ABUK EY | Raise 12M TP by 48% to EGP42.0/share
Strong value proposition; Top pick in Egypt. We raise our FY22-24e EBITDA by an average of 39%, mainly on higher urea prices, and expect FY22e EBITDA to rise +c3x y-o-y to EGP9.9bn, pushing net cash up to EGP11.3bn, ~40% of market cap. Abu Qir trades on an FY22e EV/EBITDA of 1.6x vs. its five-year average of 7.7x and peers’ 5.2x, despite offering a FY22e dividend yield of 13%. While Abu Qir and MOPCO are now on par on valuation, we prefer Abu Qir for being more advanced in cash deployment, and its liquid balance sheet (net cash is 1.1x FY22e EBITDA), particularly in the context of potential interest rate hikes.
Unabated strength of urea now set to continue. Scaled back European production is being compounded by high coal prices in China, limited urea exports from Russia (which was a substantial c49% of world AN trade, c30% of world ammonia trade and c18% of world urea trade in 2021), leading us to raise our urea price forecasts for the short and medium terms. Long-term, we also continue to argue that industry ageing and decarbonatisation will create a new, higher, urea price floor.
OW even with higher gas prices. Our new TP factors in a 2022-27e average gas price of USD7.8/mmBtu, up from the current USD5.75/mmBtu. This 36% higher gas price assumption is based on signalling by the government that feedstock pricing contracts will move to a variable formula, linked to end-product prices, allowing the government to share windfall profits during bull commodity times, without compromising the industry’s export advantage. Our 12M valuation would be 12% higher at EGP47/share if the current gas price holds.
Limited risks from Egypt macro. As we already factor in higher gas prices, we believe Abu Qir carries limited risks in comparison to the rest of our coverage universe. A 10% weaker EGP would raise our 12M TP by 5%. Our FY22 estimates show that export sales exceed natural gas costs by EGP7.4bn, which implies that Abu Qir would benefit from currency weakness against USD. This would be the case unless urea prices fall below the USD300/t mark — highly unlikely, in our view.
Abuo Kir Fertilizers & Chemical Industri. Abu Qir Fertilizers and Chemical Industries Co SAE is an Egypt-based Company engaged in the agricultural chemicals sector. The Company focuses on the production, distribution and export of fertilizers, chemicals and related products. The Company operates in seven segments, which include Abu Qir Plant 1, Abu Qir Plant 2, Abut Qir Plant 3, Mixture Fertilizers Plant, Liquid Fertilizers, Ammonia and Nitric Acid, and Others. The Company's products include Prilled Urea, Prilled Urea treated with Zinc Sulphate, Granular Ammonium Nitrate, Granular Urea, Granular Urea treated with Ammonium Sulphate, Granular Urea treated with Magnesium Sulphate, nitrogen, phosphorous and potassium (NPK) products and liquid ammonia. The Company's major shareholders include National Investment Bank, Egyptian General Petroleum Corporation, Public Industrial Development Authority and Al Ahli Capital.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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