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BY
  • Macro indicators across the board have improved, with private investment yet to show its potential and drive the economy
  • Given the reversal of the bulk of 2016–17 rate hikes and some c11% EGP appreciation in 2019, we are bullish on consumer, financials, and select real-estate names
  • With most of Egyptian equities currently oversold, we focus on compelling stories with limited downside risk, filtering through to 10 high-conviction picks

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BY and Hana Adawy /
  • Private sector rebound witnessed in 1Q20 relapsed due to low visibility on the future development of the pandemic in our view, while we expect interest rate stability over the rest of 2020
  • Despite our 2020e earnings downward revision, NBFS are showing high resilience with companies under our coverage seeking profitable investments and synergies with commercial banks
  • We decrease our 12-month TP for EFG Hermes by c10% to EGP21.1/share and for CI Capital by c23% to EGP4.59/share on downward earnings’ revision, while maintain Overweight for both. EFG Hermes is our top pick on regional exposure and higher potential return

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BY  and Farida Salama /
  • A lower EGP/USD rate and delayed local demand recovery limit the benefits of an improved export market outlook, weighing down on Oriental Weavers’ top line
  • Despite higher working capital needs and CAPEX bill, the stock offers a 2021–24e FCF yield of c15%, on average
  • We cut our TP c23% to EGP7.15/share on our lower estimates, but maintain Overweight on share price weakness

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  • OC reasonably weathers the storm aided by a strong backlog and balance sheet, but new order intake ex-Egypt likely to be impacted 
  • COVID-19 additional costs still in place, but a good project mix and earlier revenue underbookings should give margins a breather and, along with BESIX’s recovery, support earnings
  • We lower our 2020–24e EBITDA estimates c5% and our TP c10% to EGP175/share, but reiterate OW on compelling valuation

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BY  Mariam Ramadan  and Abdelrahman Wahba/
  • Capacity shutdowns outpaced by demand destruction; prices unlikely to find a bottom without direct government intervention, which is now in the cards
  • Lower coal/petcoke/electricity prices, a stronger EGP and lower SG&A expenses offset weak selling prices, giving a breather to ACC’s operating margins, but earnings remain in the red until the end of the year, on our estimates
  • We cut our 2020–23e EBITDA estimates c11% and TP c21% to EGP5.50/share, and maintain OW on a still compelling valuation

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BY  Monette Doss  and Hana Adawy/

  • Despite our downward GDP revision, Egypt provides attractive risk-adjusted return for carry-trade, while the banking sector is strong enough to weather a business slowdown in 2020, in our view
  • CAPEX lending now delayed to 2021, however CIB, ADIB-Egypt and CAE are expected to maintain decent profitability, despite 2020e EPS downward revision, in our view
  • We remain Overweight on CIB and ADIB-Egypt, and upgrade our rating for CAE to Overweight from Neutral, despite lower valuations for the 3 banks. CIB is our sector pick

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BY and Abdelrahman Wahba/
  • SIDPEC manages to land the more optimistic USD1/mmbtu feedstock price cut, which more than offsets significant top line pressure
  • We raise our 2020–24e EBITDA and EPS estimates c10% and c27%, but cut our rating to Neutral following the recent share price rally

BY and Nemat Choucri /
  • Sector conditions continuing to be difficult have pushed MNHD to resort to one-off sales and cash sale discounts to overcome liquidity shortage
  • This has also impacted deliveries which are expected to pick up in 2021e. We forecast revenue to grow at 3-year CAGR of c21% and pre-sales to grow modestly at c3%
  •  We maintain our OW rating on MNHD, while lower our TP c44% to EGP7.05/share; implying a 2020e TP/NAV of 0.35x, while it is trading at half of that

 

BY and Mariam Ramadan / 30 August 2020
    • SIDPEC manages to land the more optimistic USD1/mmbtu feedstock price cut, which more than offsets significant top line pressure
    • We raise our 2020–24e EBITDA and EPS estimates c10% and c27%, but cut our rating to Neutral following the recent share price rally

