Almarai’s milk price hike unlikely to impact valuation: Al Rajhi Cap

Dairy producer Almarai’s recent decision to increase prices of its milk products is a positive move, but will not have a material impact the company’s valuation considering the possible decline in volumes amid higher prices, Al Rajhi Capital said in a note on Wednesday.

Almarai recently announced a 5 percent to 9 percent increase in various categories of its milk products, while attributing the decision to higher input costs in form of energy, fuel, fodder and labor.

“Our calculations indicate that the price rise could improve bottom-line provided the volumes remain broadly unchanged,” the financial advisory firm said.

“However, if the volumes decline by more than 3 percent following the price hike, then the benefit of price rise is likely to be completely erased,” it added.

Additionally, the stock price has already run up by 9 percent in past three months and is currently trading well above target price, the report said.

Al Rajhi Capital remains “underweight” on Alamari with a target price of SAR 50 per share.