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Kuwait Food Co. - Americana

Source: CI Capital

Dividend income boosts 1H10 earnings

Kuwait Food Co [FOOD] showed a 122% year-on-year increase in its 1H10 earnings to KWD27.2mn (+22% above CICRe of KWD22.3mn), up from KWD12.2mn in 1H09. The main reason for the surge in earnings (and the resulting deviation from estimates) was recognition of KWD9mn in special dividends received in 2Q10. These came from FOOD’s investments in Kuwait Telecommunications (Zain). Despite the fact that top line increased 11% in 1H10, EBITDA expanded less than 1% due to high selling expenses. Revenues continued to head north, however, with restaurant segment revenues rising 16% and industries revenues a milder 10%. We maintain our top line estimates for FOOD, but have raised our 2010E earnings 19% to account for the special dividends received. We therefore leave our LTFV and target price unchanged at KWD1.83/share and KWD1.64/share, respectively, both of which we set in our Initiation of Coverage on June 21st, 2010. FOOD trades on a 2010E PER of 13x, compared to an 11.7x Kuwait market average and composite peer average. Having taken all these factors into account, we reiterate our Hold rating.

Valuation and recommendation: We remain confident in the company’s top line, though admit that high food prices and the increasing costs FOOD’s marketing campaigns may partially weigh on margins. FOOD could also stand to receive an additional special dividend from its investment in Zain following the telco’s sale of its African assets. We leave our LTFV and target price unchanged at KWD1.83/share and KWD1.64/share, respectively, maintaining our Hold rating.

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