EUR 38.19 For Business Accounts Only

EFIH EY | Risks skewed to the upside, a top Egypt pick

EPS recovery story continues to unfold. We flag e-finance’s attractive 2023e PEG of 0.66x (ESOP adjusted) among the lowest across peers. e-finance displays a unique play on the ongoing increases in the government’s social safety net spending, allowing for robust revenue growth (up c37% over 2022-24e vs. peers’ c12%). A pick-up in margins and more policy rate hikes should drive a 2022-24e EPS CAGR of c40%. A higher WACC assumption marginally offsets our increased operational forecasts, lowering our 12M TP by c7% to EGP21.3/share. With c49% upside, we remain OW.

More to come. FY22/23 state payments and collections are budgeted c17% higher than a year prior (to EGP3.5tn), not accounting for further FX and inflation-related overruns. We do not rule out another set of social spending measures to compensate for inflation, a similar response to that of Nov-16. We look for the Group’s variable throughput to grow at a 2022-24e CAGR of c62%. This accounts for the short-lived volume-related hiccup in customs, still somewhat cushioned by a weaker EGP. A faster model shift towards higher margin business lines, property tax declaration, and the utilisation of IPO proceeds in accretive projects, skew risks upwards. 

Margin expansion as favourable sales mix sustains. Ramping up utilisation, with a better revenue mix, and upward repricing in 1Q22 at most of the variable fee take rates, should sustain margin improvement. We see top line contribution from transaction revenue rising c28pp to c71% by 2025e, with variable fee contribution at c68% from c34% in 2021. Securing more cloud hosting and eCards management contracts (includes the migration of social safety cards) should bode well for margins. We expect 10pp EBITDA margin expansion over 2022-25e, reaching 50.9%.

Cash conversion cycle on track. We are becoming less concerned by the Group’s 12M trailing CCC as it has commenced a downward trend, landing at 64 days in 2Q22 from 72 days last year. The 12M trailing CCC should drop to c12 days in 2024e, contributing largely to liquidity, aided by management’s active strategy to shift towards transaction revenue, where collection is timelier than B&O.