reports
- Zeyad Ahmed
ESRS & IRAX 3Q21| Another strong quarter bolstered by robust prices
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...
- Zeyad Ahmed
ESRS & IRAX 2Q21 – Soaring prices solidifies profitability
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...
- Zeyad Ahmed
Ezz Steel & Al Ezz Dekheila Steel: Strong prices bolster performance
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...
- Zeyad Ahmed
Al Ezz Dekheila Steel: Topline and margins recover; finance and tax ch...
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...
- Zeyad Ahmed
Al Ezz Dekheila Steel: 3Q20| Topline recovers sequentially; Margins tu...
> 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 ...
- Zeyad Ahmed
Al Ezz Dekheila Steel: Topline tumbles on hammered volumes; margins ba...
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...
- Zeyad Ahmed
Al Ezz Dekheila Steel: Topline declines on lower prices; gross profit ...
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 ...
- Mark Adeeb
Egypt: Government incentives offer respite but will not prevent losses
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...
- Ahmed Soliman
Egypt steel producers | Industry dynamics deteriorate; Proposed share ...
Negative domestic, global industry dynamics continue to unfold. Domestic steel demand has been falling since Nov-16 (2019e demand is 16.5% below pre-float levels). Globally, iron ore prices started to normalise as anticipated, but there are strong signals that steel prices could follow (Aug-19 steel price composite down to USD575/t, the lowest in nearly two years), amid global trade tensions and potential slowdown. We assume full protectionism of the domestic market, but there is a risk of an ad...
- Ahmed Soliman
Egypt steel producers | Downgrade to Underweight on rising materials c...
A bear steel cycle is becoming more evident. Vale’s (the largest global iron ore producer) Brazil mine crisis on 25 Jan led global iron ore prices to soar by 20% over Jan-Mar 2019. However, global steel prices did not follow suit amid unsupportive demand. The World Steel Association sees global steel demand growth weakening to 1.4% in 2019 vs. 4.3% in 2018 and 2% in 2017. The IMF forecasts China (c50% of global consumption)’s real GDP growth to drop to 6.2% in 2019 vs. 6.6% in 2018. Protectionis...
- Ahmed Soliman
Discount to global peers justified by subpar growth; Upgrade to Neutra...
Raise TP by c8% to EGP974/share. This comes mainly on the back of the DCF roll-over. We upgrade our call to Neutral, given the c7% share price drop since our previous report, published in Mar-18. EZDK trades on a 2019e proportionate EV/EBITDA of 4.8x, a 7.8% discount to global peers. This is justified, in our view, by a proportionate 2019-21e EBITDA CAGR of -2.4% vs. +1.4% for global peers, as well as Egypt’s high capital costs and EZDK’s negative risk profile. Inflationary pressures largely of...
- Ahmed Soliman
Upgrade to Neutral on valuation; Global steel cycle a key watch factor
Raise TP by 5.5% to EGP19.0/share on DCF roll-over. We upgrade our rating to Neutral, following the 25.7% share price drop since our last note, published in Mar-18. Ezz Steel trades on a 2019e proportionate EV/EBITDA of 5.8x, dropping to 5.2x in 2020e, in line with global peers, which we find justified, given Egypt’s high capital costs, and Ezz Steel’s 2019-21e EBITDA CAGR of 7.1%, above the peers average of 1.4%. WC spending means deleveraging is a long-term story. We estimate WC spending in 2...
- Ahmed Soliman
Egypt natural gas outlook | Sector developments reconfirm long-term de...
Maintain expectation of a sustained long-term gas deficit. We cut our demand estimates by 4-7% over 2018-21, mainly due to the impact of global externalities (higher oil prices and capital outflows from EM economies), on economic growth and gas demand. We hold our supply and pricing forecasts roughly unchanged. We also maintain our view that Egypt will remain a gas deficit nation beyond 2020e, despite the drastic supply improvement – Egypt’s natural gas supply should grow at a 2017-20e CAGR of 1...
- Ahmed Soliman
Rally overdone; Downgrade to Underweight
Underweight post strong rally. We raise our TP by 15.4% to reflect c7% higher USD:EGP forecasts over 2018-22 (17.7 over 2018-19e, 5% devaluation p.a. thereafter), which is partially offset by 17.5% higher non-material cost inflation at the new FX assumptions. Al Ezz Dekheila (EZDK)’s share price is up by c100%, since mid-Nov 2017, which we find overdone, and accordingly cut our rating to Underweight from Overweight. EZDK trades on a proportionate 2018e EV/EBITDA of 5.6x, falling to 5.4x in 2019e...
- Ahmed Soliman
Deep value; Maintain Overweight
Reduce TP by c9% on lower EFS valuation. The cut in our valuation mainly reflects a 53% lower DCF-EV of EFS (44%-owned) to account for its hefty working capital (WC) needs of USD400mn over 2018-22e, including the partial repayment of EGP3.7bn of accumulated payables. This is slightly offset by c12% higher EBITDA estimates over 2018-22e. However, EZDK remains a deep value stock, trading on a 2018e proportionate EV/EBITDA of 5x, 26% below global peers, despite its 2018-19e EBITDA growth of c27% vs...
- Rita Guindy
Maintain OW; c40% discount to peers unjustified
Reiterate Overweight at 23% higher TP of EGP860/share. We raise our 2017e revenue and EBITDA estimates by 18% and 22%, respectively, on higher steel prices and volumes from EFS, leading to our 12-month target price upgrade to EGP860/share. Ezz Steel is enjoying strong pricing power amid the prevailing inflationary environment (3Q16 gross margins rose to 13.3%, up from an average of 5.2% in 1H16), mainly through EZDK. EZDK trades on a 2017e EV/EBITDA of 4.0x, 43% below the sector, despite above-a...
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