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Eastern Company looks set to overcome pandemic with stable sales - Daily News Egypt

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Eastern Company looks set to overcome pandemic with stable sales

Expected y-o-y improvement driven by increase in sales, average ex-factory prices

Demand for Eastern Company’s tobacco products remains high despite the coronavirus (COVID-19) pandemic, except in Ramadan, Morsy Abu Amer, a media official at the company, told Daily News Egypt.

Abu Amer noted that the company will not postpone its investment plans due to the ongoing global pandemic, since these focus on processes of replacing, renewing, and purchasing new equipment.

These investments are key to ensuring the continuity and efficiency of the company’s production process. The company is also expected shortly to announce its financial indicators for the third quarter (3Q) of fiscal year (FY) 2019/20.

Naeem Research expects a strong performance by the company, with net profit forecast to amount to EGP 1.1bn, down 8% quarter-on-quarter (q-o-q) but up 23% year-on-year (y-o-y). Revenues are projected to stand at EGP 3.6bn, down 10% q-o-q and up 6% y-o-y.

The y-o-y improvement is expected to be driven by an increase in sales volumes and the average ex-factory prices.

The y-o-y increase in ex-factory prices, is mainly due to the company cutting the retailers’ margin in August 2019 from EGP0.5 to EGP0.25 for some of the brands. It had also improved its sales mix, with the company discontinuing production of low-margin stock keeping units (SKUs) and replacing them with higher margin SKUs.

“We expect the gross processing margin (GPM) to be around 41% for the quarter, down 80bps q-o-q and up 4.8pps y-o-y,” Naeem Research said.

The y-o-y improvement is likely to be attributed to the appreciation in the Egyptian pound, the increase in ex-factory prices, and the improved sales mix.

A gain of around EGP 52m is expected to as a result of the sale of a land plot in Alexandria, which took place in February 2020.

The company’s board of directors had decided to purchase a maximum of 34m treasury shares, representing approximately 1.51% of the company’s total shares. This would take place provided that the purchase process would be carried out gradually until the 27 July session. This would counter the decline in stock prices due to coronavirus-induced stock market declines.

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