Alexandria Containers Handling [ALCN]: Breaking Higher Waves
Raising our 12MPT on a higher USD/EGP; OW/M maintained
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Alexandria Containers Handling [ALCN]
Egypt / Logistics / Core Coverage Update
12MPT: EGP27.5 (was EGP16.9)
set on 8 Feb. 2023
Investment Rating: Overweight | Risk Rating: Medium
On 20 November 2022, we published a Core Coverage report on Alexandria Containers & Cargo Handling Co. [ALCN] with an Overweight rating and a 12MPT of EGP16.9/share. The stock price has exceeded that 12MPT, having rallied 39% since then from EGP13.05/share. The USD has also strengthened against the EGP, which in consequence led to a higher revenue per container in H1 2022/23 (+73% y/y). Hence, we updated our model for ALCN, which resulted in a higher 12MPT of EGP27.5/share, thanks to the stronger USD, offering a 52% upside. Thus, we maintain our Overweight/Medium Risk rating.
A quick recap
ALCN is a high-margin logistics operator and a key beneficiary of a stronger USD vis-à-vis EGP. Besides, a stable dividend policy should bode well for investors looking for income stocks. This is despite the new competition in the terminals industry, especially in Alexandria with the inauguration of the Egyptian Multi-Purpose Terminal (EGMPT). Moreover, UAE-based Alpha Oryx Limited, a subsidiary of ADQ Holding, and the Saudi Egyptian Investment Co., a subsidiary of KSA’s Public Investment Fund (PIF), acquired 32% and 20% stakes in ALCN at EGP6.15/share (implying a P/E of 5.5x) and at EGP10.14/share (implying a P/E of 7.5x), respectively.
Upcoming IPOs in the logistics sector
The board of directors of both Port Said Container Handling Co. [POCO] and Damietta Container Handling Co. [DCCC] agreed to float a portion of their companies on the EGX. With a paid-in capital of EGP164.1mn, POCO is the closest peer to ALCN with more than 50% of its business focused on trade containers. Alternatively, DCCC (having a paid-in capital of EGP200mn) is more focused on transit containers, a low-margin business. While ALCN’s margins and earnings are relatively better than those of POCO and DCCC, such upcoming IPOs are likely to take the attention away from ALCN. Recently, Qatar Investment Authority (QIA) was reportedly rumored to be interested in grabbing a majority stake in both POCO and DCCC. This underlines the huge potential interest in the sector from GCC investors in general and sovereign wealth funds in particular.
12MPT upgraded to EGP27.5/share, rating maintained at OW/M
We updated our 5y DCF model, which produced a fair value of EGP21.7/share and a 12MPT of EGP27.5/share, thanks to a stronger USD. This implies a 2023e P/E of 9.8x and, with a potential upside of 52%. Thus, we maintain our rating of Overweight/Medium Risk. Key Catalysts: Further EGP devaluation. Expected growth in trade volumes and values. Key Risks: Lower interest rates. A stronger EGP. As investors focus on the logistics sector in light of the government’s IPO program, they may reduce exposure to ALCN.
For the full report, please click here.
Abdelkhalek Mohamed
Equity Analyst
T +202 3300 5717
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