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BY and AbdelRahman Wahaba/
  • 1Q20 is largely a reflection of earnings level through year-end, on our numbers
  • Beyond base-effect rebound next year, growth prospects appear limited and El Sewedy Electric has likely already seen its best days until the next wave of capacity building
  • We cut our 2020–24e EPS forecasts c44% and our TP c49% to EGP9.50/share, but maintain Overweight on share price slump

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BY and Farida Salama  /

  • While the coronavirus outbreak hindered a lot of industries, staples players benefited from panic buying and stockpiling of necessities
  • We expect a more rationalized consumer spending as economic recovery takes time to materialize. We differentiate between stocks based on elasticity of demand, cost outlook, pricing, and profitability

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BY /

Egypt’s annual headline inflation accelerated to 3.7% in September from 3.4% in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices increased 0.3%, reversing a decline of 0.2% in the previous month, with food and beverage prices declining 0.2% m-o-m compared to a decline of 1.65% m-o-m in August, the data showed. (CAPMAS, CBE)

Our comment: September’s headline inflation figures came in better than our expected increase of 0.7% m-o-m and 4.1% y-o-y. Despite a 2.6% y-o-y decrease in food and beverage prices, non-food items increased by 4.6% y-o-y mainly attributed to increases in healthcare prices which constitute 8.6% of the consumer basket and education prices constituting 5.5% of the consumer basket.

 

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By  Mariam Elsaadany / Sunday, October 11, 2020

Madinet Nasr Housing (MNHD EY) | Emaar Mir (EMFD EY): The company confirmed that it received offers from local and foreign alliances for the remaining 1.9m sqm of undeveloped land in its Taj City project and is currently studying these offers, it announced in a bourse release. These offers do not include Emaar Misr, the release added. (EGX)
Our comment: To account for the size of the transaction which is rumored to be cEGP11.0bn that is likely to be paid over installments, we are following up our DPS calculation with a discounted DPS value. Assuming equal installments over 5 years for the transaction and using MNHD’s WACC would yield a pre-tax discounted DPS of EGP4.76. We assume the first year dividend payment would be 2021 in our exercise, while our WACC averages at 16.6%. Deducting a tax rate of 22.5% would yield a discounted DPS of EGP3.69, while accounting for a 5% dividend tax would yield EGP3.51/share. Using our valuation for Sarai, the DCF component of our valuation and adding the Taj City’s implied land sale value of EGP3.51/share (net of all taxes), would yield a combined value of EGP8.25/share, c17% higher than our TP and c113% higher than the current market price of EGP3.87/share. The company’s denial of Emaar Misr to be involved in the negotiations and opening the possibility of non-Egyptian developer to enter the market leads to many possibilities on who the buyer can be, however, we rule out the possibility of certain listed developers such as Heliopolis Housing (HELI EY), Palm Hills Developments (PHDC EY) and SODIC (OCDI EY) to be interested given their East Cairo exposure. Another potential buyer who has been looking to secure East Cairo land bank was Ora Developers, which was recently interested in partnering with Qatari Diar to develop its City Gate project with an area of 8.5m sqm in New Cairo and was willing to pay USD658m (around EGP10.5bn), provided that Diar settles its disputes related to the project with the government. As per their agreement, Ora Developers were to own 60% of the project and Qatari Diar 40%, however the deal has failed. While we cannot know for sure who might be the potential buyer we are looking for companies interested in East Cairo land acquisition, and have the financial ability to pay such a value.

 

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BY  /

GB AUTO (AUTO EY): The company reported consolidated 2Q20 net income of EGP116m, reversing a new loss of EGP19.1m a year earlier, its financial statements showed. (Company release)

