- Worsened sector fundamentals over penalized strong players; we favor developers with a higher DCF value contribution like SODIC
- We expect SODIC to maintain its strong cash collections momentum and estimate EGP132bn of future revenue recognition, of which EGP23.0bn from launched projects over 2020e-22e
- We resume coverage with an OW rating and a TP of EGP29.6/share; stock is oversold trading at a 2020e P/NAV of 0.23x and P/E of 3.33x
SODIC (OCDI: EY) Over Penalized Trading At A P/E Of 3.3x| Overweight, TP EGP29.6
SIDPEC (SKPC: EY) Downgrade To UW On Weak Earnings Outlook | Underweight, TP EGP6.50
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- 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
Obourland (OLFI EY): A highly defensive undervalued play | Overweight, TP EGP9.20
- 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
Egypt F&B sector: Demand comeback on moderating inflation
- Demand growth back on track on more positive economic outlook, with margins reverting back to historical averages
- We raise our 12M TP c26% to EGP21.6/share for Edita, but cut c16% to EGP12.6/share for Juhayna and c9% to EGP11.5/share for Domty; maintain our OW for all the 3 stocks
- Companies’ valuations remain compelling for most of the F&B sector, but we still favor Juhayna on a higher potential return, stronger balance sheet, and its history of outperforming in an uptrend market
Ezz Steel (ESRS EY): Hazy outlook | Neutral, TP EGP12.0
- 2018 margin gains quickly wiped out; global steel spreads to take longer to recover, partially mitigated locally by protective tariffs and potentially a cut in natural gas prices
- Ezz Steel could remain in the red for another couple of years; potential share swap deal is not a game changer
- We cut our 2019–23e EBITDA estimates c34% and our 12-month TP c56% to EGP12.0/share and downgrade to Neutral from Overweight
Egypt macro: Eyeing inflation, targeting growth
- 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
Egypt financials sector: Banking on a private-sector pickup
- 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
Oriental Weavers (ORWE EY): Maintain OW on share price weakness | Overweight, TP EGP13.9
- 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
Eastern Company (EAST EY): Upgrade to N on share price weakness | Neutral, TP EGP20.0
- 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
EIPICO (PHAR EY): Higher prices key for re-rating | Neutral, TP EGP85.0
- 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
Navigating Egypt: Good Stories With Limited Downside Risk
- 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
Orascom Development Egypt (ORHD EY): Growth on top of strong earnings visibility | Overweight, TP EGP14.5
- With sizeable hospitality operations, the continuation of a recovery in the tourism sector should bode well for the company
- ODE offers a solid growth story as the transition into the primary market unfolds
- We initiate coverage with a TP of EGP14.5/share and an Overweight rating on a c131% potential return; our TP puts the company on a 2019e TP/NAV of 0.66x, while trading at a c19% discount to peers
Orascom Construction (ORAS EY, OC DU): Excessively oversold | Overweight, TP EGP241
- We expect Egyptian operations to underperform the market but still achieve decent growth in project awards to an average annual USD2.0bn over our forecast horizon
- US operations to turn around next year backed by a solid market outlook, realization of deferred work, and the offloading of legacy OCI NV projects
- We raise our 2019–22e estimates c7% and our TP c53% to EGP241/share on a lower cost of capital and a higher EGP/USD rate, and reiterate our Overweight rating
SIDPEC (SKPC EY): Cost inflation weighs on valuation | Neutral, TP EGP26.0
- We expect a consistent dividend stream from 20%-owned ETHYDCO on a solid operational return profil
- We opt to slightly cut SIDPEC’s utilization rates pending clarity on feedstock supply
- We cut our 2019–22e EBITDA estimates c26% and our 12-month TP c4% to EGP26.0/share and downgrade our rating to Neutral from Overweight on non-compelling valuation
SIDPEC published its 4Q19 audited financial statements
SIDPEC (SKPC EY) published its 4Q19 audited financial statements showing the following:
- Revenue miss was mainly on the back of lower ethylene and polyethylene sales volume, more than offsetting higher-than-expected other product revenue
- This was exacerbated by significantly higher-than-expected salaries, boosting the gross profit miss, and implying a 3% margin, c2pp below our expectation. Raw material costs were in line with our estimates, though, confirming the 3Q19 feedstock cost revision
- These, along a spike in SG&A expenses, saw the company’s EBITDA go into negative territory
- Lower net other expenses and FX gains eased the miss on the bottom line level
- The company spent a negligible amount on its new polypropylene project during the quarter (total spent so far at EGP667m including the licenses down payments)
- The company also spent EUR4.55m (EGP83m) as part of its c28% stake investment in the MDF project Wotech (c25% of required capital disbursed) y-t-d
Follow-up on SODIC-MNHD deal
SODIC (OCDI EY) | Madinet Nasr Housing (MNHD EY): SODIC’s board has agreed to preliminarily make a mandatory tender offer to acquire a minimum of 51% of Madinet Nasr Housing through a share swap through which every 2 MNHD shares would be swapped for 1 SODIC share, it announced. The deal, if consummated, would bring the combined entity’s total undeveloped land bank to over 15m sqm sufficient for over 15 years of development, it added. The offer will be finalized following a due diligence process and the hiring of an independent financial advisor (IFA) to value MNHD, it also added. Meanwhile, MNHD confirmed receiving a notification from SODIC with its intentions and will study the offer, it also said in a bourse release. (EGX)
SODIC awarded 2.1m sqm Sheikh Zayed extension revenue-sharing plot
SODIC (OCDI EY): The company has received the official award letter for a 500-acre plot (2.1m sqm) allocated by the New Urban Communities Authority (NUCA) as part of the second phase of the government's revenue-sharing land offering, it announced in a press release. The plot is located in the Sheikh Zayed extension area and is only 10 minutes away from SODIC West. The project is expected to comprise over 5,000 units generating estimated total sales of around EGP43bn over a period of 8 years. NUCA is entitled to total payments of EGP14.2bn over 11 years of which EGP8.5bn are fixed installments, in addition to 15% of the annual collections. The projected payments imply a land cost of EGP2,300/sqm on a net present value (NPV) basis discounted at 16%. This should see the company's undeveloped land bank increase to c8m sqm and replenish its West Cairo land bank in SODIC West, which is c95% developed. The company expects to generate sales of around EGP150bn over the coming 11 years from its undeveloped 8m sqm land bank. (Company release)
August MPC meeting expectations
/ SUNDAY, 12 AUGUST 2018
At its last meeting on 28 June 2018, the Central bank of Egypt’s (CBE) Monetary Policy Committee (MPC) kept its policy rates unchanged for the second time after 2 consecutive 100bps cuts in both February and March, signaling the start of an easing cycle. Yearly headline inflation decelerated to 13.5% in July from 14.4% in the previous month, with monthly prices increasing 2.4% from 3.5% in June, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS). Annual core inflation also decelerated to 8.54% in July from 10.91% in the previous month, with monthly core inflation decelerating to 0.58% from 1.62% in June, data posted on the CBE website showed. With the MPC due to meet this Thursday, we present our expectations on the likely outcome based on Egypt’s current situation.
