Heliopolis Housing (HELI EY): The company's 2Q23 consolidated net income plummeted to EGP5.22m from EGP635m a year earlier, its audited financials showed. (EGX)
Our comment: Heliopolis Housing reported weak 2Q23 numbers despite higher-than-expected SODIC East collections following revisions on the minimum guarantee payments by SODIC to HELI. Revenue dropped c89% y-o-y (c23% lower than our estimate) on base effect, as 2Q22 included a large land plot sale in New Heliopolis City. Revenue from SODIC East increased c88% y-o-y (c88% ahead of our estimate) but did not offset the low unit sales. Land and unit sales dropped c97% y-o-y to EGP48m (c69% lower than our estimate). Gross profit dropped c89% y-o-y to EGP107m (c32% lower than our estimate) as gross profit margin narrowed c1 pp y-o-y to c64% (8 pp lower than our estimate) SG&A expenses increased c46% y-o-y to EGP64.9m (c2.2x higher than our estimate). Net financing charges dropped c66% y-o-y to EGP27.2m (c47% higher than our estimate). Other charges, including a provision charge of EGP10m, led to a negligible pre-tax profit of EGP3.83m and a net income of EGP5.22m, significantly lower than our estimate of EGP87.6m. Worth noting is that HELI’s net debt-to-equity widened to 1.74x from 1.53x a year earlier Read more
Ezz Steel (ESRS EY) | Al Ezz Dekheila Steel (IRAX EY): TSFE received the first valuation of Al Ezz AlDekheila Steel of EGP1,060/share in preparation for a partial sale of the government’s stake in it to Ezz Steel, according to unidentified sources familiar with the matter. The government owns a 14% direct stake in Al Ezz Dekheila Steel through the National Investment Bank (NIB) and the National Bank of Egypt (NBE), while Ezz Steel owns 64% of it, the sources added. TSFE did not comment on the news. (Asharq Business)
Our comment: The government did not yet officially announce a partial divestment of its stake in EZDK, however, according to the State Ownership Policy Document, the steel industry falls within the sectors in which the state is planning to fix or reduce its economic presence. The news aligns with ESRS’s continuous restructuring efforts to optimize its operational process and financial performance. The estimated fair value at EGP1,060/share represents a c29% premium to EZDK’s Thursday closing price of EGP821/share and a c25% discount to the Bloomberg consensus valuation of EGP1,413/share. ESRS has long been eying EZDK for its relatively higher profitability and technical performance since it is the most significant player in the local market and a major steel exporter. In the case of ESRS expressing interest in increasing its stake in EZDK and such a deal goes through, ESRS would be entitled to a higher share of EZDK’s dividend distributions, and report lower minority interest on its income statement.
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B Investments (BINV EY) | Orascom Financial Holding (OFH EY): B Investments seeks to complete the acquisition of up to 90% of Orascom Financial Holding shares during 3Q23, and negotiations are underway with several companies to appoint an independent financial advisor (IFA), but they have not yet settled on any, according to its investor relations. (Al Borsa)
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Egypt's annual headline inflation accelerated to 32.7% y-o-y in May from 30.6% y-o-y in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices rose 2.7% m-o-m compared to an increase of 1.7% m-o-m in April, the data showed. (CAPMAS)
Our comment: May’s inflation came in higher than our estimate of 1.0% m-o-m and 30.5% y-o-y, following the recent increase in diesel prices, changes in the ration cards system, the continuity of lower food supplies due to the Russian-Ukrainian war, and higher demand due to increased arrivals of Sudanese citizens to Egypt due to recent political turmoil in Sudan.
