Zagazig university - student research 2017

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Zagazig University – Student Research
This report are published for educational purpose only by students
competing in the CFA Research Challenge
Date: 1/19/2017 Current Price: EGP 5.53 Recommendation: BUY (16.27% Upside)
Ticker: JUFO.CA USD = EGP 18.75 Target Price: EGP 6.43 (USD 0.38)
Investment Summary
We issue BUY recommendation for Juhayna Food Industries (JUFO) based on our
calculation using Discounted Cash Flow model.
Our estimation for the fair value per share is EGP 6.43 and this offer a 16.27% upside
value with a closing market price EGP 5.53 on January 19, 2017.
Juhayna is considered one of the most important companies in the Egyptian food
processing industry and considered as the market leader in producing, distributing
and packaging milk, juice and yogurt beside concentrates and agriculture which
Juhayna uses them to supply a part of its raw material needs and generate revenue.
Main Growth Drivers:
The Egyptian market has many factors available for Juhayna to increase its profits
in the future such as the high population growth, low consumption of the Egyptian
people and the increase in people awareness toward healthy packaged products.
This helps the company in penetrating new products such as the new project (ARJU)
for cheese products.
Strong Management in using technology::
Juhayna is always seeking for applying high standards for production and using the
state of art technology in its production and tends to convert all its factories to be
full automated and the start was with El Dawleya factory that was one of the first
three factories converting to full-automated production lines and storage. All this
efforts made by Juhayna to produce a high healthy products. It has an effective R&D
department always looking forward for more opportunities to lead the market. Its
management is characterized by the speed in decision making.
Future expectations:
We expect an improvement in the company’s financial position in the future due to
its continuous ambition and strategies that are represented in vertical, horizontal
and lateral integrations to reduce its dependency on outsources to supply its needs.
We assume that ROA will witness an improvement during the next period reaching
10.5% in 2020. And the earning per share will increase from 0.2 in 2017 to 0.78 in
2020.
Market Profile
Closing Price (EGP/share) 5.53
52W Range (EGP/share) 3.60 - 7.80
AVDT (52W)
Shares Outstanding 941,405,082
Market Cap (EGP) 5,526,047,831
Price Earnings Ratio 19.74
Cash Dividends
(EGP/share)
0.15
Dividends Yield (%) 2.56
Food and Beverage Sector
Egyptian Exchange (EGX)
Juhayna Food Industries
51%
1%
48%
Figure 1: Shareholder
Stracture
Source: Juhayna
Pharon Investment Board Of Directors
Free Float
Figure 2: JUFO vs.
EGX30 Fluctuations
Source: EGX Website
JUFO
EGX 30

2
Recent News
 January 18, 2017, Juhayna confirmed that the inclusion of Safwan Thabet in the
terrorism list would not affect its work and as a result of that EGX decided to
suspend trading on Juhayna’s shares.
 January 3, 2017, Juhayna opened the largest farm for livestock with a capacity of
4000 cows.
 October 25, 2016, Juhayna reduced its investments to L.E. 500 million with the
decline of its imports.
Business Description
JUFO is a leading Egypt-based manufacturer specialized in the production, processing
and packaging of milk, yoghurt, juice and juice concentrate. Mr.Safwan Thabet
established the company in 1983 with a paid-in-capital of EGP 1.3mn. Production
started in 1987 with a total production capacity of 35 tons per day and annual sales of
EGP 2.4mn.Since then Juhayna has succeeded in winning the loyalty of consumers who
have come to view the company's wide variety of quality products as trusted
household names.
According to a study by Nielsen released early 2014, Juhayna holds Egypt’s highest
brand-equity-index score, higher than the other leading multinational household and
FMCG Brands in Egypt.
Currently, its holds the largest market share in all of its products – plain milk (63%) –
flavored milk (64%) – juice (20%) – drinkable yoghurt (35%) – spoonable yoghurt
(33%).
JUFO started trading on the EGX in June 2010. On the IPO, the offering was up to
164,778,105 ordinary shares, each with a nominal value of EGP 1. The combined
offering included a domestic offering to the public in Egypt, up to 41,194,527. These
shares were offered through public (20%) and private placements (80%) and both
were fully covered.
Currently the company has a paid-up-capital of EGP 941,405,082 distributed over
941,405,082 shares.
Dairy products:
Juhayna has a market share of 63% of milk. It produces an amount of 50 tons of milk
and depends on other sources in order to obtain the remaining amount of 750 tons.
It has contracted with about 110 farms in Egypt to obtain its needs. Juhayna
sometimes depends on powder milk but in very small quantities for two months per
year. They do so to offset the volume decline in milk production. This takes part
under strict supervision and evaluation of the farms producing milk so that they can
maintain the quality of their products.
Juice products:
Juhayna juice is considered one of the highest quality and most prominent juice brand
available on the Egyptian market it has 20% of the juice market share. With great
natural fruit taste. Juhayna Juice has managed to win over consumers of different
8%
5%
5%
19%
63%
0% 20% 40% 60% 80%
others
faragello
lamar
al marai
juhayna
Figure 3: Plain Milk
Source: Juhayna
99%
1%
Figure 4: Package Milk
Source: Juhayna
UHT Milk Pasteurized Milk
2009 2012 2013 2014 2015
85%
75% 65% 62% 59%
15%
25%
35% 39% 41
Figure 5: Loose milk vs
Package milks
Source: Juhayna
loose milk packaged milk

