EKHO EY | Decent upside, with catalysts in sight
Mix of high earnings visibility, defensive business and lucrative dividend yield. We reiterate our Overweight call on EKH, our top-pick within our industrials coverage, with a TP of USD1.50/share. EKH’s is well-poised to deliver a 2020-22e EPS CAGR of 18%, driven by c16% expected growth in Sprea, NatEnergy and ONS, along with an additional contribution of USD7mn from MDF plant (6% of TP) in 2022e. EKH’s trades on a 2021e P/E of 7.6x, down to 6.6x in 2022e, while offering a lucrative 2020e dividend yield of c6%, in which we have a strong conviction. Upcoming updates on ONS’s deep layer gas reserves, possible cut in Alexfert’s gas price, or income tax exemptions for the latter would act as strong catalysts for the stock.
Energy segment, 2021e main growth driver. We see a 26% earnings growth in EKH’s energy segment in 2021e. NatEnergy (35% of TP) is set to benefit from 20MW additional power generation, as well as a hike in distribution contracts, both yielding a 25% run in 2021e power revenues. ONS (18% of TP) is ramping up and seen delivering 36% increase in 2021e revenues, in tandem with the rise in the production pace, stabilising at 30bcf p.a.. NatEnergy and ONS’s 2021e earnings are set to grow 19% and 36%, respectively, contributing 32% and 22% to EKH’s bottom line.
Sprea and Alexfert benefiting from changes in regulations. Anti-dumping fees imposed on imported Russian and Chinese SNF should positively reflect on Sprea (26% of TP)’s 2021e utilisation rate. This, along with the Sulphuric Acid expansion in 2022e, is expected to deliver a 2020-22e EPS CAGR of 16%. Growth from EKH’s 45.2%-owned Alexfert (14% of TP) is muted, unless the free zone’s new regulation comes into effect, exempting Alexfert from income taxes payments, potentially adding USD5mn to the subsidiary attributable earnings, and USD0.04 to EKH’s SoTP.
ONS, Alexfert hold main upside risks. Commercially feasible findings from the deep target gas layer at ONS represents the main upside risk to our SoTP, with every 1tcf of additional economic proven reserves adding 25%, or USD0.35/share, to EKH’s valuation, all else constant, based on EV/reserves multiple of USD6.00/BoE and a 35% recovery rate. A USD1.00/mmBtu cut in natural gas prices would add USD7mn to Alexfert’s attributable net income, and USD0.06 to EKH’s SoTP, all else constant.
Egypt Kuwait Holding is a long-term-term private equity holding firm in Africa and the Middle East. Co. has a portfolio of investments in the Fertilizers, Petrochemicals, Energy, Manufacturing, Insurance, Information Technology and Transport sectors. Co. generally acquires majority stakes and takes management control in most of its investments. As of Dec 31 2011, Co.'s investment portfolio inlcuded ALEXFERT; BKH; NFC; EHC; Sprea Misr; Plastichem; NATGAS; Shabakat; Nubaria Gas Company; Kahraba; Fayum Gas Company; Gas Chill; Tri-Ocean Energy; BMIC; African Paints; Al-Shrouk for Melamine and resins; GT; Delta Insurance; Nile General Takaful; Nile Family Takaful; ETC and MERT.
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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