Orascom Construction (ORAS EY, OC DU): The company's 1Q23 consolidated net income increased 2.76x y-o-y to USD36.1m y-o-y, according to its audited financials. (Company data)
Our comment: The company's net income comes 2.15x higher than our estimate of USD17m, on USD28.4m in net FX gains as part of its net finance cost, and lower effective tax rate. The company's backlog decreased c1% y-o-y to USD5.46bn, and came c9% above our estimate. New awards increased c29% y-o-y to USD858m, comprised of USD458m new awards in MEA in renewable energy, infrastructure, commercial, marine, and transportation sectors, and included the new 500 MW BOO wind farm in Egypt, additional work for highway and road development, and new scope for a premium private sector real estate developer, and USD401m of new awards in the USA mainly in the data center and commercial sectors. BESIX backlog increased c11% y-o-y to USD6.17bn and came c9% higher than our estimate, on c31% higher-than-expected new awards of USD1.12bn, c31% higher y-o-y. The breakdown of Besix backlog revealed y-o-y slightly lower exposure to North America, UAE, and Europe versus a y-o-y higher exposure to other MENA countries and Africa. Revenue decreased c18% y-o-y to USD805m and came c4% lower than our estimate, with revenue from Egypt falling c42% y-o-y to USD409m (lower than our estimate by c9%), while revenue from the USA surged c50% y-o-y to USD357m (exceeding our estimate by c8%). BESIX revenue surged c11% y-o-y to USD837m and came c4% higher than our estimate. Gross profit dropped c24% y-o-y to USD69m, and exceeded our estimate by c8%, and gross profit margin contracted c0.7 pp y-o-y to 8.6% and came c0.9 pp higher than our estimate of 7.7%. SG&A expenses decreased c25% y-o-y to USD42m and came c11% above our estimate. EBITDA dropped c30% y-o-y to USD35.4m, missing our estimate by c9% on c0.2 pp lower-than-expected EBITDA margin of 4.4%, c0.7 pp lower y-o-y. MENA margin decreased slightly c0.1 pp y-o-y to 6.4%, c0.2 pp below our estimate, and the US margin improved c1.1 pp y-o-y to 1.9% and came c0.2 pp above than our estimate. EBIT decreased c28% y-o-y to USD27m, and came c4% below our estimate, while EBIT margin dropped c0.5 pp y-o-y to 3.4%, and came in line with our estimate. BESIX contribution to bottom-line profitability was almost neutral, with a minor negative contribution of USD0.1m (lower than our estimate of a positive contribution of USD0.7m), versus a negative contribution of USD11m a year earlier. Income from equity accounted investees, ex-Besix, decreased c44% y-o-y to USD2.8m, missing our estimate of USD3.2m by c13%. Net interest expense increased 2.17x y-o-y to USD7.8m, c5% above our estimate. The company booked USD28.4 in net FX gains on net interest cost, which we did not account for in our numbers. Net profit hiked 2.76x y-o-y to USD36.1m, and exceeded our estimate by 2.15x, mainly due to the FX gains and a lower-than-expected effective tax rate of 20.2% versus our estimate of 22.5% which was partially offset by a higher-than-expected minority interest. The company divested its full stake in the construction chemicals subsidiary for EGP1.8bn in May, and its shareholders at its 31 May AGM approved a 6.52m share buyback, representing 5.58% of its total shares, from Melinda French Gates, for USD3.0/share, which it plans to terminate in 3–12 months.
