Downgrade to Neutral on rising feedstock costs
1Q18/19 reveals negative surprise. AMOC is no longer able to sell its HFO output (50-55% of output volume) locally to the Ministry of Petroleum. Since its quality is subpar, the company mixed its HFO output with higher-value products to meet the export quality standards, undermining margins. AMOC’s 1Q18/19 EBITDA margin fell to 6% from c14% in 1Q17/18 and 15% in 4Q17/18. We cut our EBITDA margin estimates to 7-9%, which we believe is the new margin norm, from 15-18%.
Cut to Neutral on higher cost assumptions. We cut our DCF TP by c42%, mainly reflecting 11% higher production cost assumptions. AMOC’s share price shed c30% since 1Q18/19 KPIs, which we find justified. AMOC trades on a FY18/19 EV/EBITDA of 4.6x, 16.8% below peers, reflecting its subpar growth, negative risk profile, and high capital costs.
Investment potential marred with uncertainty could be a drag. Management has been studying new projects for around two years, but has yet to finalise a solid plan regarding the proposed expansion. Accordingly, we do not incorporate new expansions into our valuation. However, we are cautious the new projects are vast, costing >USD1.0bn, and could be a drag on AMOC’s cash flows and dividends. Management recently decided to scrap the second phase of the MDDU project, meaning product mix improvement, if any, is a long-term story.
Risks skewed to the downside. There is a possibility of further negative developments down the line. We are cautious that AMOC has no legally binding agreements for the purchase and sale of its input and output; this could further erode value. Otherwise, every 5% of higher/lower oil price and USD:EGP estimates adds/deducts c12% and c10% to/from our TP, respectively, all else constant. On the upside, the IMO’s 2020 regulation could support AMOC’s long-term refining margins.
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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