EUR 23.03 For Business Accounts Only

Deep value with catalysts; Maintain OW

Steep discount to global peers unjustified. EKH trades on a 2023e EV/EBITDA of 3.5x, a 37% discount to global peers, which we believe is unjustified, since its 2022-24e EBITDA CAGR of -5.4% is in line with peers. Strong earnings, attractive dividends, and any potential value-accretive investment announcement, given that EKH is actively looking for opportunities, should act as a catalyst to the stock. We maintain our OW recommendation and raise our TP by 28.4%, mainly to reflect 56% higher urea price assumptions and DCF rollover.

An ideal currency hedge. EKH’s operations’ reporting currency and dividends are all USD-denominated. The c18% EGP weakness in Mar-22 was fully offset by an equivalent share price rally for the EGP-denominated stock. We expect any further rounds of EGP weakness, if any, to follow the same pattern. Holders of the EGP-denominated stock receive USD-denominated dividends.

Dividend yield to rise to 10.2% in 2023. We look for EKH’s robust profitability to translate into an attractive dividend, yielding 8% in 2022e and 10.2% in 2023e. EKH’s balance sheet is healthy, with a net cash balance of USD40mn in 2022e, rising to USD219mn. This should be enough to cover future investment plans within chemicals, oil and gas E&P, and NBFS sectors, while maintaining its healthy dividend stream.

Positive risk profile. We assume softening commodity prices starting 2023e after a strong rally in 2021 and 2022. Higher-than-expected commodity prices (especially urea) would be a major upside risk. Additionally, we do not factor ONS’s deep gas layer into our valuation (1.5tn cf in deep layer gas reserve vs. 821 bn cf in shallow layer p1 gas reserve), leaving it as a potential upside. The main downsides are sharper-than-expected commodity price weakness and tougher market competition for specialty chemicals.