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MubasherTrade upgrades CPC with Buy/Moderate Risk, sets 12M PT at EGP10.43/shr

MubasherTrade upgrades CPC with Buy/Moderate Risk, sets 12M PT at EGP10.43/shr
MubasherTrade upgrades Cairo Poultry with Buy/Moderate Risk, sets 12M PT at EGP10.43/shr
Cairo Poultry
POUL
-1.23% 7.20 -0.09

Cairo – Mubasher: MubasherTrade Research upgraded Cairo Poultry Company’s (CPC) stock from Hold to Buy with the same Moderate Risk rating, with a 12-month price target price at EGP 10.43 per share, according to a recent report.

MubasherTrade Research has applied changes to their valuation model, including “lower selling, general and administrative expenses (SG&A), and updating inflation expectations according to the International Monetary Fund (IMF).”

As a result, “terminal weighted average cost of capital (WACC) declined accordingly due to lower inflation differential and the research firm lowered short-term/working investment ratio since no exceptional cash outflows are expected, and 25% higher number of shares post capital stock dividend.”

CPC’s gross margin recorded 26% in the first nine months of 2017, compared to 30% in the prior-year period.

The MubasherTrade forecasted CPC’s gross margin to rebound by 2018, as the cost of goods sold (COGS) in 2017 was high on the back of the Egyptian pound flotation.

“We [MubasherTrade] are not expecting headwinds in the prices of maize or soybean which CPC imports, so margins should normalize going forward, especially with a more stable EGP. In addition, the oil price environment is entering a recovery phase,” the research firm said.

CPC’s top line and COGS figures for the nine-month period of 2017 met MubasherTrade’s estimations on a quarterly and annual basis.

However, the bottom line beat the research firm’s estimates by a large margin on the back of “significantly lower-than-expected SG&A”.

Processing and value-added segments at CPC, mainly in Koki, were reduced in the nine-month period due to the current market slowdown, according to the company guidance and marketing activities, the report added.

CPC’s earnings before interest, tax, depreciation and amortization (EBITDA) and net profit hiked 72% a 113% year-on-year, respectively.

MubasherTrade has mentioned the same growth factors for CPC of their initial report including, “leading market position that allows a high pass-through ability in the feed and fattening segments, young population coupled with room for growth in per capita consumption,”

“Fast-paced life and the growth of retail market tilts the market towards packaged food, and vertically-integrated business model supports growth across all segments.”

MubasherTrade noted that CPC may face risks despite the impressive financial performance it has witnessed in the nine-month period.

The key risks involve “foreign exchange market exposure and commodity exposure, competitive pressures from imported poultry and current players in the processing and value-added segments, and chances of disease break-outs.”