Orascom Development Egypt (ORHD EY): The company's 1Q23 consolidated net income dropped c31% y-o-y to EGP292m, it said in its earnings release. (Company release)
Our comment: The company delivered impressive 1Q23 operating numbers, mainly due to selling price increases, that were hit by an EGP478m FX loss. Revenue grew c53% y-o-y to EGP2.95bn (c8% lower than our estimate of EGP3.22bn). Growth was from all revenue segments as real estate revenue grew c44% y-o-y to EGP2.01bn (c14% lower than our estimate), hospitality revenue grew c2.2x y-o-y to EGP573m (c13% higher than our estimate), and town management revenue grew c33% y-o-y to EGP366m (c2% lower than our estimate). Gross profit grew c64% y-o-y to EGP1.04bn (c2% lower than our estimate) as gross profit margin reached c35%, up 2 pp y-o-y (c2 pp higher than our estimate). SG&A expenses increased c68% y-o-y to EGP59m (c8% higher than our estimate) and investment income grew c73% y-o-y to EGP130m (c33% ahead of our estimate). The 478m FX losses were reported before the EBIT and reduced EBIT y-o-y growth to only c2% y-o-y (c47% lower than our estimate). Excluding the FX losses, EBIT would have come only c5% lower than our estimate. Financing expenses increased c2.8x y-o-y to EGP210m (c87% ahead of our estimate) and led to a pre-tax income decline of c24% y-o-y to EGP388m (c62% lower than our estimate). Taxes were negligible as the FX loss offered some tax benefits, which led to an effective tax rate of only 1% (compared to our estimate of 22.5%), resulting in a pre-minority income of EGP384m, down c17% y-o-y (c52% lower than our estimate and c8% higher than our estimate excluding the impact of the FX loss). Minority charges led to a net income of EGP292m, c31% lower y-o-y (c59% lower than our estimate and c8% above our estimate, excluding the impact of the FX loss). Operationally, the company’s sales were solid. Net sales grew c36% y-o-y to EGP2.75bn (c1% above our estimate) on the back of higher prices as volumes were flat. The company’s average unit price increased c33% y-o-y and c25% q-o-q to EGP10.1/unit (c15% higher than our estimate). In total, the company sold 272 units, c2% higher y-o-y (c12% lower than our estimate). Prices increased c68% y-o-y in Gouna to EGP129,966/sqm, c61% y-o-y in O West to EGP56,069/sqm, and c24% y-o-y in Makadi to EGP41,188/sqm. In Gouna, the company delivered 66 units, out of a targeted 462 units. The company’s hospitality revenue benefited mainly from the increase in room rates which increased c93% y-o-y in Gouna in EGP terms and in occupancy rates to a lesser extent. Occupancy rates in Gouna stood at an average of c69%, up from c61% in 1Q22. Hospitality margins also widened, with EBITDA margin for the segment reaching c61% from c34% a year earlier.
Our comment: The March inflation comes lower than our estimate of 3.75% m-o-m, and 34.0% y-o-y possibly due to a relative drop in poultry prices after the government increased poultry supply recently.
By Mariam El Saadany/ Monday, April 4, 2023
Ezz Steel (ESRS EY): The company’s 4Q22 consolidated net income decreased c47% y-o-y to EGP570m, according to its audited financials. (Company data)
Our comment: The reported net income comes c11% above our estimate of EGP515m on lower-than-expected net finance cost, higher-than-expected net other income, and lower-than-expected effective tax rate due to a deferred tax income. Total steel production increased c4% y-o-y to 1.26m tons and came c1% below our estimate. Long steel production increased c6% y-o-y to 0.78m tons, while flat production increased c1% y-o-y to 0.48m tons, with both coming in line with our estimates. Total sales volume remained almost flat y-o-y at 1.3m tons, c4% below our estimate. Local rebar sales fell c9% y-o-y to 0.74m tons, constituting a market share of c39% of total local market rebar consumption of 1.9m tons. On the other hand, long export sales more-than-doubled c2.2x y-o-y to 56,000 tons, including rebar export sales, as a gradual orientation by the company to increase exports to secure the needed FX to import raw materials and consumables. Local HRC sales hiked c92% y-o-y to 0.34m tons, while its export sales decreased c45% y-o-y to 0.13m tons to satisfy local demand, following the decrease in imports due to the EGP devaluation, the limited FX availability, and to optimize profitability by benefiting from higher local HRC prices. It is worth mentioning that the second melt shop of EFS should start operations in April 2023, which would enable the company to increase exports without jeopardizing its local market share. Revenue increased c24% y-o-y to EGP23.3bn on higher y-o-y prices in EGP terms and came c2% below our estimate on the c4% lower-than-expected sales volume. COGS increased c27% y-o-y to EGP18.9bn on higher production costs in EGP