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Egyptian Milling Industry "Bread & Life"
CI Capital Holdings, Sep 2009, Pages: 50
The milling sector is one of the essential sectors in the Egyptian market as it deals with a strategic commodity used in the production of subsidized bread. Egypt is ranked the second world wheat importer as it imports half of its needs to satisfy its total consumption of 15 mn tons on average. The public sector produces 64% of total subsidized flour and is controlled by the Government that incurs LE 16 bn annually for the bread subsidy. The General Authority for Supply Commodities (GASC) is responsible for supplying wheat to milling companies for the production of subsidized flour (82%-extraction). However, its role will start gradually to diminish with the implementation of Flour Liberalization Plan (FLP) which is currently under trials. The new plan allows the public and private sectors to compete in bids for the supply of subsidized flour and the winner (s) will be responsible for buying their wheat.
The publisher is initiating coverage on seven public milling companies. The milling stocks are traded at a forward FY09/10PER of 10.4x on average. The sector is characterized by a high average dividend yield of 7% in the last three years, distributed during the last quarter of the year usually in November. The publisher's top picks are East Delta Mills, Middle & West Delta Mills and Upper Egypt Mills with a Strong Buy recommendation for their high dividend yields exceeding the sector average. On the other hand, the publisher issues an Underweight recommendation on North Cairo Mills and a Sell recommendation on Alexandria Mills, Central Egypt Mills and South Cairo & Giza Mills characterized by their low dividend yields and high FY09/10 PER.
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