Expansion momentum positive; Maintain OW
New fleet additions value-accretive. On 27 March, Nakilat signed an agreement to establish a new JV with Greece's Maran Ventures Inc., under the name Global Shipping Company. Under the terms of the agreement, Nakilat will own a 60% stake in the new JV, while Maran will hold a 40% stake. The new JV will start with four new LNG units, currently under construction, each with a capacity of 173k m3, bringing the company’s total fleet to 74 units. The new units aim to target international markets, under similar terms to Nakilat’s existing fleet (long-term off-take agreements, stable cash flows, and limited exposure to fuel costs). The units will be debt-funded, meaning interest expenses will eat into JV income over 2019-20e, before significantly improving when the new units come online in 2021.The additions are positive, collectively representing cQAR1.00/share to our TP.
Stability, yield, value, and growth stories remain intact. We maintain our OW call on the stock and raise our TP by 9.1%, mainly to reflect the new fleet additions, and, to a lesser extent, a 50bps lower discount rate (vs. previous our assumption of a 50bps rate increase in 2019), given the Fed’s current stance of patience regarding interest rate hikes. Nakilat trades on a 2019e P/E of 12.7x, c20%% below global utility peers with similar risk profiles, which we find unjustified. Nakilat offers stability, thanks to long-term off-take agreements, with growth prospects, mainly from new fleet additions, deleveraging and improving JV operations. Nakilat’s 2019e dividend yield of 5.3% is attractive vs. global peers’ 4.7% and Qatar’s 4.2%.
Positive risk profile. This is mainly thanks to the potential upside from expansions in Qatar and abroad. Otherwise, the main downside risks are: i) possibility of amendments to Nakilat’s long-term agreements with the Qatari government and IOCs, and ii) lower-than-expected income from JVs (2% reduction in TP for each 5% lower-than-expected JV income p.a., all else constant).
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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