EUR 23.21 For Business Accounts Only

MFPC EY | Maintain OW, on unprecedented tightness in urea

Raise 12M TP by 36%, on favourable industry dynamics. We raise 2022-24e EBITDA for MOPCO by an average of 24%, on higher urea price assumptions to reflect a more protracted period of tightness in global urea supply. Developments in Russia have a two-fold bearing on urea; by reducing export supply from Russia (c18% of the global urea merchant market), as well as placing upward cost pressure on European gas-based production. On our new 12M TP for MOPCO of EGP174/share, we see ~91% upside on the stock, which trades on a 2022e EV/EBITDA of 1.5x.

Local quota reduced to 55% from 65%,... MOPCO has confirmed supplying the Ministry of Agriculture with the 55% local quota (vs. c30% historical average) since the Cabinet’s decision in Nov-21. However, at the time, the decision also entailed an additional 10% to be supplied locally at ‘free’ market prices, which would have been in EGP and still lower than export-parity: EGP equivalent of USD541/t, which is 50% below export-parity. On a positive note, there was no demand for these additional volumes and both MOPCO and Abu Qir are now able to export 45%, up from 35%, accreting 4% to our 12M TP for MOPCO, all else constant.

…with risk of a higher local quota likely to affect other players first. Since the Russia-Ukraine conflict, the Egyptian government has doubled down on efforts to reduce food import dependency. This has raised concerns among investors that MOPCO and Abu Qir’s local quota would rise further to suffice increased agricultural output. We disagree for several reasons, chiefly: i) MOPCO and Abu Qir are already supplying 55% vs. c23% by private producers, and ii) Egypt suffers from over-application of nitrogen to the soil (4.2x the world average), and this should fall with time, especially at times of rising inflation, challenging farmer economics.

Urea strength hastened the conversion to net cash. MOPCO is due to hold its AGM on 5 April and we expect a 2021 DPS of EGP10, yielding 11%; now, the company has switch to a net cash position of EGP1.8bn, 0.2x EBITDA. We note that although we assume a higher base price within MOPCO’s gas supply contract, 2022e export sale proceeds are 2x MOPCO’s gas costs, positioning it as a beneficiary in case of any EGP devaluation against the USD.