Nadec’s Q1 misses forecasts; better outlook for Q2: Albilad Cap

National Agricultural Development Co.’s (NADEC) Q1 2017 net profit of SAR 4.3 million came below Albilad Capital and consensus’ estimates of SAR 24.8 million and SAR 25.5 million, respectively.

Nadec – a producer of agriculture, wheat and dairy products – saw net profit plunge 83 percent year-n-year (YoY) in Q1.

The profit decline was due to a 5.38 percent drop in sales, with revenue from dairy and food processing segment shrinking by 4.68 percent. Agricultural sales also fell by 14.45 percent, Albilad Capital said in an earnings review.

“We believe that the shrinkage in purchasing power reflected negatively on the company's sales in the last period, especially juices and cheese sales, [coinciding] with the rise in operating expenses,” the brokerage firm added.

NADEC’s performance will likely improve in in Q2 on a quarterly basis, thanks to robust sales in Ramadan, higher demand for some products due to weather conditions, and harvest seasons.

King Salman’s royal decree to reverse bonus and allowances for public sector employees is also expected to improve demand.

“Furthermore, the income statement will be boosted by a capital gain of SAR 22 million from the divestment of the company's 17.5 percent stake in Pure Breed Poultry Co in a deal worth SAR 25 million,” the report added.

However, a further cut in energy subsidies in H2 2017 along with additional fees on expat workers and their dependents are expected to weigh on the company’s profit margins.

Albilad Capital reiterated its “neutral” recommendation on the stock, but upped its target price to SAR 27.40 from SAR 22.