terms, despite lower raw materials costs in USD terms, and came c1% below our estimate. Gross profit margin dropped c1.7 pp y-o-y to 18.8% and came c0.9 pp below our estimate. EBITDA increased c16% y-o-y to EGP4.14bn and came c6% below our estimate. SG&A slightly fell c2% y-o-y to EGP614m and came c7% below our estimate. EBITDA (USD/ton) dropped c35% y-o-y to USD138, reflecting the EGP devaluation, and came c2% below our estimate. EBITDA margin contracted c1.3 pp y-o-y to 17.7% and came c0.7 pp below our estimate. Net financing costs decreased c12% y-o-y to EGP661m and were c31% below our estimate on c77% higher-than-expected interest income (cash and cash equivalents balance increased to EGP13.2bn in 4Q22 from EGP6.8bn in 3Q22). Interest expense increased c9% y-o-y to EGP866m and came c19% below our estimate. The company booked EGP3.47bn in FX losses and EGP994m of losses related to financing fixed assets, which were capitalized in accordance with the accounting standards, of which the company accounted for EGP2.04bn in 4Q22. ESRS recorded EGP38m in net other income, reversing a net other expense of EGP72m a year earlier, while we expected a net other expense of EGP117m, which filtered through a c17% higher-than-expected NPBT of EGP1.08bn, down c54% y-o-y. A deferred tax income lowered the effective tax rate below our expectation, resulting in a c11% higher-than-expected net income of EGP570m, down c47% y-o-y.
Our comment: The reported pre-minority income comes c16% lower than our estimate of EGP315m despite revenue beating our estimate by c34%. Revenue grew c48% y-o-y to EGP5.96bn. Gross profit grew c50% y-o-y to EGP1.90bn, c35% ahead of our estimate, as the reported gross profit margin was in line with our estimate of c32%. More to follow as the company’s financials become available. The proposed DPS of EGP0.19 is higher than our estimate of EGP0.17 and yields a net-of-tax yield of 1.82% based on Thursday’s trading price.
By Heba Monir / Sunday, 26 March, 2023
In its 2 February 2023 meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to keep the benchmark overnight deposit and lending rates unchanged at 16.25% and 17.25%, respectively after it hiked policy rates by 800 bps in 2022 and by 500 bps in 4Q22 alone. Egypt's annual headline inflation accelerated to 31.9% y-o-y in February from 25.8% y-o-y in the previous month, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 6.5% m-o-m in February 2023 compared to an increase of 4.7% m-o-m in the previous month, mainly due to increasing food and beverage prices by 14.4% m-o-m compared to an increase of 10.1% m-o-m in January. On the global front, the US Federal Reserve raised interest rates on Wednesday by 25 bps, bringing its total rate hikes y-t-d to 50 bps after it increased interest rates by 425 bps in 2022.
Our comment: We expect the MPC to continue tightening policy rates by around 200 bps in its 30 March meeting to tame increasing inflation rates, which we expect to continue rising, peaking at 35.9% by July, on our numbers, before it decelerates to 30.3% by December. We anticipate that March and the coming months' inflation figures will reflect; (1) the early March c7-11% increase in octane gasoline prices and the c20% increase in heavy fuel oil (mazut) prices for all industries except food and electricity generating sectors; (2) the expected increase in household electricity effective 1 July; (3) the recent liberalization of the prices of essential food commodities like rice; (4) the shortage in local poultry supply due to problems related with animal feed prices and availability, affected by the Russia-Ukraine war, and (5) the continuing EGP devaluation which reached c20% y-t-d. As a result of the USD shortage, Egypt’s banking sector net foreign liabilities (NFL), including the Central Bank of Egypt (CBE), widened to USD21.6bn in January 2023 from USD20.0bn in December 2022. Excluding the CBE, the banking sector's NFL widened to USD13.0bn from USD11.7bn in December 2022. In light of the inflationary pressures, the USD shortage, and Egypt’s need to keep the carry trade attractive, we calculate a required 12M T-bills rate of 25.18%, which considers soaring Egypt’s 1-Year CDS to 1,419 from 670 at the beginning of February. Foreign holdings in Egyptian T-bills increased by USD2.4bn from December 2022 to USD10.4bn by the end of January 2023. The latest 12M T-bills auction recorded an average yield of 19.19% (accounting for a 15% tax rate for US and European investors), which offers a real yield of negative 2.31%, given our inflation expectation of 21.5% in March 2024, solidifying our view of a needed increase in policy rates. We estimate the real yield to turn to a positive1.33% based on our calculated required after-tax 12M T-bill rate and expected inflation of 20.1% for April 2024.
