EGYPTFertilizers: Grass Is Green on Both Sides
ABUK, MFPC updated: 12MPT raised but rating downgraded to N/M on recent price rally
EGYPTFertilizers
Egypt / Fertilizers / Sector Note & Core Coverage Update
The dramatic volatility in commodity prices seen in 2022 has been driven by many factors, led by the Russia-Ukraine war, global supply chain disruptions, high energy prices, and most recently a slowdown in demand growth. In this note, we attempt to explicate the past major market movements and, within the same context, anticipate future movements and their potential effect on our top picks in the fertilizers sector, namely Abu Qir Fertilizers [ABUK] and MOPCO [MFPC]. We also update our valuation models for both names and raise the two stocks’ 12MPTs, but we downgrade our ratings for both names to N/M on their recent price rallies.
The denouement
After supply chain disruptions caused by the pandemic pushed urea prices to surge by 230% in 2021, prices rose further in H1 2022 on the Russia-Ukraine war. Urea prices hit historic highs of c.USD1,100/ton by April 2022. However, extreme prices did not last long as they began to decline in October 2022 on lower demand following a wave of buyer deferrals due to the high prices. Currently, prices hover around USD340-400/ton, the lowest they have been since H1 2021. We expect prices to bounce back from the current levels throughout 2023, capped at USD500/ton which is still lower than last year’s average. We then expect fertilizer prices to gradually normalize to the mid-cycle price of USD300-350/ton in the longer term.
ABUK; 12MPT raised to EGP52.8/share, downgraded to N/M
The high global urea prices in 2022/23 coupled with EGP devaluation helped ABUK deliver a phenomenal performance in 9M 2022/23, recording all-time high top line of EGP17.3bn (+44% y/y) and a bottom line of EGP12.9bn (+86% y/y). ABUK managed to maintain its GPM at 62.5%, with applying the new formula linking natural gas prices to global urea prices. Going forward, since we expect global urea prices to normalize in the long term, the new formula would come in handy. We raised our 12MPT by 32% to EGP52.8/share, thus downgrading our rating to Neutral / Medium Risk and implying 2022/23e P/E and EV/EBITDA of 4.5x and 3.3x, respectively.
MFPC; 12MPT raised to EGP220/share, downgraded to N/M
MFPC’s shareholder structure changed twice in the past couple of years. First, Nutrien sold its entire stake to the Egyptian government which in turn sold 25% and 20% stakes to PIF and ADQ, respectively. With these structural changes we have seen major changes in the company’s business model and sales allocation schemes. Which, in turn, directly affected its revenue mix and cost structure. With the EGP devaluation and the new natural gas cost formula, we raise our 12MPT by 22% to EGP220/share, downgrading our rating to Neutral / Medium Risk and implying 2023e P/E and EV/EBITDA of 9.6x and 4x, respectively.
For the full report, please click here.
Amany Shaaban
Equity Analyst
T +202 3300 5720
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