HSBC maintains ‘buy’ on Sadafco, Halwani; slashes TPs
HSBC has reaffirmed “buy” ratings on Saudia Dairy and Foodstuff Co. (Sadafco) and Halwani Bros and slashed target prices (TP) on the stocks by 31 percent and 26 percent, respectively.
The recommendation was based on the expectation that the two consumer staples companies will remain resilient to recently-announced budget and subsidy cuts, the bank said in a recent note on Wednesday.
Sadafco’s TP was cut to SAR 156 per share, while Halwani Bros was reduced to SAR 87 per share.
The dairy producer is forecast to see a SAR 7 million increase in costs next year due to a hike in utility prices; however, HSBC pointed out that it would fare better than its competitors with the reforms.
“We think SADAFCO will benefit as its gains market share from the current equilibrium as the price differential between UHT and long-life milk narrows or it may decide to raise prices as well (keeping the current price differential intact), which may improve profitability,” the note said.
Halwani Brothers is seen to benefit this year from increased capacity in Jeddah and “significant margin expansion on the back of further decline in sesame prices.”
In addition, utilization of the company’s new facilities and tax cuts in Egypt are expected to support growth.
“This increase is likely to largely offset the increase in utilities and distribution costs on the back of subsidies being scaled back,” the bank predicted.
Main downside risks for the sweets producer include a possible uptick in sesame prices and a projected two percent devaluation of the Egyptian pound/Saudi riyal this year.