Investors get a taste for food retail stocks

Agthia, a seller of bottled drinks, flour and animal feed, has caught the attention of investors seeking the safest flavour of the month.

Agthia, listed in Abu Dhabi, is one of several Middle Eastern consumer goods companies that look like a reliable investment in a turbulent economy.

Agthia rose 3 per cent to Dh1.68 yesterday. It has fallen by 21 per cent this year.

Sales have grown steadily, with revenue of Dh282.69m for the third quarter, an increase of 9.3 per cent over the same period last year. But profit fell by 22.6 per cent during the period to Dh19.47m.

Analysts are hoping for a turnaround. Factors including falling raw material prices and an increase in the price of its Al Ain Mineral Water ought to remedy the company's dismal margins, said Hatem Alaa, a vice president in EFG-Hermes's equity research department.

EFG-Hermes rated the stock a "buy", with a price target of Dh2.15.

"We expect to see a fairly strong recovery in margins and earnings next year," Mr Alaa said.

An oil price decline should reduce packaging costs, while a decrease in grain prices would also help to lower production costs.

In addition, new capacity on the company's flour and animal-feed lines should eliminate the current need to outsource some of its production, Mr Alaa said.

Consumer goods companies such as Agthia are sensible options in testing financial times. People in the UAE might take out fewer bank loans in a recession, but they are less likely to stop drinking bottled water.

International companies are seeking out deals in this area. Witness Carlyle Group's acquisition of a 42 per cent stake in Alamar Foods, the regional franchise operator of the Wendy's burger chain and Domino's Pizza.

Coca-Cola also announced a $1bn investment in Saudi Arabia's Aujan Industries aimed at capturing the Rani brand and securing entry into the juice business.

Despite new entrants in the juice market, Agthia had captured a niche market with its Capri-Sun brand and should remain competitive, Mr Alaa said.

ghunter@thenational.ae