Our comment: This comes largely in line with our estimate of EGP119m, with only c3% deviation. Auto and Auto related business net loss narrowed to EGP20.0m in 2Q20, from EGP159m a year earlier, largely in line with our estimate of EGP20.7m, with only c4% deviation. Auto and auto related business revenue dropped c39% y-o-y to EGP2.88bn, which is largely in line with our estimate of EGP2.86bn, while gross profit also dropped c19% y-o-y to EG401m, beating our estimate of EGP393m by only c2%. Gross profit margin for the period stood at 13.9%, 3.4 pp higher than a year earlier, and only 0.2 pp higher than our estimate of 13.7%. Some EGP169m booked during the quarter as other operating income (of which EGP142m are related to a sale of land), came in c18% higher than our estimate. This, along with c27% lower-than-expected provisions (down c13% y-o-y) have more than offset the c3% higher-than-expected SG&A expenses (down c4% y-o-y), suggesting a more sizable beat of c15% on the EBIT level to EGP260m (up c35% y-o-y). This implies an EBIT margin of 9.0%, 4.9 pp higher than a year earlier and 1.1 pp higher than our estimate. Some EGP44m booked as FX losses and EGP27m in income taxes during the quarter have more than offset the c14% lower-than-expected net financing charges (down c46% y-o-y), diluting the beat on the EBIT level and causing a slight miss on the bottom line level of c4%. Segmental breakdowns showed that the higher-than-expected gross profit coming from regional operations and commercial vehicles (CVs) have largely offset the lower-than-expected Egypt’s 2- and 3-wheelers gross profit. Regional operations revenue dropped c77% y-o-y to EGP418m, c33% higher than our estimate, while gross profit dropped c55% y-o-y to EGP65.8m, beating our estimate of EGP29m by 2.2x as we believed that the coronavirus impact would be more pronounced given that Iraq had a complete lockdown for a longer-period of time compared to Egypt. As for the CVs, the business revenue dropped c17% y-o-y to EGP224m, 2.1x higher than our estimate, mainly on higher-than-expected effective selling price which we largely attribute to the sales mix. While the business gross profit dropped c59% y-o-y to EGP27.6m, 3.6x higher than our estimate, leaving margins at 12.3%, 12.7 pp lower than a year earlier, but 4.9 pp higher than our estimate. While Egypt’s 2-and 3-wheelers’ revenue grew c82% y-o-y to EGP532m on a more stable regulatory environment, it missed our estimate of EGP756m by c30% mainly on c28% lower-than-expected volume sold. The business gross profit grew 2.5x y-o-y to EGP101m, missing our estimate of EGP153m by c34%, leaving margins at 18.9%, 5.4 pp higher than a year earlier, but 1.4 pp lower than our estimate. It is worth mentioning that Egypt’s passenger cars (PCs) revenue dropped c27% y-o-y to EGP1.10bn, largely in line with our estimate of EGP1.13bn, as volumes dropped c22% y-o-y to 4,166 cars sold during the quarter largely in line with our estimate of 4,152 cars. The business gross profit grew c38% y-o-y to EGP96.3m, exactly in line with our estimate, leaving margins to stand at 8.7%, 4.6 pp higher than a year earlier, and 0.2 pp higher than our estimate. The company mentioned the reason for the y-o-y drop in volumes of both Egypt’s PCs and 2-and 3-wheelers due to the coronavirus outbreak and the closure of the traffic department and the presence of Ramadan and Eid which are typically low seasons for vehicles. As for GB Capital, revenue grew c8% y-o-y in 2Q20 to EGP1.32bn, missing our estimate of EGP1.38bn by c5%, mainly on c10% lower-than-expected other revenue (non-interest income). The business gross profit grew c31% y-o-y to EGP523m, c10% above our expectation, mainly on 2.0 pp lower-than-expected effective interest rate which resulted in c11% lower-than-expected cost of fund, implying a gross profit margin of 39.7%, 7.0 pp higher than a year earlier, and 5.3 pp higher than our estimate. Net interest margin for the business stood at 19.2% during the quarter, which is 9.0 pp higher than a year earlier, beating our estimate of 18.0% by 1.2 pp, thanks to its asset/liability duration mismatch through lending at fixed interest rates while borrowing at variable ones. Some c24% lower-than-expected provisions have more than offset the c15% higher-than-expected SG&A expenses and c36% lower-than-expected other operating income, suggesting a more sizable beat on the EBIT level of c12% to EGP250m, leaving margins at 19.0%, flat y-o-y, but 2.7 pp higher than our estimate. However, some 5.0 pp higher-than-expected effective tax rate have wiped out the beat on the EBIT level, leaving the business bottom line largely in line with our estimate to stand at EGP136m (down c20% y-o-y).

