Meeting with the new CEO - Positive feedback; Maintain OW
New management reignites export strategy. On 28 August, we met with EFIC’s new CEO, Eng. Abdel Aal Tolba, appointed on 27 March. The core highlight was that EFIC standalone and Suez Company for Phosphate Production (SCFP) recorded SSP exports of 128k tonnes in 8M19 and 207k in 7M19, respectively, totalling 335k (237k in 2018, 135k in 2017). Management guides for an additional 25-30k of SSP exports in Sep-19, as the export season usually ends in September, closing 2019 at a record c360k (+1.4x vs. estimate), c40% of revenue. The stellar hike in exports was due to revising the SSP granulation process, to avoid misspecification at export markets, as granules used to be ripped post a 1-month sea trip. Adding Nitron Group to EFIC’s clientele improved figures. Most exports target Latam, especially Brazil, due to its acidic soil nature.
Nitron Group inclusion to clientele lowers concentration risk, improves pricing. Historically, EFIC only exported SSP through Ameropa, a privately owned Swiss global agri-business manufacturer and distributor. In 2017, EFIC signed a 2-year non-binding 250k tpa contract with Ameropa to export SSP to Brazil. 2017 SSP exports recorded 135k (-46ppt vs. contract), at USD103/t (flat y-o-y), as EFIC refused to sign an exclusive agreement with Ameropa. The company’s new CEO attracted Nitron Group as a second marketing agent in Latam, mitigating client concentration risk, and improving pricing power. That said, EFIC’s average SSP price recorded USD117/t in 8M19 (+11ppt y-o-y), despite the 52% y-o-y hike in export volumes. Management expects to add new clients and open new markets in Africa to further mitigate risks.
Margins to expand in 2H19, on lower sulphur price. EFIC secures sulphur feedstock on 3-month basis, from a local third-party importer benchmarked to ADNOC spot prices plus 20% customs and transportation fees (CIF). The latest sulphur contract was signed at USD84/t (-35ppt vs. estimate), to reflect in 4Q19. Management targets 450-500k (flat y-o-y) local SSP sales. While EFIC’s net debt recorded EGP774mn in 2Q19, management expects the figure to fall to EGP400mn, boosting earnings amid lower interest rates. The new granulation unit in Kafr El-Zayat is operational since 1Q19, while the other unit in the Suez plant will be operational by 1Q20. On diversification, EFIC is currently seeking funding of EGP200mn to establish a 30k tpa sulphate potassium unit, post a feasibility study conducted by Cairo University. On overhead costs, management highlighted that salaries inflate at 7% p.a.. We note that EFIC owns a 40-acre Nile-front land plot in Kafr El-Zayat.
Spot valuation weighed on by fragile track record, stock rerating warranted on strong 2019e performance. Following the meeting, we expect EFIC to record earnings of EGP170mn (+48ppt y-o-y) in 2019, backed by a hike in exports, lower sulphur price, and lower debt service (c25% of EBITDA in 2Q19). EFIC’s last closing price implies a 2019e P/E of 3.9x, 51% below the stock’s 10-year historical median, representing an attractive entry point.
Egyptian Financial and Industrial SAE. Egyptian Financial and Industrial SAE (EFIC) is an Egypt-based company involved in the production and marketing of agricultural chemicals. The Company focuses on the production and distribution of chemical resources and agricultural fertilizers, as well as the production of plastic and general bags to fill up its products; the ownership of the means of road and river transportation, and the import of all raw materials and necessary production supplies for the Company's production. The Company's products are structured into three divisions: the Phosphatic Fertilizers division includes powder single super phosphate fertilizer, granulated single super phosphate fertilizer and compound fertilizer; the Sulphuric Acid division includes commercial sulphuric acid, pure sulphuric acid, analytical reagent (AR) sulphuric acid, diluted sulphuric acid for batteries and fuming sulphuric acid, and the By-Products division includes ferrous sulphate and sodium fluosilicate.
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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