Nadec, Al Safi Danone merger to boost financial position: Albilad Cap

The potential merger between National Agricultural Development Co. (Nadec) and Al Safi Danone Co. will add value to the new entity by trimming cost and operating expenses, while boosting economies of scale due to similarity of main activity of the two companies, Albilad Capital said in a recent report.

“Furthermore, the merger supports the market competitiveness and financial position of the unified entity,” the brokerage firm said.

On October 7, Nadec and Safi Danone signed a non-binding memorandum of understanding to study the possibility of merging the two companies, to be executed through a share swap agreement.

Upon the completion of the transaction, the shareholders of Safi Danone will own 38.75% of the paid-in capital of Nadec after the increase.

The Tadawul-listed producer of wheat and dairy products had reported a net profit of SAR 17.3 million in Q3 2017, nearly 40 percent lower year-on-year (YoY) and down 33 percent quarter-on-quarter (QoQ).

Nadec’s third-quarter earnings, Albilad Capital said, missed the brokerage firm’s estimate of SAR 19 million.

“However, we maintain our valuation for the share at SAR 27.4 per share as our future outlook for Nadec remained intact,” the report added.