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Reports

BY  Mariam Ramadan  and Abdelrahman Wahba/
  • Global steel market takes another hit, braking its preliminary recovery from a bad 2019, with the local market dynamics providing a breather
  • Ezz Steel could remain in the red for another couple of years and is likely to call on the CBE initiative for a new financing facility
  • We cut our 2020–23e EBITDA estimates c22% and our TP c37% to EGP7.5/share and reiterate our Neutral rating

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BY  Monette Doss /

    • Global prices still fetching a bottom, which, along with higher USD/EGP estimates and suboptimal local market conditions, take a toll on earnings
    • Absent another feedstock price cut, SIDPEC could turn to losses in 4Q19, but negotiations are ongoing over a retroactive revision
    • We cut our 2020–23e EBITDA and EPS estimates c70% and c76%, and our 12M TP c62% to EGP6.50/share, and downgrade to UW from OW

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BY and Farida Salama/
  • Set to fairly weather unfavorable market conditions, along with effective cost cutting measures should help Obourland sustain high gross profit margins levels
  • This, coupled with a solid balance sheet and lower working capital needs, filter through to a 5-year FCF CAGR of c32%; offering an average FCF yield of c12%
  • Initiate coverage with a 12M TP of EGP9.2/share and an OW rating; valuation is compelling with the stock trading at an unjustified discount to peers implied multiples and offering attractive dividend yields

 

BY and Hana Adawy /
  • Egypt’s external position to deteriorate post the coronavirus outbreak, while public banks fill in the funding gap through short-term external financing, in our view
  • In light of the Egyptian government’s downward growth revision, we lower our FY19/20 estimates and keep future estimates until further clarity
  • Despite government initiatives, the foreseen delay in private sector pickup will adversely affect budget deficit and public debt figures, in our view

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BY and Mariam ElSaadany / 21 May 2020
  • In light of the coronavirus outbreak, the stock takes a hit due to its tourism sector exposure, despite impressive real estate operations 
  • We cut  hospitality occupancy rates to a 2020e–2021e average of c62% in Gouna, c36% in Taba Heights and c26% in Fayoum, and we account for a gradual recovery in 2H20e
  • We reduce our TP by c33% and maintain our Overweight rating on the steep drop in share price

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  • CBE surprises market with sizable 150 bps cut, signaling start of an accelerated easing cycle
  • Positive real interest rate reduces currency risk and well positions local debt market among emerging markets
  • We expect at least a further 100 bps cut before the end of the year; weakening global economic activity remains a risk

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BY  and Sara Saada /
  • Monetary easing key for resumption of CAPEX lending, in our view
  • This should reflect in lower banking NIMs while strong CAR supports balance sheet growth, on our numbers
  • We raise our 12M TP c8% for CIB to EGP87.8/share and maintain OW, leave CAE largely unchanged at EGP51.9/share but downgrade to N, and maintain ADIB at EGP18.3/share and OW; ADIB is our top pick as the bank’s turnaround story is not fully priced-in

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BY and Zeina Shahin /
  • Mixed local demand outlook and increased competition from export markets leave our top line estimates c4% lower, on average, over our forecast period
  • This, coupled with slower rebate collections, leave our EBITDA estimates c30% lower, on average
  • We cut our 12-month TP c32% to EGP13.9/share on our lower estimates, but maintain Overweight on share price weakness

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BY and Zeina Shahin /
  • Inevitable tax revision around the corner followed by a series of price hikes translate to an average increase of c7% in blended local ex-factory price over our forecast period, on our calculations
  • This, however, is largely offset by a higher EGP/USD rate and lower volumes, leaving our FY19/20e–FY23/24e EBITDAR estimates c11% lower, on average
  • We cut our 12-month TP c7% to EGP20.0/share on lower estimates and higher cost of equity, but upgrade to Neutral from Underweight on share price weakness

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BY and Zeina Shahin /
  • A combination of higher-than-expected market share loss and a lower blended portfolio price filter through to a 2019–23e total revenue downward revision of c14%, on average
  • This, along with higher raw material cost per unit in USD terms, leave our EBITDA estimates c27% lower over our forecast period, despite lower EGP/USD rates
  • We cut our 12-month TP c23% to EGP85.0/share and downgrade the stock to Neutral from Overweight on non-compelling valuation, despite share price weakness

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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  /

Abu Dhabi Islamic Bank Egypt (ADIB EY): The bank’s 1Q20 consolidated net profit dropped c18% y-o-y to EGP230m, according to its announced KPIs. (Bank release)

