Initiate with Overweight; Fundamentals overlooked
12M TP of 19.3/share, c47% upside. RCC, Egypt’s leading provider of business process outsourcing (BPO) with 18 services, is the cheapest stock within its peer group (2018e P/E of 7.3x, 61% less than peers’ 18.9x). RCC’s growth outlook is also very clear (2017-19e EPS at a CAGR of 11.7%), backed by demand from the GCC (its main region of focus), Egypt’s labour cost advantage, and high availability of young and multi-lingual talent (RCC offers ›25 languages). Our Overweight call accounts for continued inflation in wages (74% of opex), and rent (11.5%) at 22-24% p.a. over 2017-20, as well as the stock’s low liquidity, with our TP implying a P/E 44% below peers.
Well-positioned in a growing market. RCC’s high quality, flexibility and reach, and labour cost advantage (Egypt’s average cost of full-time working hour employee is c68% below the average of key outsourcing destinations) are key attributes, with 77% of revenue FCY-denominated vs. 28% of CoGS. We expect a 2017-19e revenue CAGR of 22%, driven by: i) new clients (c62% of growth) thanks to country and company-specific competitive advantages, ii) contractual price escalations (c27% of growth) as USD and EGP contracts grow by c4% and 10% p.a., respectively, and iii) upselling of multiple services to existing clients (12% of growth). We also see RCC sustaining high EBITDA margins of c25% vs. peers’ 14% and RoE of c43% (2.5x peers).
Attractive dividend yield. Thanks to its net cash position of EGP236mn, 1.2x 2017 EBITDA, guidance is for a 50% DPO in 2018, yielding 8.7% (among the highest within our Egypt coverage universe). RCC is considering a 1:1 stock dividend by 3Q18. Scope for upward revisions lies in RCC’s planned foray into Saudi Arabia (via on-the-ground presence) by 3Q18. Although RCC already has a growing revenue stream from Saudi, establishing a base would allow for stronger growth momentum, given the GCC, in particular the Saudi, client base’s preference to deal with a local player.
Raya Contact Center Co. Raya Contact Center Co is an Egypt-based company engaged in the provision of business process outsourcing services. The Company's services are structured into four divisions: Contact Center, which offers customer service, inbound sales, technical support and tale-marketing; Back Office, including data management, finance & accounting and supply chain management; Inside Sales, which offers customer segmentation, channel development, campaign management, lead management and account management, and Professional Services, which includes human resources outsourcing, call center hosting, contact center and quality consultancy, and contact center training. The Company serves its clients from seven contact center facilities in Cairo and Hurghada, Egypt; Dubai, UAE, and Warsaw, Poland. Raya Contact Center focuses on industries, such as telecom, technology, consumer electronics, banking, automotive, travel and retail industries.
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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