Egypt's Juhayna is set to milk the rewards

What's Up: Juhayna, Egypt's largest milk and dairy producer, is expected to benefit from a relatively untapped market as the most populous country in the region becomes more health and and socially aware.

Several years ago, billboards around the US proclaimed: "Milk: It Does a Body Good.".

If Juhayna, Egypt's largest player in the dairy and yoghurt markets, can convince Egyptians that is true, the company's share price could see improvement as well.

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

Juhayna could produce double-digit earnings growth due to the country's favourable demographics, as well as increased awareness of the health benefits of drinking milk, Alembic HC Securities said in a note yesterday.

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, and plans to add about 240 vans and six more distribution centres this year.

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 999 million Egyptian pounds in an initial public offering (IPO) last July. Those proceeds are mostly being invested in dairy farms with the goal of producing 50 per cent of the company's raw materials, up from 10 per cent currently.

Shares of Juhayna have already risen by 20 per cent since the IPO and have outperformed the EGX30 Index by 13 per cent since January.

"Juhayna will remain among Egypt's most defensive stocks," said Hatem Alaa, an analyst at Alembic HC Securities in Cairo. The analyst initiated coverage of Juhayna yesterday with an "overweight" rating and a target price of 7.02 Egyptian pounds.

Mr Alaa forecasts the company to show 28 per cent earnings growth up until 2015.

He said he preferred 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.