ABUK EY | Resume at Overweight: Preferred Egypt urea play
Value in robust urea fundamentals. Abu Qir Fertilizers, Egypt’s largest nitrogen (N) fertiliser plant (2.2mn tpa), is a beneficiary of Europe’s ongoing energy supply crunch and China’s coal price surge (Egypt hub at USD845/t, a 13-year high). We expect FY22e EBITDA to rise 2.5x y-o-y to EGP8.6bn, pushing net cash up to ~39% of market cap. We resume coverage with a 12M TP of EGP29.0/share, implying an EV/EBITDA of 3.0x for FY22e vs. 4.7x for industry peers.
Growth prospects beyond current urea surge. The drivers are: i) continued liberalisation of local urea prices, ii) a 7% capacity hike, and, not least of all, iii) global decarbonation targets. China’s phasing-out of coal is particularly meaningful for urea because it is the world’s largest exporter (c20% of world trade) and c70% of its production is based on coal. Every USD50/t higher yearly urea export price would add c18% to our TP. We exclude planned greenfields as they are early stage; we project an IRR of 14% for the largest one (35% of a 1.4mn tpa methanol plant).
Dividends unaffected by targeted capex outlays. A DPO of 40% for FY22e (vs. 5Y average of 54%) implies the industry’s highest dividend yield of 11.5%. This year’s urea surge has provided sufficient liquidity to sustain dividends, even with the company’s planned investments. Beyond FY22e, we see limited downside to our dividend assumptions from new greenfields progressing, owing to: i) a liquid, debt-free balance sheet and ii) intentions to sign EPC contracts on a lump sum basis to avoid capex overruns.
Risk has dropped. Abu Qir’s 28% hike in feedstock cost to USD5.75/mmBtu since 1 November - a level that is higher than Egypt’s natural gas production cost (estimated at USD3.75-4.5/mmBtu, inclusive of payments for cost recovery) - reverses dynamics: limiting downside risk to profitability and allowing for urea price deregulation. On 18 November, the government upped local urea prices by a record 47% to USD287/t—nearing what we see as the sustainable urea price range of USD320-340/t (Egypt hub, fob) over the medium and long-term.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.