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GB AUTO (AUTO EY): The company reported consolidated 2Q20 net income of EGP116m, reversing a new loss of EGP19.1m a year earlier, its financial statements showed. (Company release)

Our comment: This comes largely in line with our estimate of EGP119m, with only c3% deviation. Auto and Auto related business net loss narrowed to EGP20.0m in 2Q20, from EGP159m a year earlier, largely in line with our estimate of EGP20.7m, with only c4% deviation. Auto and auto related business revenue dropped c39% y-o-y to EGP2.88bn, which is largely in line with our estimate of EGP2.86bn, while gross profit also dropped c19% y-o-y to EG401m, beating our estimate of EGP393m by only c2%. Gross profit margin for the period stood at 13.9%, 3.4 pp higher than a year earlier, and only 0.2 pp higher than our estimate of 13.7%. Some EGP169m booked during the quarter as other operating income (of which EGP142m are related to a sale of land), came in c18% higher than our estimate. This, along with c27% lower-than-expected provisions (down c13% y-o-y) have more than offset the c3% higher-than-expected SG&A expenses (down c4% y-o-y), suggesting a more sizable beat of c15% on the EBIT level to EGP260m (up c35% y-o-y). This implies an EBIT margin of 9.0%, 4.9 pp higher than a year earlier and 1.1 pp higher than our estimate. Some EGP44m booked as FX losses and EGP27m in income taxes during the quarter have more than offset the c14% lower-than-expected net financing charges (down c46% y-o-y), diluting the beat on the EBIT level and causing a slight miss on the bottom line level of c4%. Segmental breakdowns showed that the higher-than-expected gross profit coming from regional operations and commercial vehicles (CVs) have largely offset the lower-than-expected Egypt’s 2- and 3-wheelers gross profit. Regional operations revenue dropped c77% y-o-y to EGP418m, c33% higher than our estimate, while gross profit dropped c55% y-o-y to EGP65.8m, beating our estimate of EGP29m by 2.2x as we believed that the coronavirus impact would be more pronounced given that Iraq had a complete lockdown for a longer-period of time compared to Egypt. As for the CVs, the business revenue dropped c17% y-o-y to EGP224m, 2.1x higher than our estimate, mainly on higher-than-expected effective selling price which we largely attribute to the sales mix. While the business gross profit dropped c59% y-o-y to EGP27.6m, 3.6x higher than our estimate, leaving margins at 12.3%, 12.7 pp lower than a year earlier, but 4.9 pp higher than our estimate. While Egypt’s 2-and 3-wheelers’ revenue grew c82% y-o-y to EGP532m on a more stable regulatory environment, it missed our estimate of EGP756m by c30% mainly on c28% lower-than-expected volume sold. The business gross profit grew 2.5x y-o-y to EGP101m, missing our estimate of EGP153m by c34%, leaving margins at 18.9%, 5.4 pp higher than a year earlier, but 1.4 pp lower than our estimate. It is worth mentioning that Egypt’s passenger cars (PCs) revenue dropped c27% y-o-y to EGP1.10bn, largely in line with our estimate of EGP1.13bn, as volumes dropped c22% y-o-y to 4,166 cars sold during the quarter largely in line with our estimate of 4,152 cars. The business gross profit grew c38% y-o-y to EGP96.3m, exactly in line with our estimate, leaving margins to stand at 8.7%, 4.6 pp higher than a year earlier, and 0.2 pp higher than our estimate. The company mentioned the reason for the y-o-y drop in volumes of both Egypt’s PCs and 2-and 3-wheelers due to the coronavirus outbreak and the closure of the traffic department and the presence of Ramadan and Eid which are typically low seasons for vehicles. As for GB Capital, revenue grew c8% y-o-y in 2Q20 to EGP1.32bn, missing our estimate of EGP1.38bn by c5%, mainly on c10% lower-than-expected other revenue (non-interest income). The business gross profit grew c31% y-o-y to EGP523m, c10% above our expectation, mainly on 2.0 pp lower-than-expected effective interest rate which resulted in c11% lower-than-expected cost of fund, implying a gross profit margin of 39.7%, 7.0 pp higher than a year earlier, and 5.3 pp higher than our estimate. Net interest margin for the business stood at 19.2% during the quarter, which is 9.0 pp higher than a year earlier, beating our estimate of 18.0% by 1.2 pp, thanks to its asset/liability duration mismatch through lending at fixed interest rates while borrowing at variable ones. Some c24% lower-than-expected provisions have more than offset the c15% higher-than-expected SG&A expenses and c36% lower-than-expected other operating income, suggesting a more sizable beat on the EBIT level of c12% to EGP250m, leaving margins at 19.0%, flat y-o-y, but 2.7 pp higher than our estimate. However, some 5.0 pp higher-than-expected effective tax rate have wiped out the beat on the EBIT level, leaving the business bottom line largely in line with our estimate to stand at EGP136m (down c20% y-o-y).

