EUR 32.49 For Business Accounts Only

MFPC EY | Maintain OW ahead of 1H22 peak, on lower TP

Cut 12M TP by 10%. We update our forecasts to reflect: i) higher than previously expected export prices, ii) a local quota of 55% (30% previously), but at the 47% higher local urea subsidy price (USD287/t), gradually reaching full liberalisation of USD340/t by 2027e, and iii) 2023-27e average gas price of USD5.9/mmBtu. This gas price is +1.7x vs. the formula implied gas price (so far in place), as the government demonstrates increased involvement to maximise its profit windfall from elevated commodities, but also given Egypt’s higher natural gas production cost and the need to encourage oil & gas E&P capex. While MOPCO trades on an attractive 2022e EV/EBITDA of 2.3x, we prefer , which trades on a more compelling 1.7x.

2022e, peak performance year. We expect urea market strength to continue in 1H22, reflecting the ongoing energy crisis in Asia and Europe, before availability begins to normalise in 2H22. China’s coal prices currently stand at USD232/t (+64% y-o-y), and Europe’s gas prices (TTF hub) reached USD28/mmBtu (+3x y-o-y), impacting c26% and c6% of global urea volume produced, respectively. Our 2022 urea price estimate of USD550/t implies USD685/t and USD415/t for 1H22e and 2H22e, respectively. We look for 2022e EBITDA of EGP7.8bn, up c22% y-o-y, availing faster deleveraging, while closing the year with a debt-free balance sheet. 

Increased local quota, shaves 6% off our 12M TP. We update our model to reflect a 55% local quota starting 18 Nov-21 to 2027e (MOPCO’s five-year historical average was c23%). Given the government’s latest decision obligating N-fertiliser producers to supply the local market with 55% of their production, to ensure local availability. All else constant, the increased local quota cuts our 2022e EBITDA by 21% to EGP7.8bn (vs. EGP9.9bn previously), implying an EBITDA margin of 60.4% (vs. 65.2%).

Melamine project; No impact on dividends. MOPCO is currently looking to begin conducting a feasibility study of a USD200mn melamine project, to be solely owned by MOPCO, using excess ammonia (c58k tpa), to produce 40k tpa of melamine, within the company’s land where its main facility resides in the Damietta public free zone. We foresee limited impact on our dividend assumptions from the planned melamine project, thanks to i) robust cashflow generation, with 2022-27e average cEGP4.1bn FCFF p.a., and ii) 2022e debt-free balance sheet.