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Almarai Co.

Source: NCB Capital

Almarai doubles it share capital

With the doubling of its share capital, Almarai’s share price has halved. This move is purely an accounting exercise by the company, but may lead to positive sentiment in the stock, coupled with improved liquidity.

• Almarai shareholders agreed on Sunday 5 December 2010 at an EGM to double the share capital of the company to SR2.3bn. This will lead to the number of shares increasing to 230 million, from 115 million. With immediate effect, this has resulted in the share price falling by half to SR109.75 from the SR219.5 closing price of Sunday.

• Although the increase in share capital is purely an accounting exercise and in no way changes the valuation of the company, we believe it will improve sentiment on the stock, as well as increase liquidity.

• At its pre capital increase price of SR219.5, Almarai was the most expensive stock in the Saudi market in absolute terms. Now trading at around the SR113 level, it will be much more accessible for retail investors.

• Our previous PT was SR200; this is now equivalent to SR100. As mentioned, the doubling of shares has no impact on the valuation of the company.

• As a side note, we view as a positive the announcement by Almarai on Sunday 5 December that it is launching its first infant milk products through its JV with Mead Johnson. However, we highlight that these products will be imported, and will not be sourced from its own facility which it is currently constructing. The company expects the locally produced products to replace the imported products by the end of 2011.

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