3
ages and backgrounds instilling itself as a national favorite and a household name.
Juhayna mainly depends on fruit concentrates in juice production from its
subsidiaries and imports the rest of its needs from other countries such as India.
Yogurt products:
Juhayna has a market share of spoonable and drinkable yogurt of 35% and 33%
respectively. Egyptian consumption of yogurt is low compared to other countries.
Increasing the people awareness results in decreasing the gap between the packaged
yogurt and Baladi yogurt.
Concentrates:
Juhayna uses this sector in two ways one of them is in their production of juice and
the other way is used as revenue generation as it sells concentrates. Juhayna gets
70% of its need for production from Maraw & Modern factories.
Agriculture sector:
It was Founded in 2008, Juhayna owns 10,000 feddans of land. Juhayna insists on
close control to secure the best quality of the resources they used and using the most
advanced technology and environmentally friendly farming methods. Geographical
distribution of cultivated land:
*New Valley Governorate (Alfarafra) =2300 feddans
*Bahareya Oasis (Al-Aseela) = 2300 feddans
Strategy:
Juhayna depends on three main components in its long term strategy represented in
Quality, Responsiveness and Growth and that put Juhayna in a leading position in the
Egyptian market.
(1) Responsiveness: Juhayna has a flexibility in taking decisions and respond
quickly to the fluctuations in the market.
(2) Quality: Juhayna market position reputation for quality is the secret of its
leadership, as the consumers know they can trust the quality of their healthy
products. Juhayna has the factors of improving such as vertical integration and
their skilled, dedicated workforce and that help them to control every aspect of
the production cycle from the freshest raw materials to most efficient
distribution network.
(3) Growth: Juhayna Growth because of its continuous investment in their own
manufacturing and distribution infrastructure that give them a chance to
expand their market reach Juhayna is seeking for improvement yearly through
new constructions and investments
Vision and Mission of the company:
 The company Vision:
“Juhayna is a leading food for all ages, and a friend for all generations”
 The company Mission:
“Juhayna perseveres in providing Products that are healthier, tastier, and classier”
(1) Integrity & Honesty through communication with all stakeholders with complete
fairness and honesty.
2%
4%
13%
17%
64%
0% 20% 40% 60% 80%
others
faragello
al marai
dango
juhayna
Figure 6: Flavored Milk
Source: Juhayna
0% 10% 20% 30%
others
cappi
rani
faragello
beyti
juhayna
Figure 7: Juice
Source: Juhayna
Juhayna Juice
Products
100% Pure
NectarDrinks
Figure 8
Source: Juhayna

