face several risks, notably from the high price of powdered milk in the last quarter (Q4) of 2019 and the beginning of January 2020. There was a price correction, however, as the companies began providing stocks for a period of three and six months.
Another risk factor has been the negative impact of Ramadan, a month that normally sees high purchases of food products. There may not be the same high turnover of products, due to the trend to hoard products during March and April.
Moreover, the hospitality sector will affect Juhayna and Domty due to the closure of restaurants and the decline in the tourism sector.
Risks also include supply disruptions, especially as most raw materials are imported, with the local market dependent on imported inputs such as livestock feed, Further risks come from the irrational competition in juices and cheese products, and the risks of the Egyptian pound declining.
Hermes recommended buying shares of the four companies, as it estimated the target price for Domty’s share at EGP 8.5, Juhaynah at EGP 10.5, Obourland at EGP 9, and Edita at EGP 15.