Riyadh – Mubasher: In a report on Saudi Arabia's food sector, NCB Capital said regulations on alfalfa together with higher utility and energy prices are expected to impact sector earnings.
Further revisions in subsidies will be a downside risk. However, we believe the long-term outlook remains positive given the defensive nature, increased average income from Saudisation, shift to healthier food options and FAO (Food and Agriculture Organization) expectations of an increase in per capita food consumption in Saudi, it added.
NCB Capital also said it remains Overweight on Savola and Neutral on Almarai.
The Saudi government announced plans to gradually reduce subsidies over the next five years in order to increase economic efficiency and non-oil revenues.
Prices for oil and gas products were revised upwards. This, in addition to price hikes in utilities and regulations on phasing out the cultivation of alfalfa, led to an
increase in costs for Food companies. These additional costs represented 12.1% of 2015 EBIT. Almarai expects a cost increase of SAR 500 million in 2016,
SAR 300 million from utility and fuel and SAR 200 million from importing alfalfa.