4
(2) Transparency and trust as Juhayna considers the timely disclosure and
accountability are essential components of any organization success.
(3) Juhayna depends on employees who are not only skilled, but who are challenge-
seekers
(4) Juhayna supplies the society with high quality and healthy products. The more
Juhayna invest in the quality, the more customers trust in its products.
(5) Juhayna is interested in promoting social welfare and wellbeing by supplying
customers by high quality products.
Management and Governance
Juhayna Food Industries is committed to implementing high standards of corporate
governance through responsible, transparent management and control with the
objective of maximizing their shareholders return. They believe the methods they use
to achieve their results are as important as the results themselves. They set high
standards for conducting their business ethically consistent with their values and in
accordance to the law.
In Term of Corporate Governance can be seen in the following areas:
 Committees: Committees are established to assist the Board in its oversight of
the integrity of the company’s financial statements.
 Audit and Oversight: An audit evaluates the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the
management. Also, the auditor considers internal control relevant to the entity's
preparation, to design procedures which appropriate in the circumstances.
 Social Responsibility: Juhayna realizes its important role towards the society. It
helps in improving the health care by participating in many major projects like
Baheya for early detection and Breast Cancer Treatment, Ain Shams University
and Shifa-Orman Hospital. In addition to, its role in improving personal skills by
offering an outstanding annual summer internship program and culture of the
people by sharing in El Sway Culture Wheel. In 2016 it begins to utilize solar
energy to power its farms helping the environment to get rid of carbon footprint.
Industry Overview and Competitive Positioning
Egypt has a high continuous population growth rate, where the increase in 2016 was
2.05% from the previous year reaching about 94 mn person.
Certainly this continuous increase would lead to the increasing demand for food
products . And affect the food industry in the scope of supply and demand.
As a result of this effect, food companies are competing to win customers by
producing a various products to meet the needs of customers.
Supply driver:
The Egyptian food processing industry is composed of several companies all
competing with each other to win customers and satisfy their demand. From the
Juhanya
Figure 9: Juhayna’s
Long-Term Strategy
Source: Juhayna
0% 10% 20% 30% 40%
al marai
lactalis
nestle
danon
juhayna
Figure 10: Spoonable Yoghurt
Source: Juhayna
0% 10% 20% 30% 40%
others
danon
nestle
lactalis
juhayna
Figure 11: Drinkable
Yoghurt
Source: Juhayna

5
perspective of a specific company working in the food industry, the amount and the
price set by competitors affects the amount produced and the price set on a specific
brand.
Companies in the Egyptian food industry seeking for satisfying customer demand for
various food products, so they are focusing in applying the most up to date
technology and logistics to help them in the production process and the distribution
of these products all over Egypt.
There are many factors affecting supply in Egypt such as:
A) Price: Refers to the main factor that influences the supply of a product to a greater
extent. Unlike demand, there is a direct relationship between the price of a product
and its supply.
B) Cost of Production: Implies that the supply of a product would decrease with
increase in the cost of production and vice versa.
C) Technology: Refers to one of the important determinant of supply. A better and
advanced technology increases the production of a product, which results in the
increase in the supply of the product.
D)Transport Conditions: Refer to the fact that better transport facilities increase
the supply of products.
E) Government’s Policies: Implies that the different policies of government, such
as fiscal policy and industrial policy, has a greater impact on the supply of a product.
For example, increase in tax.
F) Prices of Related Goods: Refer to fact that the prices of substitutes and
complementary goods also affect the supply of a product.
Demand driver:
Food manufacturing provides the society with the needs for food, dairy products,
juice and yogurt, etc. The ingredients, that these products have, help in building
strong and healthy bodies. As well as, the food products are considered as essential
products. In 2011 especially after the revolution there was not any obvious economic
vision and it was expected to have a decline in consumption but the wages were
increased, resulted in increasing in consumption. On the other hand, after the
revolution, people started to watch talk show programs more than before so
companies of food industry made advertising campaigns which increased the public
awareness that resulted in increasing the demand for their products.
Nowadays, Juhayna faces a challenge is to balance between the quality and suitable
prices in light of the high prices which would affect the demand.
A) Growing GDP:
Egypt has a growing GDP rates comparing to prior years and it is expected to grow
over next years due to the new investment chances. In 2006 it was 107.18 and it was
increasing until reach 350 in 2016.
B) Higher growth rate of population:
Population is considered one of the main drivers of the economic activity including
food industry, through their demand on food and its products. Egypt is a population
11%
20%
30%
32%
7%
Figure 14: Egypt
Population Breakdown
Source: CAPMAS
0 to 4 5 to 14 15 to 29
30 to 59 60+
0
50
100
150
200
250
300
350
2007
2008
2009
2010
2011
2012
2013
2014
2015
Figure 13: GDP
Source: Trading Economics
Website
GDP
10.19.149.0310.3
12.3
14 14
15.5
14.113.6
19.4
23.3
0
5
10
15
20
25
JAN
FEB
MAR
APR
MAY
JUN
JUL
OCU
SEP
OCT
NOV
DEC
Figure 12: Inflation 2016
Source: Trade Economics
Website
Inflation

