ANOTHER STRONG QUARTER BOLSTERED BY ROBUST PRICES Ezz Steel released a positive set of 3Q21 results further supporting FY21 profitability. ESRS achieved EGP897 million of attributable profits during the quarter versus EGP929 million of losses in 3Q20 and +12% QoQ. Net profit before minority interest was EGP1.36 billion versus net losses of EGP1.34 billion in 3Q20 and net profit of EGP1.21 billion in 2Q21. NPM came positive at 4.8% (+15.6pps YoY, Stable QoQ). The results came in positive on st...
Upgrading Financials To Overweight; Downgrading Communications To Market Weight We continue to see a steady flow of risk-on signals that have us moving toward an outright bullish outlook for the broad US equity market. Below we discuss several bullish developments that leads us to believe we are close to exiting the "mixed market environment" that we have referenced since late March. Financials, Copper, US Dollar. These three areas were a primary focus in last week's Compass, and they have sin...
SOARING PRICES SOLIDIFIES PROFITABILITY Ezz Steel released a robust set of 2Q21 results showing strong profitability for the second quarter in a row. ESRS achieved a robust EGP800 million of attributable profits during the quarter (vs our estimates of EGP741 million) and (versus EGP984 million of losses in 2Q20; +2% QoQ). Net profit before minority interest was EGP1.21 billion versus net losses of EGP1.42 billion in 2Q20 and net profit of EGP1.19 billion in 1Q21. NPM came positive at 4.7% (+1...
Full Article at IIR has reaffirmed its Recommended rating for PIA after undertaking a review post the appointment of a new Portfolio Manager, Harding Loevner. The full report can be found on the IIR website. On 26 July 2021, Pengana International Equities Limited (PIA) announced a fully franked dividend of 1.35 cents per share for the June quarter. This represents an 8% increase on the March quarter dividend and takes the total dividends declared for FY21 of 5.1 cents per share, fully franked....
OC offers 14% dividend yield in 2021e. OC distributed USD0.46/share in 2020, and we expect this to rise to USD0.67/share in 2021 and USD0.73/share in 2022 (distributed semi-annually), on rising profitability and a liquid balance sheet. This is equivalent to a yield of 14.4% in 2021e and 15.7% in 2022e (based on the EGX)—the highest in our Egypt universe, and vs. 1.7% and 2.3% for global construction peers. OC trades on a 2022e P/E of 4.4x, 63% below peers, which we see as unjustified. Net incom...
The Egyptian Competition Authority (ECA) has approved a request by 23 cement producers to reduce production volumes “temporarily” to help reduce a glut in output. The current production capacity of the Egyptian cement industry is c.83-85 million tonnes per annum while local demand was only at c.46 million tonnes in FY20 and c.49 million tonnes in FY19, which resulted in a recurring stream of losses for most players in the industry due to price wars and fierce competition. Losses were exacerba...
STRONG PRICES BOLSTER PERFORMANCE AND SHIFTS BOTTOM-LINE TO THE GREEN Ezz Steel has finally shifted to profitability on the bottom-line level in 1Q21 an occasion that hasn’t occurred since 4Q2016 when the company benefited from the devaluation of the EGP. ESRS achieved EGP784 million of attributable profits compared to a net loss of EGP860 million in 1Q20 and a net loss of EGP346 million in4Q20. Net profit before minority interest was EGP1.19 billion versus net losses of EGP1.35 billion in 1Q...
Commodities Improving As US Dollar Simmers Despite a more mixed and highly rotational market across Sectors, market-caps, and growth/value, not one Sector or widely followed index is breaking down; to the contrary, more are beginning to break out to new all-time highs. Overall, the weight of the evidence remains positive, and our outlook remains constructive for the weeks and months ahead; buy pullbacks. S&P 500, Nasdaq 100, Dow, Mid-Caps, Russell 2000. Large-cap (S&P 500, Nasdaq 100, and Dow)...
TOPLINE RECOVERS; MARGINS FOLLOW SPREAD TRENDS Attributable net losses recorded EGP1,190 million in 4Q20 compared to EGP3,994 million in 4Q19 (Due to restructuring costs) and EGP1,182 million in 3Q20. NLM recorded 10.9% during the quarter (+4.5pps QoQ). The company’s losses were broadly equivalent to the previous quarter despite the positive performance on the gross profit level which trickled down to the EBIT, because the hefty net finance costs of EGP789 million (10.7% effective interest ra...
RESUMPTION OF BUILDING ACTIVITY AIDED VOLUMES RECOVERY BUT DIDN'T EVADE LOSSES Egypt’s local cement sales volumes in 2020 declined to 45.9 million tonnes (-5.6% YoY) but were higher than our expectations of 44 million tonnes, due to the resumption of building activity in 4Q20 which led to a rebound in volumes, while cement exports grew by 4.0% in 2020 to 1.18 million tonnes, representing 2.5% of total sales. Hence, total cement sales (local + exports) for the year stood at 47.13 million tonne...