 

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CI Capital Holding for Financial Investments (CICH EY): The company’s 2Q20 consolidated net profit declined c8% y-o-y to EGP90.4m, according to its audited financial statements. (Company’s financials)

Our comment: The net profit figure came in line with our estimate of EGP91.8m, with the biggest drop occurring in the IB business where brokerage, asset management and advisory fees combined, plummeted by c23% y-o-y to EGP58m mostly in line with our estimate of EGP59m and reflecting a halt in business activity during most of the quarter. The company’s leasing arm, Corplease, saw its net profit decline c3% y-o-y to EGP63m, however, it came c19% above our estimate of EGP53m due to one-off FX gains and other income of EGP9m, as well as lower-than-expected provisioning. Net leasing portfolio remained flat y-o-y at EGP8.4bn and only c4% above our estimate of EGP8.0bn. Corplease NIMs came in at 4.2% up from 4.0% in 2Q19, but lower than our estimate of 5.2% due to lower than expected interest earned on the net leasing portfolio, which came in at 13.3% down from 15.1% in 1Q20 and lower than our estimate of 14.5%. Reefy, the company’s microfinance arm, saw its net profit decline by c10% y-o-y to EGP26m, c36% below our estimate of EGP40m mainly due to lower-than-expected interest earned on its loan book. Reefy’s net loans grew c25% y-o-y to EGP785m, mostly in line with our estimate of EGP795m, while interest earned on its loan book declined to 46.4% in 2Q20 from 51.7% in 1Q20, a rate that we expected to be maintained given current economic uncertainty as well as the risky nature of the business. We believe that the decline in Reefy’s interest earned is triggered by higher competition in this field as well as a reflection of the 300 bps rate cut undertaken by the CBE in mid-March. Accordingly, Reefy’s NIMs declined to 39.7% in 2Q20 from 44.0% in 1Q20 and below our estimate of 44.8%. Currently, the stock is trading at a 2020e P/E and P/B of 6.62x and 1.09x, respectively compared to EFG Hermes Holding’s (HRHO EY) 2020e P/E and P/B of 13.14x and 0.72x, respectively.

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Egypt’s external debt increased to USD123bn in June from USD111bn in March, according to Central Bank of Egypt (CBE) data. The increase in debt includes USD3.8bn in Eurobonds, USD5.1bn in long-term loans to the Egyptian government and USD3.7bn of loans to the Egyptian banking sector, the data showed. (CBE)

Our comment: The Egyptian government had matured Eurobonds by the end of April worth USD2.0bn while it sold Eurobonds worth USD5.0bn a month later, resulting in a net increase in outstanding bonds of USD3.8bn. We believe the increase in government loans is due to the receipt of USD2.8bn from the International Monetary Fund (IMF) under the Rapid Financing Instrument (RFI) and USD2.0bn representing the first tranche of the USD5.2bn Stand-By Arrangement (SBA). Moreover, African Export-Import Bank (Afreximbank) announced that it extended USD3.6bn in loans to the Egyptian banking sector in 2Q20 to support Egypt’s balance of payment (BoP).

