Morning Briefing for December 26, 2013 – Standard Capital

Karachi, December 26, 2013 (PPI-OT): Food and beverages sector – evergreen

Food industry is ever green industry which is still untapped in terms of resources.

According to Standard Capital, many existing entities are vying to venture into dairies and other segment. Many good companies are unquoted entities as well.

Owing to tremendous resources Standard Capital continues to see higher PE multiples with respect to KSE100 and KSE30. With changing consumer preference to the branded food items and changing life style, Pakistani food industry is developing day by day. Many existing and new companies are coming with new branded food items.

Some big conglomerates such as Fauji Fertilizer have recently acquired Al Hamd Food and Standard Capital hears plans from Nishat group to venture in dairy segment as well. Among food sector Standard Capital is covering EFOODS and NATF.

Game not over despite not so compelling valuations
Name                         EPS Annual    EPS Latest     P/E    Exp P/E    Exp P/E CY14   PBV    ROE    DY
Engro Foods                         3.41    1.63(9M)     30.86    48.4          26.3       6.9    12.3   N/A
National Foods                     16.25    5.25(3M)     25.34    19.6          17.2       9.0    41.6  1.82
Clover Pakistan                     6.67   -0.48(3M)     10.63    N/m           N/A        0.8    58.3   N/A
Mitchell's Fruit Farms             17.2    15.24(9M)     35.93    30.4          23.8       7.9    20.4  1.21
Unilever Pakistan*                413.07  174.49(6M)     33.71    27.1          N/A       38.4    97.9  2.96
Nestle Pakistan Ltd.              129.32   98.58(9M)     64.18    63.2          59.3      29.3    61.3  0.84
Rafhan Maize Products             220.86   74.60(9M)     16.98    17.0          N/A        5.5    35.1  3.33
Unilever Pak Foods                116.14  120.88(9M)     41.94    35.4          52.6      61.1   125.5  2.38
Murree Brewery                     34.26    7.19(3M)     11.09    13.2          10.9       1.4    10.2  1.58
Shezan                             34.34   14.04(3M)     19.22    11.8          10.4       3.1    19.0  1.52

In the appended table Standard Capital sees glaring options in both food and beverages line. However, Standard Capital sees options in food segment are less compelling for dividend connoisseurs. Recently EFOODS has vowed to enter into fresh dairy segment in which it would try to tap an untapped market. The entity shall also produce butter, ghee etc through outlets and would try to compete with tradition form of milk supply dwellers. Standard Capital sees EFOODS sales may double in either 2016 or 2017 wherein Standard Capital sees above 100% earnings growth in 3 to 5 years. Standard Capital is hearing that EFOODS distribution issues may be sorted out and hence Standard Capital sees CY14 to be good in terms of regaining profitability.

In the appended table Standard Capital sees glaring options in both food and beverages line. However, Standard Capital sees options in food segment are less compelling for dividend connoisseurs.

Recently EFOODS has vowed to enter into fresh dairy segment in which it would try to tap an untapped market. The entity shall also produce butter, ghee etc through outlets and would try to compete with tradition form of milk supply dwellers. Standard Capital sees EFOODS sales may double in either 2016 or 2017 wherein Standard Capital sees above 100% earnings growth in 3 to 5 years. Standard Capital is hearing that EFOODS distribution issues may be sorted out and hence Standard Capital sees CY14 to be good in terms of regaining profitability.