The three companies are companies with a very good reputation – solid brand names – and are managed very professionally by the second generation or by a foreign management.
All these companies share a very similar business model, as they belong to industries with both high fixed (fully automated pasteurization plants) and variable costs, meaning that they depend mainly on a moderate operating profit margin and high volume by controlling a large market share.
Therefore, the cost of SG&A (selling, general and administrative costs) in these companies is close to 20% of revenues. Without a huge market, these companies will not be able to survive.
The three companies’ stock performance was not great in 2022, with the exception of Domty, which saw its stock increase by around 25%, especially after the acquisition offer. Obour Land and Juhayna traded close to their prices at the beginning of the year.
However, what is striking about the current market assessment is the following:
The total value of Domty shares + the total value of Obour Land shares = 60% of the market value of Juhayna’s shares, although the net profit sum of the two companies in 9 months 2022 is higher than Juhayna!
Juhayna’s market value = EGP 6.8 billion
Earnings for 9 months 2022 = EGP 474 million
The market value of Obour Land and Domty = EGP 4.2 billion
Earnings for 9 months 2022 for the two companies = EGP 490 million
Naturally, the scarcity of shares in circulation for Domty after the acquisition, in addition to weak trading in Obour Land shares, may explain the large difference in the pricing of shareholders’ rights, despite the similarity of profits.
But in another world, it was possible to sell Juhayna and buy shares in Obour + Domty so that the valuations would converge, not necessarily equal.
This was not written by Thndr and this is not investment advice, you should do your own research before making investment decisions.
