Mideast funds positive on Saudi Arabia after corruption crackdown

Saudi King Salman ordered the formation of a super committee to combat corruption in November. (SPA)
Updated 01 December 2017
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Mideast funds positive on Saudi Arabia after corruption crackdown

DUBAI: Middle East fund managers have become more positive toward Saudi Arabian equities after authorities launched a sweeping crackdown on corruption, a monthly Reuters poll showed on Thursday.
Forty-six percent of funds now expect to raise their allocations to the Saudi stock market in the next three months and none to reduce them, according to the poll of 13 leading managers, conducted over the past week.
That is the most bullish bias toward Saudi stocks since July, and compares with ratios of 31 percent and 8 percent in last month’s poll.
The crackdown alarmed the stock market because of its potential to damage the economy and undermine companies linked to suspects.
As a result, foreign investors were net sellers of stocks in the first three weeks of this month, exchange data shows. They were also concerned by rising tensions between Saudi Arabia and Iran, fueled by instability in Lebanon.
But many fund managers said they were looking past the short-term instability caused by the corruption crackdown to possibilities created by Saudi Arabia’s economic reform program, including privatizations, big new development projects and the plan to lift a ban on women driving next year.
“The crackdown on corruption that we witnessed earlier this month, along with escalated tensions between Iran and Saudi, pushes us to be cautious about our overall Saudi exposure,” said Dubai’s Arqaam Capital.
However, it added: “Short-term uncertainties are concerning, but our long-term view is net positive when putting together reform initiatives and liberalization efforts.”
The non-oil part of the Saudi economy is barely growing this year and is not expected to fare much better next year because of the planned introduction of a 5 percent value-added tax.
But the government is expected to increase spending on development projects moderately in 2018 — perhaps relying in part on funds recovered in the corruption crackdown — so some funds are starting to look toward an economic recovery in 2019.
Sachin Mohindra, portfolio manager at Abu Dhabi’s Invest AD, said that while economic, regulatory and social reforms in the region as a whole would sustain growth in the long term, for now “we expect regional investors to continue to exercise a lot of caution and volumes to remain subpar relative to history.”
 


Morocco boycott slows sales growth at Danone

Updated 17 October 2018
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Morocco boycott slows sales growth at Danone

  • Seeks to rebuild consumer trust in Morocco
  • Sales growth shows slowdown

PARIS: Slacker demand for baby food in China and a consumer boycott in Morocco slowed third-quarter sales growth at Danone, although the French food group said it was sticking to its earnings growth targets.
Danone said it was banking on cost savings and a push into lucrative, healthy eating trends to meet those goals, despite lower sales of infant formula in China and the broad boycott in Morocco launched earlier this year on social media against what protesters said were unfair prices set by large companies.
Chief Financial Officer Cecile Cabanis cautioned the slowdown in China would last several quarters while the Moroccan boycott would weigh on the second half of the year.
Danone, the world’s largest yoghurt maker with brands including Actimel and Activia, said third-quarter sales reached $7.1 billion, a like-for-like increase of 1.4 percent — slightly above analysts’ forecasts for 1.2 percent growth.
Nevertheless, this marked a slowdown from 3.3 percent growth in the second quarter and 4.9 percent in the first quarter, and Danone shares fell 2.8 percent in early trading.
“The main miss is on Specialized Nutrition where infant milk formula is down 20 percent in China in Q3 ... We were not expecting such a drop” said Oddo analyst Pierre Tegner.
Danone, however, kept its annual financial targets.
Growth had accelerated at its dairy and plant-based business in North America, where Danone is integrating organic food group WhiteWave, and its European dairy division was on the road toward stabilization, it said.
Danone, which is targeting an operating margin above 16 percent and like-for-like sales growth of 4-5 percent by 2020, reiterated its expectation for a double-digit rise in 2018 underlying earnings per share (EPS), excluding the impact of the sale of a stake in Japan’s Yakult.
Sales of Danone’s ‘Early Life Nutrition’ products in China fell 20 percent in the third quarter following a period of strong growth and amid signs of changes in market dynamics.
The sales of the China-focused infant formula products had grown by around 30 percent in the second quarter of 2018 and by over 50 percent in the third-quarter 2017.
In China, where Danone competes in the baby food market with Nestle and Reckitt Benckiser, there has been strong demand for baby formula products thanks to a sharp rise in birth rates tied to the end of China’s one-child policy, and the emergence of new cities and an affluent middle class.
The peak in birth rates, however, happened in 2016 and started slowing down in late 2017, leading Danone to caution that the Chinese market will progressively show more normal trends from the second half of 2018 onwards.
Danone’s indirect E-commerce infant formula sales had also benefited last year from China’s decision to delay regulation of cross-border e-commerce, which led to stocking up by traders.
Cabanis said that although there were fewer births in China, Danone continued to benefit from demand for its ultra-premium infant formula products such as Nutrilon and Aptamil.
Morocco, which counts for 2 percent of group sales, was another weak spot as a result of the consumer boycott.
In September, Danone announced measures in Morocco to regain consumers’ trust, including price cuts, but sales in Morocco were still down 35 percent in the third quarter.