Egypt's Juhayna rising on a tide of milk sales

Egypt, the region's most populous country, has among the lowest milk consumption rates per capita in the world.

Juhayna is positioning itself to capture growth in the sector by investing in logistics. It owns and operates 532 vans and 22 distribution centres across the country, allowing it to reach about 70 per cent of the retail market. It plans to add about 240 vans and six distribution centres this year.

The company could produce strong earnings growth because of the country's favourable demographics, said NBK Capital in Kuwait City, as well as increased awareness of the health benefits of drinking milk.

Juhayna was unscathed by the revolution that forced Hosni Mubarak from the presidency a year ago. Sales in the third quarter reached 667.4 million Egyptian pounds, up 24.4 per cent from the same quarter a year earlier, the most recent financial statements show. Earnings before interest and taxes increased 5.9 per cent to 124m pounds.

"Juhayna's ability to grow sales has been put to the ultimate test in 2011," said Samir Murad, an analyst at NBK Capital. "Despite all these challenges, the company increased sales, which reflects the growth potential of the Egyptian market.

It was also considered a positive sign that Juhayna raised milk prices by 10 per cent last month with little impact on sales.

The company raised 999m pounds in an initial public offering two years ago. Those proceeds are mostly being invested in dairy farms with the goal of producing half of the company's milk supply, up from 10 per cent currently. Shares have risen by 6.8 per cent since the IPO, while Egypt's EGX 30 Index has gone down by almost 23.2 per cent during the same period.

Hatem Alaa, an analyst at HC Securities in Cairo, said he prefered Juhayna over its regional competitor, Saudi Arabia's Almarai.

"We see greater potential for upside surprises for Juhayna in the medium to long term, given the huge potential for Egypt's dairy market versus Saudi Arabia's, where annual growth is capped between 10 and 12 per cent," Mr Alaa said.