A high-speed ride; Re-initiate with Overweight
A compelling growth proposition. GB Auto is positioned on an accelerated growth path (2018-22e NI CAGR of 43%), capitalising on: i) its solid exposure to Egypt’s fast-growing, underpenetrated NBFS sector (57% of our TP, implied 2019e P/B of 3.7x), with its healthy profitability (41% 2019e RoAE), and ii) a turnaround in its auto business (43% of our TP, implied 2019e P/E of 14x), with substantial growth ahead (2018-20e NI CAGR of 150%). We re-initiate coverage on GB Auto with a 12M TP of EGP8.80/share, implying 60% upside.
Auto business shifting gears. The passenger car market has shown vigorous recovery in 9M18 (volumes + 38% y-o-y), and remains c40% below its normalised levels. We expect GB to grow its PC volumes at a 2018-22e CAGR of 12%, on a broadly intact market share. This, augmented by GB’s margin-focused strategy, as it phases out loss-making models, and improvements in working capital, will shift the segment back to profitability in 2018. We look for a 2018-22e NI CAGR of 85%, magnified by deleveraging and anticipated monetary easing (ND/EBITDA 2.4x 2022e vs. 3.4x 2018e).
GB Capital is the crown jewel. An attractive exposure to Egypt’s credit story, GB’s financing business combines strong market positioning, robust profitability (>10% NIM), and solid growth potential (2018-22e loan CAGR of 24%, NI CAGR 28%), amid healthy portfolio diversity (45% lease, 26% microfinance, 27% consumer finance, as per our estimate). An underleveraged balance sheet (4.4x ND/Equity), augmented by the segment’s profit retention policy, presents room for further growth.
Automotive directive remains a wild card. More than 6 years in the making, the timeline and terms of the directive are becoming harder to predict. This is more so with the recent noise regarding scrapping the old version for a new free-zone strategy (following the Moroccan model), which needs to be tweaked to fit the case of Egypt, in our view, given the existence of several local assemblers.
GB Auto is a player in the MENA region's automotive industry. Co. operates at all levels of the value chain, including assembling, distributing and selling passenger cars and commercial vehicles, manufacturing semi-trailers and superstructures for trucks and buses, selling automotive components, motorcycles and three-wheelers, tires, and construction equipment, as well as providing after-sales service through an aftersales service network and consumer finance and microfinancing. Co. also provides private freight transport services in governorates throughout Egypt. Co.'s operations can be divided into two segments: Passenger Cars, and Commercial Vehicles and Construction Equipment.
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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