On a more positive note, deposits not included in the official reserves increased for the third consecutive month, increasing in February by c19% m-o-m to USD2.61bn, yet it still remains below its level of USD9.18bn a year earlier, and net international reserves (NIR) inched up for the sixth consecutive month by 0.4% m-o-m to USD34.3bn in February, while dropping 16.2% y-o-y.
Orascom Construction (ORAS EY, OC DU): The company's 4Q22 consolidated net income increased c49% y-o-y to USD55.8m, according to its audited financials. (Company data)
Our comment: The reported net income comes c2x higher than our estimate of USD27.8m and c2.6x higher than the Bloomberg consensus estimate of USD21.5m, on significantly higher-than-expected income from Besix and higher-than-expected net finance income. Backlog and awards: The company’s backlog decreased c13% y-o-y to USD5.27bn, accounting for the full effect of the EGP devaluation as of 31 January 2023, and came in line with our estimate. New awards dropped c28% y-o-y to USD569m, comprised of USD297m new awards in MEA, in medical, industrial projects, infrastructure development, and highway and road work across Egypt, and USD272m of new awards in the USA in the core data center, light industrial and commercial sectors. BESIX backlog increased c1% y-o-y to USD5.6bn and came c7% higher than our estimate, on c17% higher-than-expected new awards of USD995m, c2% higher y-o-y. The breakdown of Besix backlog revealed y-o-y slightly lower exposure to Europe, UAE, and Africa vs. y-o-y higher exposure to the USA and other MENA countries. Revenue increased c12% y-o-y to USD1.125bn and came c4% higher than our estimate, with revenue from Egypt falling c4% y-o-y to USD0.62bn (lower than our estimate by c5%), while revenue from the USA surged c51% y-o-y to USD0.43bn (exceeding our estimate by c20%). BESIX revenue dropped c4% y-o-y to USD1.02bn and came c5% higher than our estimate. Gross profit dropped c18% y-o-y to USD85m and missed our estimate by c9%, and gross profit margin contracted c2.8 pp y-o-y to 7.6% and came c1.1 pp lower than our estimate of 8.7%. SG&A expenses decreased c13% y-o-y to USD47m and came c8% below our estimate. EBITDA dropped c14% y-o-y to USD50.1m, missing our estimate by c10% on c0.7 pp lower-than-expected EBITDA margin of 4.5%, c1.4 pp lower y-o-y. MENA margin decreased c1.0 pp y-o-y to 5.9%, 0.5 pp below our estimate, and the US margin fell c1.0 pp y-o-y to 2.1% and came c0.6 pp lower than our estimate.EBIT decreased c13% y-o-y to USD39m and came c11% below our estimate, while EBIT margin dropped c1.0 pp y-o-y to 3.5%, c0.6 pp below our estimate.BESIX achieved strong results, on real estate sales, with net income recording USD53.2m, 2.46x higher y-o-y, and c3.9x higher than our estimate of USD13.7m, contributing by USD26.6m to ORAS bottom-line profitability. Income from equity accounted investees, ex-Besix, decreased c14% y-o-y to USD3m, missing our estimate by c32%.Net interest income reached USD2.8m, reversing a USD7.2m in net interest expense y-o-y, on net forex gains of USD14.9m realized on the net interest expense of USD12.1m (c3.4% above our estimate of a net interest expense of USD11.7m), which resulted in USD2.8m net interest income. Net profit hiked c49% y-o-y to USD55.8m, reflecting a significant boost from Besix and a positive net interest income on forex gains.
