The UAE’s food and beverage sector has remained fairly resilient to the shifts in oil prices and geopolitical upheavals thanks to a robust domestic consumption. The industry is driven by UAE’s population growth and rising tourist arrivals.
The population is expected to increase to above 10.8 million in the next five years, while the tourism revenues surpassed $5 billion in the first-half of this year compared to $3 billion in the same period last year. With the Qatar FIFA World Cup attracting more visitors here and the winter holiday season right around the corner, demand for F&B will follow an upward trajectory, And with an estimated growth of 6.8 per cent CAGR predicted from 2022 through 2027.
A listed company to capitalize on the F&B sector is Dubai Refreshments, the authorized Pepsi bottler for almost 60 years. In addition, a higher population means the Total Addressable Market (TAM) increases, which should boost its top-line - and bottom-line - via economies of scale. The company provides bottling and distribution services for carbonated beverages, iced tea, water, fruit-flavored and energy drinks, and ice cream, enabling it to cater to a diverse clientele. In addition, many vending machine touchpoints across the UAE broaden its geographical coverage.
Strong first-half 2022
The revenue for H1-2022 was Dh363 million compared to Dh296 million a year prior, representing a 23 per cent growth. Of this, 88 per cent were attributable to local sales and up to 60 per cent from long-term contracts. This is reassuring for risk-averse investors as it adds an element of stability to the earnings while providing an upward exposure as the industry inches towards faster growth.
Net profit was reported at Dh54.5 million, a 20 per cent jump, indicating increasing shareholder value. As a result, the basic and diluted EPS for H1-2022 grew from Dh0.5 in 2021 to Dh0.61 in 2022. Dubai Refreshments has a strong balance-sheet structure, with cash recorded at Dh190 million for H1-2022, which is a 22 per cent surge year-on-year. The company is making efforts to reduce net debt, a 6 per cent reduction compared to the same quarter last year. In addition, a sizable cash reserve would aid in maintaining dividend payments and planning for opportunities to expand the customer base.
Dubai Refreshment has a market cap of Dh1.35 billion, and its dividend yield stands at 4.67 per cent with an annual payment frequency. Moreover, the company made payouts even during the pandemic.
Expanding beverage portfolio
Dubai Refreshments has secured an agreement with London Essence, a luxury drinks company, to distribute its most popular mixers to top restaurants in the Middle East. This can be seen as a positive for the company’s outlook as it expands its portfolio and partakes in the lucrative high-end beverage segment.