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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  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/
  • Sturdy PE spreads and selling price premiums and a retroactive feedstock cut should save SIDPEC from losses on a full-year basis; we go with the more conservative USD0.5/mmbtu cut but maintain it long-term
  • Polypropylene project unlikely behind us, but management is sounding more open to share risks
  • We raise our 2020–23e EBITDA and EPS estimates c53% and c62% respectively, and upgrade to OW on what we see as a good trading opportunity

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  /

Ezz Steel (ESRS EY): The company’s unaudited consolidated net loss narrowed to EGP860m in 1Q20 from EGP1.08bn a year ago, according to a bourse release. (EGX)

Our comment: This comes better than our estimate of a net loss of EGP1.15bn, on a better-than-expected set of numbers from operations, with gross profit in positive territory across the board. Revenue dropped c15% y-o-y to EGP10.8bn, beating our forecast by c12%, while loss on the EBIT level widened to EGP373m from EGP155m a year earlier, which is c43% ahead of our estimate of a loss of EGP656m, implying an EBIT margin of -3%, which is 2 pp better than a year ago and beats our forecast by 3 pp. The beat on the EBIT level is entirely coming from EZDK consolidated, with ESR coming in almost exactly in line with our estimate, where the beat on EZDK consolidated level is on the back of better-than-expected results from EZDK’s standalone operations (which reported its KPIs a while back) but also, to a lower extent, from EFS/ERM. On a consolidated basis, EZDK’s topline came in c3% above our forecast at EGP9.15bn, while EBIT loss recorded EGP292m, significantly better than our estimate of a loss of EGP575m, implying a margin of -3%, which is 3 pp ahead of our forecast. Without the board report/breakdowns, it is difficult to assess the reason behind the better-than-expected operations, but the revenue beat across the board indicates a strong market, with global prices/margins supporting that view given the witnessed strong start to the year lasting at least until the first couple of months, which is more likely the reason behind the margin beat than better-than-anticipated cost management, in our view.

 

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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, 6 August

Egyptian Electricity Transmission Company (EETC) decided to cancel the bid for building a 200 MW solar power plant in the West Nile Delta area due to already existing high capacities, according to official sources. Orascom Construction (ORAS EY, OC DU) was one of the accepted bidders for this project, the sources added. (Al Borsa)

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BY  / Thursday, 6 August

Egypt’s New Urban Communities Authority (NUCA) approved adding some 4,000 feddans to the New Tiba City project, while the bid for providing utilities for the first phase, which comprises some 1,200 feddans, is expected to take place over the coming period, according to official sources. (Al Mal)

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