6
rich country which, reached approximately 95mn, achieving a CAGR of 2% over the
past 10 years.
C) Egyptian family spending:
Large amounts of the Egyptian families income is being spent on food and
beverage this amount represents about 34% of their income as food products
are essential commodities and the demand on these commodities not affected
by the fluctuations of prices.
D) Tastes and preferences of the consumers:
A good for which consumers’ tastes and preferences are greater, its demand would
be large and its demand curve will therefore lie at a higher level. The changes in
demand for various goods occur due to the changes in fashion and also due to the
pressure of advertisements by the manufacturers and sellers of different products.
SWOT Analysis
Strengths:
 Biggest Market share.
 Strong brand name.
 Strong & high experienced management team.
 Wide variety of business portfolio & products.
 The lines of production, packaging and storage are Automated.
 Well established distribution matrix.
 Well established and financed R&D division.
 Concentration on healthy products.
 Spread in a large number of countries all over the world.
 Availability of capital for expansion or expenses.
Weaknesses:
 Seasonality of production.
 Lack of resources for packaging.
 Lack of skilled functional & technical skilled workers.
 Instable prices of fruits which affects the profit margin.
 Dependability on imports, such as milk powders.
 Processing industry is smaller in scale than the main international competitors.
 Scale in marketing is better than average but also below main international
competitors, leading to cost disadvantages.
 strong competitors such as Almaraai.
Opportunities:
 There is a heavy demand on food and beverages in Egypt according to global
percentages.
 People become more interested in packaged milk according to effect the
collaborative programs.
 There is a potential for growth, because Egypt has among the lowest worldwide
per capita consumption levels offload milk, yoghurt and juice.
 Cheap labor.
34%
18%10%
6%
6%
5%
5%
4%
4%
4% 2%2%
Figure 15: Egyptian Family
Spending Scheme
Source: CAPMAS
Food & Beverage
Household Needs
Services & Healthcare
Transportation
Clothes & Footwear
Education
Tobacco
Furnitutre & Maintenance
Hotels & Restaurants
Miscellaneous Products & Services
Telecom
Culture & Entertainment
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Figure 16: EPS
Source: Team Estimate
EPS

7
 There is a phenomenal scope for value addition with innovations in product
development, packaging and presentation.
 Introduction of value-added products with different flavors, Ice creams, flavored
milk, Dairy sweets, etc. are to be undertaken.
Threats:
 Rising of agricultural commodities, Egypt will face increasing competition for
many key imports.
 Application of VAT may lead to inflation and this lead to decrease the disposable
income.
 Rise of prices of commodities and raw materials lead to decrease the producers’
margins profit.
 Decrease the limited land suitable for agricultural production.
 Most of countries need to increase milk supply.
 Strong competition “USA, New Zealand, Brazil, Pakistan, China and Saudi Arabia”.
Financial Analysis
Ratios 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Activity Ratios
Receivable Turnover 54.2 61.8 61.8 61.8 61.8 61.8 61.8
Collection DOH 7 6 6 6 6 6 6
Inventory Turnover 4.8 4.4 4.2 4.7 4.5 4.6 4.5
Inventory DOH 76 82 87 78 81 80 81
Liquidity Ratios
Current Ratio 0.87 1.26 0.99 1.07 0.97 0.93 1.00
Quick Ratio 0.48 0.82 0.50 0.53 0.44 0.40 0.45
Profitability Ratios
Revenue Growth 11.9% 14.9% 23.5% 14.1% 14.4% 14.1% 13.4%
Gross Profit Margin 32% 39.8% 35% 30% 35% 36% 39%
Net Profit Growth -48.2% 64.6% -17.4% -91.1% 1330% 46.5% 71.7%
Net Profit Margin
(Return on Sales)
4.6% 6.6% 4.4% 0.3% 4.3% 5.5% 8.3%
Fixed Assets Turnover 1.8 1.5 1.7 1.8 2.0 2.2 2.4
Total Assets Turnover 81.6% 84.7% 97.0% 102.3% 111.3% 120.0% 126.2%
ROA 3.8% 5.6% 4.3% 0.4% 4.8% 6.6% 10.5%
ROE 7.4% 11.6% 9.0% 0.8% 10.8% 14.7% 22.1%
EPS 0.18 0.30 0.25 0.02 0.31 0.46 0.78
Debt Ratios
Interest Coverage 2.43 3.36 2.56 0.91 2.35 3.40 5.09
Debt Ratio 0.49 0.51 0.52 0.56 0.56 0.55 0.52
Debt / Equity Ratio 0.31 0.42 0.32 0.47 0.41 0.38 0.32
Degree of Leverage 1.54 1.46 1.36 7.60 1.52 1.30 1.18
Leverage Index 1.95 2.07 2.09 2 2.25 2.23 2.10
 Revenues
The Company has witnessed a y-o-y increase in revenues from EGP 3,294 million in
2013 to EGP 3,684 million in 2014. Adjusted EBITDA in 2014 decreased from EGP
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Figure 18: Sales Revenue
Sales Revenue
0
100
200
300
400
500
600
700
800
Figure 17: Net Income
Net Income
0
1000
2000
3000
4000
5000
6000
Figure 19: COGS
COGS

