EKHO EY | EGP listing offers ideal currency hedge
Maintain OW; Cut TP c18%. Our 12M TP cut reflects a 2% higher WACC assumption and 16% higher natural gas price at AlexFert following the latest gas price amendment. EKH trades on a 2023e EV/EBITDA of 3.0x (based on the EGP listing), a c40% discount to global peers, unjustified in our view, with its 2023-25e EBITDA CAGR of -1.7% being in line with global peers. EKH also offers a dividend yield of 11.5% in 2022e, paid in USD for all listings.
Beyond a urea/gas story. On 15 September, the Egyptian government issued a decision to change the natural gas price for urea producers to be based on a formula that is linked to the end-product prices, instead of a flat USD5.75/mmBtu previously. The new formula effectively raises the gas cost for AlexFert by 16% over 2023-27e. This change, however, should be minimal to EKH’s profitability as AlexFert represents only 24% of net income and 34% of our TP. Other segments’ profitability should rise over 2023-27e, thanks to new projects coming on stream, largely offsetting the weakness at AlexFert.
We favour the EGP listing. The EGP listing has not fully moved in tandem with the EGP weakness, creating a 6% gap between the USD listing. EKH’s operations are USD-denominated, making it an ideal currency hedge. The EGP listing offers an upside of 78.4% compared to 43.5% for the USD listing.
Risks skewed to the upside. We assume export urea prices should gradually normalise to USD450/t by 2025, and a constant local urea price of EGP4,500/t over our forecast horizon, leaving higher urea prices as a source of upside. Additionally, we do not factor ONS’s deep gas layer into our valuation, posing further upside. Key downsides include sharper-than-expected commodity price weakness and tougher market competition for specialty chemicals.
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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