Orascom Construction (ORAS EY, OC DU): The company’s 3Q20 net profit dropped c6% y-o-y to USD30.2m, its audited financial statements showed. (Company release)
Our comment: This comes c12% above our estimate of USD27.0m, with BESIX making a strong comeback, which, along with slightly better-than-expected operations, more than offset higher-than-expected interest expense and FX losses. Revenue grew c4% y-o-y to USD825m, which is in line with our forecast of USD816m, as higher-than-expected executions in the US more than offset lower revenues from both Egypt (almost evenly coming from government and private sector projects) and other countries. EBIT dropped c7% y-o-y to USD41m, which is slightly above our estimate of USD39m, also aided by slightly better margins from both MENA and the US, offsetting the less favorable market mix. MENA EBITDA margin rebounded from last quarter to 9.5%, which is 0.4 pp above our expectation and so did the US EBITDA margin, which came in at c1.3%, which is 0.3 pp above our forecast. The US continued to deliver a positive net income as well. While we had opted to factor in some USD3m in negative contribution from BESIX until we see a reversal materializing, the unit demonstrated a solid recovery and is already back to normal on all levels, and looking on track to make up for a weak 1H20 by year-end as promised. The unit’s revenue dropped c17% y-o-y to USD754m, which is c5% above our estimate, and its EBITDA margin recorded 4.3% on par with its historical levels, filtering through to a net income of USD20m, an even higher beat despite an expanding net debt position of USD95.8m. BESIX booked new project awards of USD477m during the quarter, somewhat missing our estimate of USD508m by c6%, and implying a book-to-bill of 0.6x, but remains in a comfortable range on a full-year basis, with backlog in line at USD4.93bn. Looking at OC’s balance sheet, working capital tightened faster than our expectation (with a notable uptick in receivables), albeit remaining overall in negative territory, translating to an operating cash outflow of USD76.6m during the quarter, compared to our estimate of a minor outflow of USD1m, which is also the reason behind the slightly higher-than-expected overdraft figure and therefore interest expense. The company, however, still enjoys a comfortable net cash position of USD209m as of 30 September 2020 (vs our estimate of 276m). OC booked new awards of USD674m during the quarter, of which USD480m in the MENA region, mainly from Egypt in the logistics sector, besides work in the New Administrative Capital and Al Alamein cities, as well as in the highway and roads segment spanning various governorates. The US subsidiaries signed new contracts worth USD195m, with data center projects accounting for a significant portion and the balance in private sector light industrial and commercial segments. The project awards figure is c7% above our forecast, with the beat mainly coming from the US, whose slowdown looks milder than our expectations across the board, translating nevertheless to an in-line backlog of USD5.27bn. As previously hinted by management, the board approved distributing an interim dividend in January 2021, the exact amount and payment date of which will be announced next month.