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Heliopolis Housing (HELI EY): The company announced its 2020–2025 strategy for its different projects, it announced in a bourse filing. For New Heliopolis City, it will review the project’s master plan and phasing before mid-2021, it will complete all missing infrastructure and utility works and deliver all  residential units contractual obligations before the end of 2021, it will develop on its own a total area of 400 feddans, it will offer for revenue-sharing with other developers 1–2 land plots with an area of 500 feddans each after extending infrastructure to the land, it will fully sell all of its units inventory in the project, and it received several offers for a 240-feddan land plot in the north of the project and the north of the electric train project, which are currently under study by its management. For Heliopark with an area of 1,695 feddans, it will assign to an international company the design of a new general master plan for the project during 2021, it is open for negotiations with major real estate developers to develop 1,000–1,200 feddans of the project under a revenue-sharing scheme and is planning to develop 200 feddans of the project on its own. For the rest of its real estate assets in Heliopolis, it will continue upgrading Merryland park during 2021, and will work on operating Ghernata City historical site within 1 year from now. Heliopolis Housing has also developed a plan to secure financing for the implementation of year 1 of its 5-year strategy, which will be enacted within weeks, and has developed a detailed financial study for the following years as it plans to implement a capital increase during year 1. The company is also planning to undertake an administrative restructuring entailing hiring well qualified calibers to be able to deliver its vision and strategy, while setting and adhering to corporate governance standards. (EGX)

Our comment: We positively perceive Heliopolis Housing’s new strategy of being more aggressive in pursuing revenue-sharing agreements, which creates more value as opposed to developing its land bank on its own, in our view. The areas the company is planning to offer for revenue-sharing agreements range between a total of 1,500 feddans to 2,200 feddans across its 2 main projects (6.30m-9.24m sqm, representing c34%-c50% of its total land bank) and includes most of its prime land in Heliopark. The company also has a track record in revenue-sharing agreements after it launched its revenue-sharing project SODIC East with SODIC (OCDI EY) in late 2017, however, we await the company’s announcements of serious offers and the terms it sets for such revenue-sharing agreements to be able to form a clearer view.  As part of the company’s new strategy, the announced area it is planning to develop on its own is limited to only 600 feddans (2.52m sqm, c14% of its undeveloped land bank). We believe the earliest monetization suggested by this strategy would  be the sale of the 240 feddans (1.01m sqm) in New Heliopolis City, for which the company already received offers. It is worth mentioning that the company had previously planned the sale of some 190-feddans (0.80m sqm) in New Heliopolis City which it had budgeted at EGP2,500/sqm implying a value of EGP1.99bn or EGP4.48/share, however it did not materialize. Using the same budgeted pricing would imply a value of EGP2.52bn or EGP5.66/share for the 240 feddans. It is worth noting that the company sold 34 feddans to Zahraa El Maadi in December 2019 at an average price of EGP3,368/sqm, c35% higher than the budgeted EGP2,500/sqm, and the price we use in our NAV calculation, as the plot was significantly smaller. The terms for the sale of the plot to Zahraa El Maadi were a 25% down payment and the rest over 4 years. Using the same terms and deducting a 22.5% tax and a 5% dividend tax (assuming the company might distribute a special dividend, however it may choose not to distribute any dividends in light of its expansion plan), would imply an NPV of EGP2.19/share. Our NPV/sqm of land for New Heliopolis City is EGP631/sqm while the sale (using a market price of EGP2,500/sqm and 4-year payment schedule) implies an NPV of EGP969/sqm of land and a premium of 1.54x to our valuation. The company’s undeveloped land bank (excluding the undeveloped areas of SODIC East) stands at 18.48m sqm, of which, 11.4m sqm are in New Heliopolis City and 7.1m sqm in Heliopark. Another significant development included in this strategy is the company’s intention to increase its paid-in capital during 2020, however we are concerned that the market may not be welcoming this move currently. Our TP for Heliopolis Housing is EGP11.0/share with its undeveloped land bank contributing EGP11.9/share and its DCF contributing a negative EGP0.86/share due to its high net debt balance.

