Hefty WC needs undermine valuation; Cut to UW
WC funding needs not fully priced-in despite recent share price correction. Ezz Steel is operating its plants sub-optimally due to a shortfall in working capital (WC) funding capacity. However, we assume that management’s plans to raise debt will allow for a full operating rate by 2019e, up from c64% in 2017e, but this will come at a cost which we believe the market overlooks; 2017-19e working capital needs at cEGP13bn (averaging c71% of EBITDA), and in turn undermining FCFF and valuation. EFS, alone, owes EGP3.7bn to suppliers, which it needs to repay for operational efficiency. We reduce our 12M TP by 44% to EGP14.0 per share and cut our rating to Underweight from Overweight.
AL Ezz Steel Rebars is an independent producer of steel in the Middle East and North Africa region which is based in Egypt. Co. produces long and flat products at its manufacturing facilities located in the port cities of Alexandria and Suez and in the Egyptian interior at Sadat City and 10th of Ramadan City and sells them to customers around the world. Co.'s long products consist principally of rebars and wire rods and are used for strengthening concrete in building and other construction applications. Co.'s flat products consist of hot rolled coil, which are thin gauge sheets manufactured to precise specification for makers of consumer goods and industrial products.
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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