• Superior profitability, growth prospects priced in; maintain Neutral We tweak our numbers and maintain our FV for Edita at EGP33/share (1% upside). We still like its solid return profile (RoAE c40%), strong balance sheet, impressive growth prospects (2-year earnings CAGR of 23%) and limited FX risk (only c20% of cash costs imported, 50% covered by exports). However, we remain Neutral as we believe these aspects are priced in with the stock trading at a c20% premium to global snack peers on 2016 P/E. A key risk is fast growth in SG&A costs as Edita increases its direct reach and ramps up marketing efforts to support new products (guidance is for flattish SG&A/sales as campaigns will be skewed towards 1H16). Catalysts include increasing international exposure (exports only c6% of sales) and venturing into new snack market categories (biscuits, chocolates, etc.).
• Expect a challenging 1Q16 as market adjusts to Twinkies upsizing… Edita upsized Twinkies (c20% of 9M15 top-line) in Sept. 2015, doubling its price to EGP1/pack, which is affecting volumes (cake tonnage -20% Y-o-Y in 4Q15). While the company is providing marketing support for Twinkies to boost sales, it will feel the pain in the short term, in our view. Coupled with tough trading conditions (wholesalers stocked up on basic items ahead of devaluation), we expect lacklustre performance in 1Q16 (flattish earnings).
• …But not a precursor to 2016 as new pricier products are launched We believe, however, that performance will pick up as the year progresses (similar to 2015: +25% Y-o-Y recurring earnings growth despite a weak 1H) and expect 2016e bottom line to grow c19% Y-o-Y aided by new capacities (rusks 2x, croissant +16%, candy +80%) and continued portfolio migration to higher price points (blended average price/tonne +9%) with launch of: Strudel product (c8.3k tpa capacity) in April 2016 branded ‘Molto Pate’, Edita’s first ever single-serve product selling at EGP3/pack New cake products leveraging on know-how acquisition for 11 products from Hostess; introduced in April first cake product at EGP2 price point Multi-serve rusk SKUs (selling at EGP3) after capacity doubling in end-2015; a similar strategy is already being applied to candy

Hatem Alaa, CFA
Nada Amin