SIPCHEM AB | Commodity price recovery priced-in; Maintain Neutral
Current share price reflects recovering commodity prices, better trade dynamics. We increase our TP by c20%, as we roll over DCF and account for 12.4% higher average petchem prices. Sipchem trades on a 2021e P/E of 12.8x, in line with the industry’s historical average, reflecting that the market already prices in the expected commodity price recovery and better global economic and trade dynamics. Our valuation for Sipchem represents a downside potential of 4.23% from current levels.
Improving economic outlook to reflect positively on commodity price and earnings. We expect COVID-19 vaccines and better trade dynamics to encourage a pick-up in economic activity and global demand, leading the prices of Sipchem’s main commodities (methanol, polyethylene and polypropylene) to recover c15% in 2021.We look for Sipchem’s 2021-25e: i) weighted average profit spread of USD533/t, ii) average capacity utilisation of c94%, and iii) average RoE of 4.25% and 3% for Sipchem and Sahara’s subsidiaries, respectively to lead to a 2021e net income of SAR993mn (implying a net margin of 15.6%), normalising at such levels.
Expect no dividends in 2020e, dividend recovery beyond; Long-term deleveraging plan intact. We expect nil dividends in 2020e, as the 23.6% y-o-y drop in oil price in 2020 eats into profitability (we look for a net loss of SAR130mn in 2020e). We look for Sipchem to return to their historically sustained DPS of SAR1.00, starting 2021e, along with the recovery in profitability, yielding 5.75% vs. 3.20% for global peers and 1.00% for the Saudi market. We assume a 2021-25e average net debt reduction of SAR631mn p.a., leading 2025e net debt to stand at SAR2.4bn, implying a ND/ EBITDA of 1.07x.
Valuation most sensitive to volumes, on our numbers. We estimate every 5% lower-than-expected volumes p.a. (noting the group is already operating at near 100% capacity utilisation) to reduce our TP by 22.6%. Meanwhile, every 5% higher/lower oil price p.a. adds/deducts 2.10% to our TP, 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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