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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 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
  • 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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Featured

BY  /

Egypt’s passenger car (PC) sales dropped c17% y-o-y to 8,091 cars in May compared to a drop of c26% y-o-y in the previous month to 5,852 cars, according to a report by the Automotive Marketing Information Council (AMIC). Bus sales rose c57% y-o-y to 1,862 buses, according to the report. (AMIC)

Our comment: Local PC sales came in largely in line with our May estimate of 7,995 cars, with only c1% deviation. Initial numbers from the AMIC report point to total GB Auto (AUTO EY) sales of 1,126 cars in May, which is c10% below our estimate of 1,250 cars, and c32% lower than a year earlier. This implies that the total market share during the month was 13.9%, which came 1.7 pp below our estimate, and 2.9 pp lower than a year earlier. Hyundai sales dropped c40% y-o-y to 768 cars during May, some c11% below our estimate of 860 cars. Geely sales came in exactly in line with our estimate of 4 cars during the month, compared to 131 cars last year. Chery sales came in c6% below our estimate (up c60% y-o-y) to stand at 352 cars in May. There were only 2 Mazda cars sold during May, a drop of c80% y-o-y and missing our estimate of 11 cars by c82%.

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By  Mariam Ramadan / Wednesday, June 29, 2020

Palm Hills Developments (PHDC EY): The company’s 1Q20 net income dropped c43% y-o-y to EGP81m, it said in its earnings release. Revenue grew c18% y-o-y to EGP1.10bn, while gross profit increased c10% y-o-y to EGP392m, implying a gross profit margin of c35%, down c2 pp y-o-y. New sales grew c39% y-o-y to EGP1.70bn, adjusting for some EGP1.00bn of expression of interest (EOI) cheques from Palm Hills Alexandria in 1Q19, it added. Additionally, the company announced that it is lowering its 2020 sales target by 20% to EGP12bn, it also said. (Company release)

Our comment: The company’s operational figures generally came in line with our estimates, but a higher-than-expected financing charge led to a c30% miss in the reported net income. Revenue for the quarter came c13% ahead of our estimates mainly due to the recognition of part of the EGP1.70bn new sales figure. Despite the revenue beat, the number of units delivered came c45% lower than our estimate at 135 units which the company attributed to the impact of the coronavirus on deliveries. The beat narrowed to c5% on the gross profit level, as gross profit margin came c2 pp lower than our estimate at c35%, which the company attributed to low-margin unit deliveries. SG&A expenses came c27% ahead of our estimate, which reversed the beat to a c12% miss on the EBIT level. The miss widened to c30% on the net income level due to higher-than-expected financing expenses (despite the 300 bps cut in interest rates in 1Q20), and despite lower-than-expected minority interest charge. Not adjusting for the 1Q19 expressions of interest (EOIs) related to Palm Hills Alexandria project, the company’s EGP1.70bn new sales shows a c23% y-o-y drop, which management attributed to the cancelation of some marketing events due to the coronavirus outbreak. The bulk of the sales were residential, as commercial sales stood at only EGP209m. West Cairo’s contribution to sales was the highest at c58%, followed by North Coast and Alexandria at c29%, and East Cairo contributed the remaining c13%. We had forecasted a net contracted sales figure of EGP989m with the actual figure yet to be revealed in the company’s 1Q20 analyst pack, when it becomes available. The company spent some EGP368m in CAPEX in 1Q20, compared to EGP309m a year earlier, as it concluded construction in 3 main projects, namely Golf Extension, Woodville and Palm Valley and began construction in Palm Hills Alexandria. PHD’s net debt to equity dropped to 0.49x from 0.57x in 1Q19.

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BY  /

Ezz Steel (ESRS EY): The company’s unaudited pre-minority loss widened to EGP3.6bn in 4Q19 from EGP691m a year earlier, according to a bourse release. (EGX) 

Our comment: This comes higher than our estimate of EGP2.4bn, on lower income from operations. Consolidated revenue fell c11% y-o-y to EGP10.5bn, which is c14% above our estimate, while EBIT loss recorded EGP2.44bn, reversing an income of EGP467m a year earlier, and exceeding our EBIT loss estimate of EGP1.38bn, implying a margin of -23%, which is c27 pp below a year earlier and misses our forecast of -15% by 8 pp, with the common trend being to push volumes (which is the reason behind the revenue beat with realized prices edging lower than list prices) at these very low margins to cover fixed costs/liquidate inventory for cash flow support. As anticipated, however, the miss on other units was not as bad as EZDK’s. Over c60% of the operational miss came from EZDK (which reported last week), while ESR was in line with our estimate, with the balance coming from EFS and ERM; breakdown to become available as the company publishes its full financial statements and earnings release. That said, consolidated net loss should be at least EGP1bn less on minority’s share. As anticipated too, ESR reported a capital gain (on its sale of EFS and ERM which took effect during the quarter) of EGP3.9bn, in line with our calculations, albeit with no impact on the consolidated level. We will be able to comment further when the company publishes its full financial statements.

Ezz Steel (ESRS EY): The company’s unaudited pre-minority loss widened to EGP3.6bn in 4Q19 from EGP691m a year earlier, according to a bourse release. (EGX) 

Our comment: This comes higher than our estimate of EGP2.4bn, on lower income from operations. Consolidated revenue fell c11% y-o-y to EGP10.5bn, which is c14% above our estimate, while EBIT loss recorded EGP2.44bn, reversing an income of EGP467m a year earlier, and exceeding our EBIT loss estimate of EGP1.38bn, implying a margin of -23%, which is c27 pp below a year earlier and misses our forecast of -15% by 8 pp, with the common trend being to push volumes (which is the reason behind the revenue beat with realized prices edging lower than list prices) at these very low margins to cover fixed costs/liquidate inventory for cash flow support. As anticipated, however, the miss on other units was not as bad as EZDK’s. Over c60% of the operational miss came from EZDK (which reported last week), while ESR was in line with our estimate, with the balance coming from EFS and ERM; breakdown to become available as the company publishes its full financial statements and earnings release. That said, consolidated net loss should be at least EGP1bn less on minority’s share. As anticipated too, ESR reported a capital gain (on its sale of EFS and ERM which took effect during the quarter) of EGP3.9bn, in line with our calculations, albeit with no impact on the consolidated level. We will be able to comment further when the company publishes its full financial statements.

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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, 9 July

Egypt’s annual headline inflation accelerated to 5.6% in June from 4.7% in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices increased by 0.1% compared to a zero change in the previous month, the data showed. (CAPMAS) 

Our comment: June’s headline inflation figures came in significantly better than our expected increase of 1.5% m-o-m and 7.1% y-o-y. 

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BY  / Thursday, 9 July

The Egyptian government committee in charge of the indexation of gasoline price decided to keep gasoline and diesel prices unchanged until September, according to official sources. (Al Borsa)

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