VOLUMES TO RECOVER SLIGHTLY IN 2021 * ARCC management sees that things got a bit clearer in 4Q20 from the perspective of construction sites since the ban on construction has been waived. They mentioned that the local demand has started to recover gradually since then. * Local demand was 3.1 million tonnes in August, 3.6 million tonnes in September, 4.0 million tonnes in October, 4.3 million tonnes in November, and December expectations are 4.3-4.4 million tonnes. So, there is a clear re...
> Topline recovers sequentially; Margins turn green IRAX reported 3Q20 consolidated revenue of EGP7,692 million, down 3.9% YoY, but up 25.2% QoQ. The company saw quicker top-line recovery than expected, which was driven by c. 36% sequential improvement in total volumes sold and an uptick in prices. The company turned to profitability on the gross level, where gross profit recorded EGP121 million in 3Q20 versus a gross loss of EGP112 million in 3Q19, and EGP104 million in 2Q20. GPM came in at ...
ANOTHER WEAK QUARTER FOR EGYPT'S CEMENT INDUSTRY, PAUSE ON BUILDING ACTIVITY DRAGS DOWN VOLUMES Total cement sales (local + exports) stood at 10.5 million tonnes in 3Q20, down 14.2% YoY but up 3.6% QoQ. Utilization rates recorded 57% in 9M20 and 58% in Sep-20. 3Q20 volumes were weakened on an annual basis, by the halt of building permits in Egypt’s capital cities and the government’s focus on fighting illegal building activity, which definitely weighed down on building materials demand and ce...
IRAX reported 2Q20 consolidated revenue of EGP6,145 million, down 44.8% YoY, and 32.8% QoQ. The huge slump in revenue is attributed to feeble demand during the quarter since volumes declined by 47% YoY and 40% QoQ amidst the weak demand caused by lockdowns, Ramadan, and reduced construction activity. Despite the increase in steel ASP/tonne on a YoY and QoQ basis (especially in export prices), sales failed to be cushioned from the demand slump. The company attained a gross loss of EGP104 milli...
CHALLENGING QUARTER FOR CEMENT DEMAND AND PRICES ON SEASONALITY, GLOBAL MARKETS AND REGULATORY CHANGES Total cement sales (local + exports) stood at 10.1 million tonnes in 2Q20, down 12.0% YoY and 61.4% QoQ and utilization rates recorded 59% in 1H20 and 55% in Jun-20. 2Q20 was definitely a challenging quarter for the cement sector’s sales performance since it included the peak of the pandemic lockdowns and the narrow window for construction between Iftar and the curfew during Ramadan (less th....
IRAX reported 1Q20 consolidated revenue of EGP9,150 million, down 13.8% YoY and up 4.0% QoQ. The drop-in revenues resulted from an 18% decline in average selling price/ton due to declining global steel prices, ASP/ton recorded EGP8,338 in 1Q20 versus EGP10,174 in 1Q19. Even though sales volumes rose by 24% YoY, the decline in selling prices wiped out its impact on the top line. The company attained a gross profit of EGP51 million in 1Q20 down from EGP257 million in 1Q19 (down 80% YoY) and up ...
Sales volume improve YoY in early 2020, weakness expected going forward Total cement sales (local + exports) stood at 13.2 million in 1Q20, up 4.9% YoY and down 1.8% QoQ. The annual increase was partially driven by 1) recovery in purchasing power in early 2020 coupled with 2) accelerating informal construction activity towards the end of March. Looking ahead, we expect sales volume to decline on the back of Ramadan and Eid holidays in addition to the narrow window between Iftar and the curfew...
The Government slashes natural gas and electricity prices In an attempt to alleviate the current pressure, the government has reduced natural gas prices to USD4.5/mmbtu, down from USD5.5/mmbtu for steel, aluminium and tiles producers and down from USD6/mmbtu for cement. In our view, the key beneficiaries are ESRS, IRAX, ECAP, and LCSW. The government will also reduce the electricity tariff by EGP0.10/KWh, which will have a positive impact on EGAL and our cement coverage. We do not rule out th...
Best play on the sector, upgrade TP on improving outlook. OC offers ideal exposure to the MENA construction sector, trading at a highly attractive 2020e EV/EBITDA and P/E of 0.5x and 3.8x, respectively, while offering a 2019-21e EPS CAGR of c14%. This comes on top of a lucrative 2020e dividend yield of 9.2%, stemming from a 2020e payout ratio of 35%. An upward revision of our 2020e assumptions (revenue and net income revised by c11% and c13%, respectively, on a 16% upward revision of 2019e award...
Demand down 7.9% y-o-y in 3Q19; Full year 2019 demand highly likely to miss our c51mn tonne estimate. Local cement demand continued to deteriorate in 3Q19, falling by 7.9% y-o-y to 11.9mn tonnes. We assume flattish cement demand over 2019-22e at c51mn tonnes, but the weakness seen in 9M19 (-6.7% y-o-y) implies that our numbers for full year 2019 and beyond are likely to miss. For our valuation of Arabian Cement Company (ACC) [Underweight | TP EGP3.20], we assume a cement capacity utilisation of ...
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