Obour Land 3Q24

Obour Land 3Q24: Recurring earnings +13% Y-o-Y, on revenue growth, improved margins, offsetting higher finance costs; broadly in line

• Recurring net profit: EGP301.2mn, +13% Y-o-Y, +24% Q-o-Q, -4% vs EFGe of EGP312.5mn
• Reported net income: EGP298.7mn, +213% Y-o-Y, +12% Q-o-Q, -4% vs EFGe of EGP312.5mn
• Revenue: EGP2,837.6mn, +38% Y-o-Y, +36% Q-o-Q, +14% vs EFGe of EGP2,480.3mn
• Gross profit: EGP601.8mn, +60% Y-o-Y, +11% Q-o-Q, -3% vs EFGe of EGP620.1mn
• Operating profit: EGP500.7mn, +65% Y-o-Y, +16% Q-o-Q, -4% vs EFGe of EGP523.9mn

Obour Land reported 3Q24 results, with headline net income up 3.1x Y-o-Y to cEGP299mn. Excluding FX gains of EGP4mn in 3Q24 (vs losses of EGP103mn in 3Q23) and other one-off items (impairments, provisions, capital gains and gain on financial securities – mainly EGP17.6mn booked in 3Q23), recurring earnings increased 13% Y-o-Y to EGP301mn, mainly on strong revenue growth and margins.

The results were negatively impacted by higher net finance costs (+2.6x Y-o-Y to EGP111mn; 28% of pre-tax earnings), driven by a c2.5x increase in interest costs (total debt +2.9x Y-o-Y to cEGP1.85bn), while interest income increased 8% Y-o-Y to EGP5mn. Earnings were broadly in line with our estimate (-4% vs EFGe), as stronger-than-expected revenue growth was partially offset by weaker-than-expected margins.

Revenue grew 38% Y-o-Y in 3Q24 to EGP2.8bn (+14% vs EFGe), with the cheese segment (93% of 3Q24 total revenue) revenue increasing 35% Y-o-Y, while the milk and juice segment’s revenue (c7%) increased 131% Y-o-Y.

Headline gross margin expanded c2.9pps Y-o-Y to 21.2% (vs EFGe: 25.0%) in 3Q24. Meanwhile, gross margin expanded c3.3pps Y-o-Y to 22.7% in 9M24, with cheese gross margin +3.7pps Y-o-Y to 23.2%, while milk and juice gross margin +0.4pps to 17.0% in 9M24. Accordingly, gross profit grew 60% Y-o-Y to EGP602mn in 3Q24 (-3% vs EFGe, +56% Y-o-Y in 9M24). EBIT margin expanded a slightly tamer c2.8pps Y-o-Y to 17.6% in 3Q24 (vs EFGe of 21.1%), as SG&A costs increased 42% Y-o-Y (vs revenue growth of 38%; +5% vs EFGe), with operating profit up 65% Y-o-Y in 3Q24 (-4% vs EFGe).

Overall, a strong set of results, driven by continued revenue growth and margin expansion. We are Buyers of the name, on valuation grounds and an impressive profitability profile (2023: RoAE 108%, RoAIC 107%; net margin c10%).