Shares of Agthia, an Abu Dhabi food producer, fell yesterday as it announced a 25 per cent decline in profits.
For some short-term investors, the fundamentals behind growing demand for food staples worldwide continue to be outweighed by the increasing prices of basic commodities, which ate into Agthia profits.
The food producer, which sells bottled drinks, flour and animal feed, is expected to benefit in the long run from the UAE's young and growing population and expanding GDP per capita.
These factors helped increase sales by 14 per cent last year to Dh1.1 billion, but increases in grain prices and difficult comparisons on 2010 meant net profits fell from Dh115 million to Dh86m. Earnings per share fell from 0.193 to 0.144 and the company's shares fell 4.5 per cent to Dh1.72 as a result yesterday.
The shares have fallen 18 per cent since July last year, but analysts remain upbeat.
"Our outlook on the stock is unchanged," said Ashish Jain, an analyst at NBK Capital in Kuwait. "The results are basically in line with expectations. We knew that the company was going to report a drop in earnings year-on-year."
He said markets had already seen a small correction in commodity prices, which would help Agthia in the long run.
Mr Jain has a "buy" rating on the stock and a target price of Dh2.20.
Agthia is an important player in Abu Dhabi's food security strategy and is 51 per cent owned by the Abu Dhabi Government through shares held by the conglomerate General Holding.
It is split into three divisions: consumer; agriculture; and an Egyptian business.
The consumer business includes the manufacture and distribution of Al Ain bottled water, frozen vegetable products, Isklar water, Chiquita juices and Yoplait dairy products.
Yoplait claims to be the second-largest brand in terms of sales in the fresh dairy product category worldwide, and the biggest in the US and Australia.
Agthia recently increased the annual capacity at its flour plant from 205,000 tonnes to 282,000 tonnes and at its animal feed plant from 370,000 tonnes to 488,000 tonnes to keep up with demand.
Total assets grew 8 per cent to Dh1.4bn last year after the company invested in a new corporate office and increased production of a number of consumer products, such as Yoplait dairy products.