8
440 million to EGP 350 million, and net income in 2014 decreased from EGP 328
m0illion to EGP 170 million because the non-operating income decreased and the
interest expense increased. Revenues have increased in 2015 as the sales volume
increased in this year. These continuous increases in sales volume because of the
increase of public awareness towards healthy packaged products. Revenues
increased in 2016 by 23.5% because of the increase in the population growth by 2.3%
since 2005 The Egyptian sales of the Company represented 97% of total sales for the
year ended 31 December 2016, with a relatively small portion of output being
exported .Starting from 2017 revenues will fall due to the increase in prices while the
disposal income is approximately constant and people trend to saving would
increase. After that we expect revenues to be increased in 2018 as ARJU project will
be operated with its full capacity.
 Cost of Goods Sold
COGS increased from 2,134 million in 2013 to 2,506 million in 2014 and had a small
increase in 2015 comparing with the previous year by 1.6% amounted 2,545 million.
In 2016 COGS had witnessed an increase of more than 30% because of the increase
in raw material prices due to the unavailability of foreign currency and its higher
exchange rate as the company depends on about 60% imported raw materials, which
represent almost 50% of the total COGS and this will last extend to 2017. After that
COGS will decrease as the company tends to decrease its dependability on imported
raw material and the economic situation in Egypt will witness some improvements.
 CAPEX & Debt
Late in 2016, Juhayna decreased its budgeted capital expenditure from 640 to 500
million due to the recent conditions of the Egyptian market (flotation and price
fluctuations). We expect in 2017 Juhayna won’t invest more in CAPEX but it will
complete the construction of the new factory of ARJU and the solar power project.
We expect the company will postpone the new CAPEX to 2018.
Juhayna has a high debt ratio in 2015 and 2016 of 0.5. We expect in 2017, the debt
ratio will increase due to the dependency on loans to finance its projects such as ARJU
and new investments. After that the debt ratio will decrease as the company will
repay its loans by 2022.
Valuation
We estimated the fair value at EGP6.43 per share for JUFO using the Discounted Cash
Flow (DCF) method. Our definition of cash flow is the Free Cash Flow to the Firm
(FCFF). Free cash flow to firm is calculated by:
 Net operating profit less adjusted tax (NOPLAT)
 Add: Non-cash Charges (NCC)
 Less: Changes in working capital
 Less: Changes in CAPEX
Enterprise Value = ∑
𝑭𝑪𝑭𝑭 𝒕
(𝟏+𝑾𝑨𝑪𝑪) 𝒏
𝒏
𝒕 + ⋯ +
𝑻𝑽
(𝟏+𝑾𝑨𝑪𝑪) 𝒏
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Figure 22: JUFO Capital
Structure
Equity Debt
0
2000
4000
6000
8000
10000
Figure 20: Sales Revenue,
COGS & Gross Profit
Sales Revenue
COGS
Gross Profit
54%
56%
58%
60%
62%
64%
66%
68%
70%
72%
Figure 21: COGS/Sales
COGS/Sales

