EUR 44.72 For Business Accounts Only

Raise to OW on MDDU revamp and as a play on oil

Raise TP to 14.0/share from EGP7.10/share. The drivers: i) 22% higher oil price (USD75/bbl over 2018-23 vs. cUSD62/bbl), ii) AMOC’s plans to raise value-added products over 2018-19e to 53% of production volume from 45% by revamping its Middle Distillates Dewaxing Unit (MDDU), and iii) DCF-rollover. We base our TP on spot oil, 14.5% above the BBG consensus average, and 17.6% above oil futures, as we assume the scope for continued oil price increases, given sustained OPEC output cuts, Aramco’s planned IPO, and the possible reintroduction of US sanctions on Iran by the 12 May deadline. We expect AMOC’s share price will continue to be very reactive to Brent, which, since Feb-18, is up c16% and AMOC shares c23%. However, we still see c28% upside; at USD75/bbl, AMOC trades on a FY18/19e and FY19/20e EV/EBITDA of 5.6x and 4.3x, respectively, c2% and c20% below global peers, which we find attractive, given its 2018-20e EBITDA CAGR of 20.5% vs. peers’ 5%.

Mega investment likely to accrete value at current oil price. AMOC plans to raise its value-added products even more, up to c93% of production volumes through a mega expansion project, planned for launch over 2019-21. At USD75/bbl, we calculate the project will raise AMOC’s throughput profit by c78% and EBITDA by c100% when fully on line. Given full project details (including investment cost) have not been disclosed, we do not incorporate it into our valuation for the time being, noting that higher oil prices, if sustained, translate into a higher likelihood of the new project accreting value. At USD500mn capex, the midpoint of guidance, our capital budgeting analysis indicates an additional EGP1.45/share in 12M value.

Sentiment in favour of the stock. We expect positive market sentiment regarding: i) AMOC’s capital structure amendments, including migrating up to 33% of shares to GDRs, dual listing, and the government offering an additional stake in AMOC, all slated for completion by 2019, ii) strong financial performance, and iii) an attractive dividend yield of 8.3% in FY17/18e, among the highest in our Egypt universe, to continue supporting the stock, as has been the case since early-2017. Every 5% higher/lower-than-anticipated USD:EGP and oil price, raises/reduces our TP by 7% and 6%, respectively, all else constant. At the consensus oil price estimate of USD66/bbl, our TP falls to EGP11.7/share, offering a marginal upside from the current share price.