Alexandria Containers & Cargo Handling Co. [ALCN]: Gateway of the North
A simple, yet effective business model; initiate at OW/M
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Alexandria Containers & Cargo Handling Co. [ALCN]
Egypt / Logistics / Core Coverage Report
12M PT: EGP16.9 (+30%)
set on 20 Nov. 2022
Investment Rating: Overweight | Risk Rating: Medium
Key Insights
A play on Egypt’s trade recovery
Alexandria Containers & Cargo Handling Co. [ALCN] is one of the five captains of Egypt’s sea terminal companies operating on the north shore. ALCN operates in Egypt’s largest gateway ports, Alexandria and El-Dekheila terminals, with a combined market share of 50.5% of total handled cargo in both ports. Strategically located within the European and American sea trade with easy road access to the Delta region and Cairo, ALCN is a play on the recovery of Egypt’s trade which we expect to grow by a 5y CAGR of 8.5%.
Strong financial position
ALCN enjoys some key strength points: (1) It operates as a free zone company, with no tax burden on its earnings. (2) Its revenues are linked to USD, while costs are mostly denominated in EGP. (3) It has exposure to a high-margin business with a five-year average gross profit margin (GPM) of 68%. (4) A stable dividend payer with a high dividend yield.
GCC sovereign funds getting a big chunk
UAE-based ADQ Holding and KSA-based Public Investment Fund (PIF) have acquired 32% and 20% stakes in ALCN, respectively. This reduced Alexandria Port Authority’s stake in ALCN to c.36%. Valuing ALCN at EGP12.3bn on average, the sale of these stakes has been a catalyst for ALCN’s stock performance which increased 47% in the last six months.
Valuation, Investment Thesis, & Risks
Overweight/Medium Risk, 12MPT EGP16.9/share (+30%)
ALCN’s volumes decreased from 974,000 containers in 2019/20 to 914,000 containers the year after, mainly due to the COVID-19 pandemic. In 2022, container volumes reached 840,000 containers and are yet to recover to pre-covid volumes. We expect the utilization rate for ALCN to decline over the coming years due to new competition in Alexandria and slower trade growth. Yet, we expect earnings to grow at a 5y CAGR (2022-2027) of 8.6% due to higher average container fees. We valued ALCN using a five-year discounted cash flow approach that produced a fair value of EGP14.4/share and a 12-month price target (12MPT) of EGP16.9/share, hence our Overweight rating. Our 12MPT offers an upside potential of 30%, implying a 2022/23e P/E of only 9.7x.
Investment Thesis
ALCN has a solid financial position, with high gross margins. Interest-earning cash, with consistent dividend payments, translating into a high dividend yield (10.4% based on the last fiscal year). A strong balance sheet with zero debt.
Risks
The presence of new competitors in Alexandria and Abu Qir ports operating in container handling could dent ALCN’s market share. Any decline in trade volumes due to locally-imposed limitations on imports and/or global recession fears. A stronger EGP vs. USD. A decline in EGP interest rates.
For the full report, please click here.
Abdelkhalek Mohamed
Equity Analyst
T +202 3300 5717
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