9
Capital Assets Pricing Model (CAPM):
 Risk Free Rate
It’s the minimum rate of return for any investment that an investor expects. We
selected to use Short Term Government Security Rate, 1Yrs T-bills rate as it has
the lowest inflation risk
 Beta
It is a measure of systematic risk. It indicates the price movements in the market
Adjusted Beta is commonly used. Calculating Beta depends on classification of the
stock. As for growth stocks, 3 years historical data is used, while 5 years historical
data is used for value stocks. In many cases, especially in a market like Egypt it is
difficult to classify the stock either growth or value. We used adjusted average
Beta for industry not the company as the company has a short trading history.
 Equity Risk Premium (ERP)
It also refers to simply equity premium and it means the excess return which
compensates investors for tacking on the relatively higher risk of equity
investing. The size of the premium will vary depending on the level of risk in a
particular portfolio and will also change over time as market risk fluctuates. ERB
is a vital variable in any valuation model. According to our calculations of the ERP
it equals 7%.
Investment Risk:
i. Country Specific Risk:
Discretionary Income:
The discretionary income is the disposal income minus necessities as mortgage,
health insurance, food and transportation. After the government applied the value
added tax on September, 2016 and floated the Egyptian pound on November, 2016
which leads to increase the costs of necessities, that represents a problem for
consumers while the disposal income is constant, available for spending and saving,
which results in decreasing the purchasing power and consumption of individuals.
ii. Industry Specific Risk:
U.S. Dollars ($):
Egypt’s economy facing a crisis of lack of USD availability, which lead to expand the
black markets and make them control in prices, however, it failed to satisfy demand
in a country that has been for long a net importer. Since the CBE announced the
floatation of Egyptian currency (devaluing the EGP 13% to EGP8.85/USD in 2015
and devaluing the EGP 28% to EGP19/USD until now).This change would affect the
food industry. The prices of imported raw materials are affected by the foreign
exchange rate which affects the cost of production. This additional cost of production
would be passed to the consumer and this may affect the sales of food industry.
iii. Firm Specific Risk:
Credit risk:
2017 2018
Risk free rate 13.6% 13.6%
Beta 0.64 0.64
Market risk
premium
7% 7%
Cost of Equity 18.1% 18.1%
Cost of Debt 11.25% 11.25%
Cost of long term
debt
11.25% 11.25%
Weight of Equity 53% 53.9%
Weight of long
term debt
25.02% 23.04%
Weight of Debt 22% 23.11
WACC 14.87% 14.93%
2019 2020
Risk free rate 13.6% 13.6%
Beta 0.64 0.64
Market risk
premium
7% 7%
Cost of Equity 18.1% 18.1%
Cost of Debt 10% 10%
Weight of long
term debt
10% 10%
Weight of Equity 55.3% 58.8%
Weight of long
term debt
21.07% 18.78%
Weight of Debt 23.6% 22.46%
WACC 14.74% 14.75%
Figure 23: U.S. Dollar
Fluctuations
Source: www.xe.com
Table 1:
WACC Calculation
Table 2:
WACC Calculation Cont.

11
Juhayna has a large amount of long term loans which puts Juhayna under a potential
risk of financial stumble under conditions of the unstable economic situation. In
addition to there is a large portion of its loans is in foreign currency. Juhayna has a
problem with supplying this foreign currency that has a higher exchange rate that
approximately led to increase budgeted repayment that was expected to pay back as
well as their interests.
Competition risk:
The Egyptian market has many competitors threaten the market share of Juhayna. As
well as the Egyptian market is unsatisfied and has a lower rate of consumption and
this allows the chances for new competitors to penetrate the market with new
generations of products that has a lower prices which affect the market share of
Juhayna.
Sensitivity Analysis:
We calculated the fair value for Juhayna’s stock at different terminal growths and cost
of equity at the following table:
DCF Components
(000’ omitted)
Enterprise Value 798,324
Add: Cash Balance 79,492
Less: Short & Long-
term Debts
(5,174,4
00)
Equity Value
6,052,2
15
Shares outstanding
941,40
5
FV/Share (EGP) 6.43
Cost of Equity
TerminalGrowth
16% 17% 18% 19% 20%
3% 7.44 6.91 6.43 5.99 5.59
4% 7.82 7.25 6.74 6.27 5.84
5% 8.22 7.62 7.06 6.57 6.11
6% 8.65 8.00 7.42 6.88 6.40
7% 9.10 8.41 7.79 7.22 6.71
Table 3:
FV Calculation
Table 4:
Sensitivity Analysis

11
Appendix A: Historical and Projected Financial Statements:
Consolidated Income Statement
(EGP mn) 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Revenues 3,684.1 4,231.2 5,226.2 5,961.6 6,820.5 7,784.6 8,825.4
Cost of sales (2,506.,1) (2,545.1) (3,397.1) (4,173.2) (4,433.3) (4,982.2) (5,383.5)
Gross Profit 1,178.0 1,686.1 1,829.2 1,788.5 2,387.2 2,802.5 3,441.9
SG&A expenses (640.8) (822.9)
(1,149.8) (1,311.6) (1,500.5) (1,712.6) (1,941.6)
Depreciation (187.0) (204.3) (234.7) (260.7) (276.8) (291.5) (305.0)
Other Income/Expenses (9.7) (26.6) 39.9 41.9 44.0 46.2 48.5
Net Interest (132.1) (181.9) (159.2) (229.8) (252.8) (231.7) (234.8)
Net Profit Before Tax 227.9 450.4 325.4 28.4 401.1 612.9 1,009.2
Net Taxes (57.8) (170.5) (94.4) (8.0) (108.3) (183.9) (272.5)
Net profit 170.0 279.8 231.0 20.5 292.8 429.0 736.7
EPS 0.18 0.30 0.25 0.2 0.31 0.46 0.78

