The expectation of hefty dividends is drawing investors to Saudia Dairy and Foodstuff Company (SADAFCO). The company is carrying no debt on its balance sheet and is expected to provide a 7 per cent dividend yield to its investors.
Shares of the company have gained 24.3 per cent in the past six months compared with the same period last year, trading at 41.90 Saudi riyals on the Saudi Tadawul All-Share Index yesterday. "The company has healthy operating cash flows, which suffice to cover capital expenditures, and good liquidity ratios with no debt to ensure that excess cash is paid out to the investors," said Divya Chandran, an analyst at Watheeqa Capital Company.
"We believe the current stock price does not fully factor in all the positives of the company."
SADAFCO is mostly known for its long-life milk, with 49 per cent of the market in the kingdom. The company also has a wide range of other products, including tomato paste, flavoured milk, beverages, snacks and ice-creams. More than 70 per cent of its revenues come from pure dairy products. The company is well positioned to grow because of Saudi Arabia's young population, Ms Chandran said. Saudi Arabia's population has historically grown an average 2.3 per cent annually, and the dairy market is estimated to increase by 2 per cent annually.
"The GCC market is far from saturated," said Ms Chandran. "Per-capita liquid dairy consumption in the developed world was close to 100 litres per year in 2008, while that in the GCC was just 25 litres per year."
The food company is well diversified, with established subsidiaries in the UAE, Qatar, Bahrain and Jordan to market its products. Kuwait, Sudan, Oman and Yemen are also served through external distributors. SADAFCO also recently launched cheese triangles in a bid to capture a higher market share in the dairy sector, Ms Chandran said.