Our comment: The reported net income came in c9% above our estimate of EGP211m. Operationally, the bank performed better than we expected with net interest income growing c15% y-o-y to EGP815m c6% higher than our estimate of EGP765m, and service charges and fees growing c6% y-o-y to EGP127m, 2.19x higher than our estimate of EGP58m. We believe that this could have been partially diluted by investment losses or other contingent provisioning, which we will be able to confirm when the full financial statements are disclosed. The c18% y-o-y drop in net profit, however, is largely attributed to higher loan loss provisioning charges of EGP121m up from EGP40m in 1Q19. As of 4Q19, the bank had an NPL ratio of 3.1% and a coverage ratio of c131%. The bank’s deposits grew c1% q-o-q to EGP51.8bn, only c1% below our estimate of EGP52.2bn; while loans grew c11% q-o-q to EGP34.2bn, c18% above our estimate of EGP28.9bn. More to follow upon the release of the bank’s full financial statements.

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By  Hana Adawy / Thursday May 21, 2020

Egypt plans to issue USD-denominated benchmark triple tranche Eurobonds divided into a 4-year tranche with a yield of 6.250%, a 12-year tranche with a yield of 8.125% and a 30-year tranche with a yield of 9.375%, according to an unnamed source familiar with the matter. The issuance book runners include BNP Paribas, Citi, HSBC, JP Morgan and Standard Chartered Bank. (Bloomberg)

Our Comment: Yields on the upcoming issuance are higher than the previous issuance of USD2bn in November 2019, which consisted of: a USD500m 4-year tranche yielding 4.55%, a USD1bn 12-year tranche yielding 7.05% and a USD500m 40-year tranche yielding 8.15%. These yields are even higher than the USD4bn Eurobond issuance which took place in February 2019 and consisted of a 5-year tranche worth USD750m with a yield of 6.20%, a 10-year tranche worth USD1.75bn with a yield of 7.60%, and a 30-year tranche worth USD1.50bn with a yield of 8.70%. The higher yields are seen as a reflection of the higher global risk resulting from the coronavirus outbreak, and reflected as an increase in Egypt’s 5-year CDS to 593 currently, from 307 in November 2019 and 360 in February 2019.  Despite that the government had previously claimed not to issue any additional Eurobonds for FY19/20 beyond the USD2bn issued in 1H19/20, we believe this comes as the economy encounters severe pressure on its foreign currency resources and a USD17bn worth of foreign currency outflows since the outbreak of the coronavirus in March. This resulted in: (1) a decline in the country’s net international reserves (NIR) to USD37.0bn in April from USD45.5bn in February, before the impact of the coronavirus started to materialize, (2) a decline in foreign currency deposits not included in international reserves to USD3.23bn in April from USD6.97bn in February and (3) a net foreign liability position of the banking sector, excluding the Central Bank of Egypt (CBE), worth USD3.46bn in March, compared to a net foreign asset position of USD7.87bn in February and including the CBE, the total banking sector’s net foreign assets decreased significantly to USD8.14bn in March from USD24.7bn in the previous month, as banks cover the foreign currency outflows, in our view. It is also worth mentioning that Egypt’s foreign debt increased to USD113bn as of the end of 2019 from USD96.6bn in December 2018.

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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 / Thursday, 21 May

Egypt’s GDP grew at 5.0% in 3Q19/20, compared to a previously targeted 5.9% before the coronavirus outbreak, according to a statement by the minister of planning and development. The Industrial, agricultural,construction, real estate and wholesale and retail sectors contributed to 50% of the quarter’s growth, she added. In related news, Egypt’s tourism sector contribution to GDP dropped to 2.7% in 3Q19/20 from 3.0% a year earlier, according to a cabinet statement. Industrial sector contribution increased to 12.8% in 3Q19/20, from 12.2% a year earlier and telecom sector contribution increased to 2.7% from 2.5% a year earlier, the source added. (Egyptian Cabinet, Al Borsa)

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BY  / Thursday, 21 May

The Egyptian cabinet approved a draft law to impose a 1% fee on net salaries and 0.5% on pensions for a 1-year period, to contribute in combating the negative impacts of the coronavirus, according to a cabinet statement. It will be effective on July salaries and will be applicable on all employees in all sectors; except for those with a monthly net income of EGP2,000. The law also permits the cabinet to exempt sectors that were deeply impacted by the coronavirus from paying these fees, it added. (Egyptian Cabinet)

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