Shares of Emirates Refreshments Co. have seen a decent uptick with the stock up 45 per cent on a year-to-date basis. In Thursday's (December 17) session, the stock was up by 14 per cent with markets citing block deals on the stock.
The DFM had announced a block deal in Emirates Refreshments in late October when a Canadian engineering company had acquired around 9 per cent. The stock is now on track to retest its February’2018 levels of Dh4. At a macro level, the company has seen decline in its 2020 revenues with final full-year estimates expected to be near Dh25 million, significantly lower than 2019's Dh40.1 million.
Being in consumer staple sector, the company derives its revenues from its flagship packaged drinking water 'Jeema'. Overall sales have taken a hit this year as number of hotels, restaurants and cafeterias closed down due to the pandemic. Even though the company’s local sales have somewhat improved post the re-opening of the UAE economy, exports continue to show a dip.
For the first nine months, the company managed to bring down its overall losses by reducing cost of sales (Dh11.25 million vs Dh22.40 million for 2019). This month, ERC approved a host of new measures at its general assembly, including a major name change and transfer of its flagship brand.
The company will now be 'Emirates Reem Investment Company' and with plans to invest in range of new activities, including real estate, healthcare and farming. Also approved was an increase in authorized share capital to Dh600 million.
The approval will allow the company to further raise its total paid up capital by Dh300 million if required. The proceeds will be used for diversification purpose as well as acquiring companies that operate in different sectors along with meeting working capital requirements.
With the availability of vaccine, growth in overall tourism numbers and trade activity, key export markets should return to normal. This will likely see fresh investments in hospitality and other leisure sectors.
Another silver lining is in next year's mega event - Dubai Expo. Both factors will likely boost prospects for trade and tourism. Consumer facing companies such as Emirates Refreshment/Emirates Reem Investment could be of interest to investors for next year's plays.
- Vijay Valecha is Chief Investment Officer at Century Financial.