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Egypt’s annual headline inflation accelerated to 21.3% y-o-y in December from 18.7% y-o-y in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices rose 2.1% m-o-m compared to an increase of 2.3% m-o-m in November, the data showed. (CAPMAS)
Our comment: The December inflation comes higher than our estimate of 0.2% m-o-m and 19.1% y-o-y, which brings the average inflation rate for 2022 to 13.8% y-o-y, up from 5.21% y-o-y in 2021. The 2.6% m-o-m increase came mainly from a hike in food and beverage prices, mainly poultry, dairy products, and fruits, due to the EGP devaluation and the effect of the shortage in animal feed on poultry supply and prices.
Commercial International Bank (COMI EY): The bank's 3Q22 consolidated net profit increased c16% y-o-y to EGP4.42bn, according to its audited financial statements. (Bank data)
Our comment: The bank reported a good set of results, with its net profit exceeding our estimate of EGP3.73bn by c18%, mainly on c15% lower-than-expected interest expense. Moreover, its balance sheet showed healthy growth, with net loans meeting exactly our estimates while deposits exceeding our estimates. Gross loans increased c21% y-t-d to EGP199bn in 3Q22, c1% above our estimate of EGP197bn, with a real growth of c15% y-t-d (net of EGP devaluation) driven mainly by c28% y-t-d increase in EGP loans. Net loans grew c22% y-t-d to EGP178bn as of September FY22. CIB's holding of financial investments increased c23% y-t-d to EGP264bn as of September FY22, 2.9% relatively above our estimates. Customer deposits rose c23% y-t-d and c16% q-o-q to EGP499bn, exceeding our estimate of EGP442bn by c13%. In real terms, customer deposits increased by only c17% (net of EGP devaluation). Foreign currency deposits increased by c6% y-t-d and c1% q-o-q to USD6.4bn in 3Q22. Net interest income increased c25% y-o-y to EGP8.1bn, c14% above our estimate of EGP7.12bn, mainly due to a c15% lower-than-expected interest expense of EGP6.54bn, which increased c26% y-o-y. The average yield on earning assets came in at 10.7% in 3Q22, 1.00 pp below our estimate of 11.7%, while the average cost of funds dropped 0.05 pp y-o-y to 5.02% in 3Q22, 1.10 pp below our estimate of 6.12%. Accordingly, the bank's net interest margin (NIM) increased 0.31 pp y-o-y to 6.24%, mostly in line with our estimate of 6.14%. Non-interest income declined c24% y-o-y to EGP398m, yet came c7% above our estimate of EGP370m. Provision expenses declined c26% y-o-y to EGP224m, c19% below our estimate of EGP276m. NPLs declined to 4.59% in 3Q22 from 5.70% a year earlier, with a coverage ratio of c216%, compared to 206% in 3Q21 and 209% in 2Q22.
Egypt's wheat stockpiles are sufficient for 4.6 months, according to a statement by the Egyptian Cabinet. (Bloomberg)
The government pledged to guarantee the value of the recently announced Abu Dhabi Developmental Holding (ADQ) Company investment in three Egyptian companies, including Egyptian Ethylene and Derivatives Company (ETHYDCO), Egyptian Linear Alkyl Benzene Production (ELAB) and Egyptian Drilling Company (EDC), in addition to an 8% annual return on it, for a period of four years, according to unidentified sources familiar with the matter. The government will provide, through the Central Bank of Egypt (CBE), a guaranteed return after four years from the date of financing the deal which is equal to the value paid by ADQ in addition to an annual internal rate of return of 8% after tax deduction, sources added. ADQ acquired 25% of EDC, c30% of ETHYDCO, and c35% of ELAB in a deal amounting to USD800m, which is expected to be completed during the current quarter, sources also added. (Al Borsa)