EUR 18.48 For Business Accounts Only

Ezz Steel - Valuation Update

​We upgrade our fair value for Ezz Steel (ESRS.CA) to EGP 20.9/share from our previous fair value of EGP 9.2/share; with an upside potential of 55%, implying a Strong Buy recommendation. The considerable change in fair value and our new positive view for Ezz Steel comes on the back of what we stated pre flotation in our latest update issued in 29th of September 2016, as we stated “Although the significant upside potential, we advise short term traders to avoid the stock at the mean time… On the other hand, at this current price levels, we advise medium to long term investors to start build their position in Ezz Steel… as Egypt is going to solve the FX crunch, through securing external debts, as well as solving the problem of NG shortage within 2017, Ezz is expected to perform well.” Nevertheless, in terms of USD, our fair value upgrade by only 9%, at an exchange rate of EGP 18.5/USD compared to EGP 8.88/USD. Our valuation horizon starts at FY2017 and ends by FY2021. In our opinion, the catalyst is stemmed from the synchronized occurrence of four elements; 1- EGP floatation, liberalizing Steel pricing. 2- Improvement in NG supply, especially in 3Q2016, which can be noticed in EZDK’s 3Q2016 financial results. 3- Global Prices rebound during 2016. 4- The duplication of DRI model in ERM’s new DRI plant, since DRI based model bears a cost advantage of USD c100/ton.