Pharos keeps Juhayna's FV at LE 8.8, overweight recommendation

CAIRO – 26 July 2017: Pharos Holding maintained the fair value (FV) for Juhayna at LE 8.88, with an Overweight recommendation. The firm is trading at price-earnings ratio (P/E) of 16.9x and 11.3x for 2017 and 2018, respectively.

Juhayna Food Industries' revenues leveled up 22 percent in the second quarter of 2017, backed by volume improvements fuelled by promotional discounts, Pharos Holding said Wednesday.

The report noted that although Juhayna did not apply any major price hikes, Ramadan, which came in Q2, was high season for Juhayna’s products.

Promotional discounts have their negative effect on the gross margins which declined to 27.7 percent in Q2, despite Juhayna relying on low-cost inventory that was secured at a favorable FX rate.

Volume recovery might not be sustainable due to weak purchasing power over the next two quarters, Pharos said, explaining that while a wave of price hikes was applied across the consumer staples segment, Juhayna reducing discounts to wholesalers.

The latest hike in interest rates by 2 percent contributed to the decline in Q2 profits, as Juhayna held a net debt position of LE 2.2 billion ($122 million) at the end of H1 of 2017, after selling, general and administrative expenses increased by 17.9 percent.

"So naturally the 2 percent interest rate hike had a significant adverse effect as net interest expense rose q/q by 17 percent," Pharos said.