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Talaat Moustafa Group Holding (TMGH EY): The company is in negotiations with the New Urban Communities Authority (NUCA) to develop ​​5,000 feddans (21.0m sqm) in Capital Gardens City in East Cairo under a revenue-sharing scheme, according to unnamed official sources. A presidential decree will be issued soon to establish Capital Gardens City, which will be located near the New Administrative Capital, the sources added. (Al Borsa)

Our comment: The size of the plot under negotiations of 21m sqm, is only c38% smaller than the size of TMG’s mega-project, Madinaty, which the company has been developing since 2006. TMG does not disclose its undeveloped land bank but it discloses the undeveloped BUA which stands at c14m sqm (c11m sqm of residential BUA and c3m sqm or non-residential BUA). Using an FAR of 0.6x (the same FAR of Celia) yields a BUA of 12.6m sqm for the potential 21.0m sqm plot and implies a c90% increase in the company’s undeveloped BUA to 26.6m sqm, if the deal materializes. Given that the project is of a revenue-sharing nature, the company will not be burdened by the cost of land which reached EGP4.40bn for Celia, EGP2,095/sqm. If finalized, we expect the project to be similar to Madinaty in terms of visibility allowing the company to generate sales to extend beyond 2035, in our view.

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By Noha Baraka and Farida Salama / Tuesday April 21, 2020

Obourland Food Industries (OLFI EY): The company’s 1Q20 consolidated net profit grew c28% y-o-y to EGP68.1m, according to a bourse filing. (Company release)

Our comment: This comes c11% above our estimate of EGP61.5m, mainly on an EGP4m booked as FX gains, lower than expected SG&A expenses, and slightly higher margins. Revenue came in largely flat y-o-y at EGP583m, missing our estimate of EGP628m by c7%. Gross profit (including depreciation) grew c24% y-o-y to EGP143m, largely in line with our estimate of EGP145m, leaving margins to stand at 24.6%, 4.6 pp higher than a year earlier and 1.5 pp higher than our estimate. We attribute the higher-than-expected margins to a higher-than-expected cost savings from the installation of the 3 new Tetra Pak A3 speed production lines, as well as higher discounts received from Tetra Pak on the new packaging. Some c9% lower than expected SG&A expenses (up c5% y-o-y) caused a c6% beat on the EBITDA level (up c45% y-o-y) to stand at EGP101m, leaving margins at 17.4%, 5.2 pp higher than a year earlier and 2.1 pp higher than our estimate. Some EGP4m were booked as FX gains during the quarter, adding to the bottom line beat. On a segmental breakdown the beat on the top line level is mainly coming from the cheese segment. The cheese segment revenue came in largely flat y-o-y at EGP551m, missing our estimate of EGP597m by c8%, mainly on a c6% lower than expected units sold (down c2% y-o-y). Despite that demand increased significantly amid the coronavirus outbreak, the company couldn't keep up with the demand and couldn't increase its utilization rate to reach its full production capacity given that usually they plan production lines upgrades and replacements during this quarter, and the 3 new Tetra Pak production lines came on stream in December and the new processed cheese line was planned to be moved to the new factory in 1Q20. The cheese segment gross profit came in largely in line with our estimate at EGP135m (up c24% y-o-y), leaving margins to stand at 24.6%, 4.6 pp higher than a year earlier and 1.6 pp higher than our estimate. Juice and milk segments revenue dropped c4% y-o-y to EGP31m, but came in largely in line with our estimate of EGP32m, while its gross profit grew c24% y-o-y to EGP8m, beating our estimate by c9%, leaving margins to stand at 25.7%, 5.7 pp higher than a year earlier and 2.6 pp higher than our estimate. The company mentioned in its earnings release that milk volumes surged significantly y-o-y and Obourland is continuing with its plan of launching the 200ml flavored milk offerings, while the juice segment volumes were down y-o-y due to the current conditions and due to the fact that 1Q usually does not play in favor of juice products. The company is planning in 2Q20 to decrease its juice products’ prices to increase its competitiveness and sales.

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News

BY / Tuesday, 20 October

The World Banks expects Egypt’s GDP to grow 3.5% in FY20/21 and 5.8% in FY22/23, according to a report released yesterday. (Al Borsa)

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BY  /Tuesday, 20 October

Egypt’s Ministry of Finance (MOF) is targeting issuing EGP640bn worth of treasuries in 4Q20 including EGP197bn in October, EGP197bn in November and EGP247bn in December, according to a MOF report. (Al Mal)

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