12
Consolidated Balance Sheet
(EGP mn) 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Current Assets
Cash & Equivalents 420.1 794.9 468.4 487.0 359.0 288.8 377.6
Accounts Receivables 68.0 68.4 84.5 96.4 110.3 125.9 142.7
Inventories 524.9 573.9 810.1 894.2 989.0 1,089.8 1,191.4
Other Current Assets 165.2 203.5 261.3 298.1 341.0 389.2 441.3
Total Current Assets 1,178.3 1,640.7 1,624.3 1,775.8 1,799.3 1,893.8 2,153.0
Non-Current assets
Net Fixed Assets 2,094.4 2,761.3 3,066.6 3,255.9 3,429.2 3,587.7 3,732.7
Other Long Term Assets 1,242.4 593.3 695.5 798.5 901.5 1,004.5 1,107.5
Total Non-Current Assets 3,336.8 3,354.6 3,762.1 4,054.4 4,393.7 4,592.2 4,840.2
Total Assets 4,515.0 4,995.3 5,386.4 5,830.1 6,129.9 6,486.0 6,993.2
Current liabilities
Short Term Debt 1,029.7 916.9 1,116.9 1,066.9 1,166.9 1,246.9 1,271.9
Accounts Payable 140.4 197.6 287.4 327.9 375.1 428.2 485.4
Other Current Liabilities 182.9 192.6 237.8 271.3 310.4 354.3 401.6
Total Current liabilities 1,353.0 1,307.0 1,642.1 1,666.1 1,852.4 2,029.3 2,158.9
Non-Current liabilities
Long Term Debt 705.7 1,013.3 813.3 1,213.3 1,163.3 1,113.3 1,063.3
Other-Long Term Assets 171.9 252.0 370.0 380.0 394.0 419.0 442.0
Total N.C. Liabilities 877.6 1,265.3 1,183.3 1,593.3 1,557.3 1,532.3 1,505.3
Total Liabilities 2,230.5 2,572.3 2,825.4 3,259.4 3,409.7 3,561.6 3,664.2
Total Common Equity
including Minority
2,284.5 2,422.9 2,560.9 2,570.8 2,720.2 2,924.4 3,329.1
Total Liabilities & Equity 4,515.0 4,995.3 5,386.4 5,830.1 6,129.9 6,486.0 6,993.2

13
Appendix B: Revenues Breakdown:
Dairy 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Quantity Sold (Tons) 171,411 169,422 206,791 227,368 243,902
-1% 22% 10% 7%
Price per Ton (EGP) 6,048 6,700 6,964 7,209 7,923
Growth 11% 4% 4% 10%
Sales Value (EGP) 1,036,673 1,135,144 1,440,103 1,639,045 1,932,457 2,183,762 2,423,976 2,718,845 3,085,889 3,471,626 3,888,221
Growth 9% 27% 14% 18% 13.0% 11.0% 12.2% 13.5% 12.5% 12.0%
Yoghurt 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Quantity Sold (Tons) 43,878 61,194 76,274 77,446 75,402
39% 25% 2% -3%
Price per Ton (EGP) 9,151 10,028 10,482 11,501 12,580
Growth 10% 5% 10% 9%
Sales Value (EGP) 401,546 613,638 799,530 890,741 948,574 1,066,917 1,312,307 1,448,198 1,592,942 1,745,718 1,905,182
Growth 53% 30% 11% 6% 12.5% 23.0% 10.4% 10.0% 9.6% 9.1%
Juice 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
65,103 67,197 83,609 93,000 93,786
3% 24% 11% 1%
Price per Ton (EGP) 5,904 6,264 6,399 6,661 7,133
Growth 6% 2% 4% 7%
Sales Value (EGP) 384,391 420,927 534,977 619,491 668,992 830,800 1,204,660 1,385,359 1,551,602 1,691,247 1,826,546
Growth 10% 27% 16% 8% 24.2% 45.0% 15.0% 12.0% 9.0% 8.0%
Concentrates 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Sales Value (EGP) 38,841 44,865 52,032 91,154 76,168 63,144 99,579 114,515 128,257 139,800 150,984
Growth 16% 16% 75% -16% -17% 57.70% 15% 12% 9% 8%
Agricultural 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Sales Value (EGP) 29,035 28,328 53,275 57,869 76,660 88,159 99,620 110,578 121,636 132,583
Growth -2% 88% 9% 32% 15.00% 13% 11% 10% 9%

