EUR 44.79 For Business Accounts Only

Attractive entry point; Upgrade to Overweight

Unwarranted discount to peers. We raise our TP by c22% to EGP219/share, and upgrade our rating to OW from N. Following more than 2 years of sluggish trade activity that reflected on subdued throughput for ALCN (-15% off peak in FY14/15), we see signs of volumes bottoming out, and believe that growth will accelerate over the medium-term. The stock trades at a steep c28% discount to peers, with a FY18/19 attributable P/E of 11.0x, despite: i) a more favourable growth profile (FY18/19-20/21e EPS CAGR of 16% vs. 10% for peers), ii) high yields (c9.8% by FY19/20e), and iii) a potential 30% stake sale, as part of the government’s privatisation programme, boosting ALCN’s free float to 35% from 5% in Oct-18.   

Medium-term recovery in sight. With easing import restrictions and the resumption of the monetary easing cycle by end-2018, import activity is anticipated to recover from a low base (8% CAGR up to FY20/21e) and exports are expected to improve (3-year CAGR >12%). Simultaneously, ALCN is upgrading its capabilities in handling larger vessels, through deepening its Dekheila berth. This comes at a time when its competitor, Alexandria International Container Terminal is operating at full capacity (vs. <60% utilisation at ALCN), positioning ALCN as the main beneficiary from an uptick in container volumes in Dekheila and Alexandria ports. We expect ALCN’s volumes to grow by a FY17/18-FY20/21e CAGR of 7.6%, offsetting short-term margin pressures.

A cash flow machine. ALCN boasts a highly liquid balance sheet (cash> 2x EBITDA), amid zero debt levels, along with superior cash flow (c70% FCF margin) and profitability metrics (ROE c40%, EBITDA margin >65%). This, combined with the parent’s need for liquidity to fund its investment plan, pushed ALCN to hike its payout to 100% in FY17/18 (vs. 60% historically), a trend we believe will sustain. We forecast a payout of 80-90% over our forecast horizon.

Competition risk not in near future. Governmental plans for a multi-purpose terminal at Alexandria Port are still in the study phase, with a preliminary completion date set for 2022. The government can introduce a third international player or decide to partner with ALCN. Escalating global trade tensions could impact global container volumes, however, we think ALCN should be least affected relative to peers, given that more than 99% of volumes is O&D.

Unwarranted discount to peers. We raise our TP by c22% to EGP219/share, and upgrade our rating to OW from N. Following more than 2 years of sluggish trade activity that reflected on subdued throughput for ALCN (-15% off peak in FY14/15), we see signs of volumes bottoming out, and believe that growth will accelerate over the medium-term. The stock trades at a steep c28% discount to peers, with a FY18/19 attributable P/E of 11.0x, despite: i) a more favourable growth profile (FY18/19-20/21e EPS CAGR of 16% vs. 10% for peers), ii) high yields (c9.8% by FY19/20e), and iii) a potential 30% stake sale, as part of the government’s privatisation programme, boosting ALCN’s free float to 35% from 5% in Oct-18.   

Medium-term recovery in sight. With easing import restrictions and the resumption of the monetary easing cycle by end-2018, import activity is anticipated to recover from a low base (8% CAGR up to FY20/21e) and exports are expected to improve (3-year CAGR >12%). Simultaneously, ALCN is upgrading its capabilities in handling larger vessels, through deepening its Dekheila berth. This comes at a time when its competitor, Alexandria International Container Terminal is operating at full capacity (vs. <60% utilisation at ALCN), positioning ALCN as the main beneficiary from an uptick in container volumes in Dekheila and Alexandria ports. We expect ALCN’s volumes to grow by a FY17/18-FY20/21e CAGR of 7.6%, offsetting short-term margin pressures.

A cash flow machine. ALCN boasts a highly liquid balance sheet (cash> 2x EBITDA), amid zero debt levels, along with superior cash flow (c70% FCF margin) and profitability metrics (ROE c40%, EBITDA margin >65%). This, combined with the parent’s need for liquidity to fund its investment plan, pushed ALCN to hike its payout to 100% in FY17/18 (vs. 60% historically), a trend we believe will sustain. We forecast a payout of 80-90% over our forecast horizon.

Competition risk not in near future. Governmental plans for a multi-purpose terminal at Alexandria Port are still in the study phase, with a preliminary completion date set for 2022. The government can introduce a third international player or decide to partner with ALCN. Escalating global trade tensions could impact global container volumes, however, we think ALCN should be least affected relative to peers, given that more than 99% of volumes is O&D.