Underweight on valuation, industry challenges
Rally unjustified. We resume coverage on Pachin with an Underweight rating. Pachin shares are up 106% y-o-y (18.7% since the start of July,). We understand that the driver is market speculation regarding state-owned stake sales. But fundamentally, affordability pressures have compounded since 2013 mainly on EGP weakness. Pachin trades on a FY17/18e P/E of 32x, 71% above global peers, vs. a historical discount of over 40%. While we assume a demand recovery as of FY18/19, our FY19/20 sales volume forecast remains 34% below the company’s FY11/12 figure, and so the stock’s FY19/20e P/E is only a 3% discount to global peers, which we find unjustified given Egypt risk, the industry’s high level of competition and the high degree of price sensitivity. The current share price would only be justified if Pachin’s volumes grow by c9x GDP growth over 2018-20e, vs. our 3.3x estimate.
Paints & Chemicals Industries Company is a joint stock company which is based in Egypt. Co. is engaged in the manufacture and distribution of paints, varnishes, printing inks as well as related printing ink activities and the manufacture of animal extract products. Co. produces various types of oil-based and water-based paints for use on concrete, wood & metal which are suitable for all types of environmental conditions. Co. is also involved in purchasing and dividing land for the purpose of using or reselling and performing specialized construction works. Co.'s operations are organized along three segments: Decorative Paints, Industrial Paints and Printing Inks.
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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