Almarai is well known as a dairy company, but its foray into the poultry business is boosting its shares. The Saudi company, whose dairy products and juices are available throughout the region, beat analysts' earnings estimates for the second quarter with a net profit of 343.1 million riyals, up 19.5 per cent from the same period last year.
Almarai was launched in 1976 by Saudi Prince Sultan bin Mohammed bin Saud Al Kabeer, who continues to lead the company. It went public on the Saudi Tadawul in 2005 and now has a market capitalisation of 7.7 billion riyals. The stock is near a four-year high as investors are optimistic the company's plan to produce 100 million chickens annually within three years will be successful. The shares fell 0.7 per cent to 191.25 riyals yesterday
It is an expensive gamble. Almarai entered the high-margin poultry business last year when it acquired Hail Agricultural Development for 1bn riyals and said it planned to invest 2.5bn riyals in the next three years to increase its output by five times. Most of the kingdom's chickens are now imported frozen from Brazil. "Almarai won't be able to compete on price, but they will be able to market [its birds] as Almarai local, good quality chickens, which is something consumers can relate to with their brand," said Farouk Miah, an analyst with NCB Capital in Riyadh.
Mr Miah maintains a "neutral" rating on the stock, but will look to upgrade it if the poultry investments begin to generate profits. "We see it as a period where they're laying foundations and the benefits of that investment need to be coming through," he said. Almarai also last year joined a 50-50 joint venture with Mead Johnson, the number one producer of infant formula in the world. The deal gave Mead Johnson its first presence in the kingdom, while Almarai promised to spend 650m riyals on production facilities in order to take on Nestle, which holds 40 per cent of the Saudi market for infant formula.