• Earnings mostly in line; Buyers on room for further growth, valuation Headline earnings came in at EGP61.3 million in 4Q2015, up 84% Y-o-Y on margin expansion for the fifth consecutive quarter and solid revenue growth. Excluding one-offs, net profit rose 64% and was broadly in line. Earnings growth would have been stronger had it not been for below-EBIT items (net financing +56% and taxes more-than-doubled on deferred tax charges on the commissioning of the new yogurt plant). FY2015 recurring net income grew 64%. We are impressed by the strength of gross margin expansion and, more importantly, the pick-up in yoghurt and juice segments that faced some headwinds in 2013-14. The main negative was a spike in SG&A costs, but the pay-off is evident from improved revenue growth. We reiterate our Buy rating (attractive 2016e P/E of c15x).
• Dairy remains key revenue driver, juice and yoghurt surprise Revenue growth accelerated to 25% Y-o-Y (versus mid-teen growth over the past two quarters), coming mostly in line. Dairy growth was somewhat lacklustre at 9%, versus much stronger 28% growth for yogurt (strongest growth since 1Q2013) and 55% surge in juice (biggest revenue surprise for the second quarter in a row – highest growth to date) on successful offtake of the revamped juice nectar (larger pack size with new formula).
• Margins increase across the board amidst low-cost environment Gross profit increased 47% Y-o-Y (+17% versus forecast), with gross margin widening c6pp Y-o-Y to 39.7% (ahead of 35.5% estimate) on the back of a 40%+ correction in milk powder prices. SG&A costs growth remained high at 44% Y-o-Y for the second quarter in a row (+30% versus estimate), likely on marketing and promotions to gain market share, resulting in more muted EBITDA margin gains of c3pp Y-o-Y to 18.6% (versus EFGe of 18.7%).
• BoD proposes EGP0.15 DPS for 2015, in line The company’s BoD has proposed the distribution of an EGP0.15/share cash dividend for 2015 (in line), implying a payout ratio of 50% and dividend yield of 2.2%. This comes in higher than the EGP0.10/share paid out in 2014.

Hatem Alaa, CFA
Nada Amin