ADIB 2Q18 earnings review
/ MONDAY, 13 AUGUST 2018
Abu Dhabi Islamic Bank (ADIB EY): The bank’s 2Q18 net profit rose c102% y-o-y to EGP217m, according to its standalone KPIs. (Company release)
Arabian Cement 2Q18 results review
Arabian Cement (ARCC EY): The company’s 2Q18 consolidated net profit rose c327% y-o-y to EGP51m, according to its audited financial statements. (EGX)
GB Auto 2Q18 results review
GB Auto (AUTO EY): The company reported 2Q18 net profit figure of EGP148m, reversing a net loss of EGP151m a year earlier, its audited financial statements showed. (Company release)
Heliopolis Housing 4Q17/18 KPIs
Heliopolis Housing (HELI EY): The company’s 4Q17/18 net income dropped c39% y-o-y to EGP131m, it announced in a KPI bourse release. Revenue for the quarter dropped c31% y-o-y to EGP395m, while gross profit fell c31% y-o-y to EGP234m, it added. (Company release)
PHDC 2Q18 earnings review
Palm Hills Developments (PHDC EY): The company’s 2Q18 net income increased c57% y-o-y to EGP216m, its earnings release showed. Revenue increased c16% y-o-y to EGP1.91bn, while gross profit margin increased by c12 pp y-o-y to 40%. New sales reservations jumped c126% y-o-y to EGP5.68bn, of which EGP3.7bn were from the Badya project in West Cairo and EGP0.8bn were commercial sales. The number of units sold increased c4x y-o-y to 1,777 units from 435 units last year. In other news, the company’s board approved increasing its paid-in capital by EGP1.54bn to EGP6.16bn via a tradable rights issue at par value, it added in its earnings release. The rights issue proceeds will be used to finance the development of infrastructure works at Badya, the development of the commercial component in Palm Hills New Cairo, accelerating construction in The Crown, and contributing seed capital for the 205-feddan plot for its commercial revenue-sharing project in West Cairo. (Company release)
Crédit Agricole 2Q18 earnings review
/ TUESDAY, 31 JULY 2018
Crédit Agricole (CIEB EY): The bank’s 2Q18 net profit rose c3% y-o-y to EGP490m, according to its KPIs. Net interest income rose c4% y-o-y to EGP692m. Deposits grew c3% q-o-q and c46% y-o-y, while loans increased c14% q-o-q and c13% y-o-y. (Company release)
EFID EY 2Q18 results review
Edita Food Industries (EFID EY): The company reported a 2Q18 net profit of EGP25.1m, reversing a net loss of EGP2.99m last year, its audited financial statements showed. (Company release)
DOMT EY 2Q18 results review
Arabian Food Industries Company (Domty) (DOMT EY): The company’s unaudited 2Q18 net profit rose 4.8x y-o-y to EGP57.7m, it announced in a release. (Company release)
Egypt’s Financial Regulatory Authority (FRA) allowed a 9-month extension to companies, that have listed their shares on the Egyptian Exchange (EGX) but did not complete their initial public offering (IPO) procedure
/ Thursday, 26 March 2020
Egypt’s Financial Regulatory Authority (FRA) allowed a 9-month extension to companies, that have listed their shares on the Egyptian Exchange (EGX) but did not complete their initial public offering (IPO) procedures, due to market conditions until 31 December from 31 March previously, according to a release by the FRA. The companies are required to provide the FRA with a time-plan for their IPOs by the end of May. (FRA)
The CBE decided to offer tourism entities credit facilities with a maximum 2-year tenor to fulfill their obligations and staff expenses
/ Wednesday, 25 March 2020
The Central Bank of Egypt (CBE) has decided to offer tourism entities credit facilities with a maximum 2-year tenor to fulfill their obligations and staff expenses, in addition to a 6-month grace period, according to a CBE circular. This is part of the CBE’s EGP50bn initiative, at a declining c8% interest rate, to support the tourism sector, it added. (CBE)
HC Research NBFS Corporate Access Event
/ MONDAY, 15 APRIL 2019