14
ArJu 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Sales Value (EGP) 9,879 97,553 195,106 351,192 614,585 921,878
987% 100% 80% 75% 50%
Total 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Total Sales Value (EGP) 1,861,451 2,243,610 2,854,970 3,293,706 3,684,060 4,231,162 5,226,234 5,961,645 6,820,461 7,784,611 8,825,394
Growth 20.5% 27.2% 15.4% 11.9% 14.9% 23.5% 14.1% 14.4% 14.1% 13.4%
Weights 2010A 2011A 2012A 2013A 2014A 2015A 2016E 2017F 2018F 2019F 2020F
Dairy 55.69% 50.59% 50.44% 49.76% 52.45% 51.61% 46.38% 45.61% 45.24% 44.60% 44.06%
Yoghurt 21.57% 27.35% 28.00% 27.04% 25.75% 25.22% 25.11% 24.29% 23.36% 22.43% 21.59%
Juice 20.65% 18.76% 18.74% 18.81% 18.16% 19.6% 23.1% 23.2% 22.7% 21.7% 20.7%
Concentrates 2.09% 2.00% 1.82% 2.77% 2.07% 1.49% 1.91% 1.92% 1.88% 1.80% 1.71%
Agricultural 0.00% 1.29% 0.99% 1.62% 1.57% 1.81% 1.69% 1.67% 1.62% 1.56% 1.50%
ArJu 0.00% 0.00% 0.00% 0.00% 0.00% 0.23% 1.87% 3.27% 5.15% 7.89% 10.45%
Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

15
Appendix C: Valuation Method using DCF:
Value of Operations: DCF approach
Free Cash Discount PV
Year Flow Factor of FCF
2016 (55) 0.876 (48)
2017 (76) 0.762 (58)
2018 220 0.663 146
2019 343 0.580 199
2020 652 0.505 329
2021 1,157 0.440 509
2022 1,142 0.384 438
2023 1,231 0.334 412
2024 1,328 0.291 387
2025 1,432 0.254 364
2026 1,545 0.221 342
2027 1,668 0.193 322
2028 1,801 0.168 302
2029 1,944 0.146 285
2030 2,100 0.128 268
Cont.
Value
15,184 0.128 1,937
Operating Value 16 6,133
Continuing value % Operating value 31.6%
Mid -Year Adjustment Factor 1.103
Operating Value (Adjusted) 6,764

16
Value of Operations: Economic Profit
Economic Discount PV
Year Profit Factor of EP
2016 (88) 0.876 (77)
2017 (307) 0.762 (234)
2018 (71) 0.663 (47)
2019 19 0.580 11
2020 265 0.505 134
2021 298 0.440 131
2022 400 0.384 154
2023 495 0.334 165
2024 597 0.291 174
2025 706 0.254 179
2026 824 0.221 182
2027 951 0.193 183
2028 1,088 0.168 183
2029 1,236 0.146 181
2030 1,395 0.128 178
Cont.
Value
10,462 0.128 1,335
Present Value of Economic Profit 2,832
Invested Capital (incl.
goodwill)
3,301
Operating Value 6,133
Mid -Year Adjustment Factor 1.103
Operating Value(Adjusted) 6,764

17
Value of Equity
Operating Value 6,764
Excess Mkt Securities 724
Financial Investments 495
Excess Pension Assets 0
Enterprise Value 7,983
Debt (1,930)
Capitalized Operating Leases 0
Retirement Related Liability 0
Preferred Stock 0
Minority Interest (1)
Restructuring Provision 0
Stock options 0
Equity Value 6,052
No. shares (thousands) 941,405
Value per Share 6.43

18
Appendix D: Milk Production Process:

19
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the
content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be
reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information
is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment
advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by
any individual affiliated with [CFA Egypt Society, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.
CFA Institute Research Challenge

Zagazig university - student research 2017

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