Today’s Trading Playbook
A late entry to Q1 2022 earnings season, Qalaa Holding [CCAP] reported a set of strong operational results. CCAP achieved EBITDA of EGP3.9bn vs. EGP91mn a year earlier. EBITDA improved notably in light of 134% annual growth in top line to EGP18.7bn, alongside EBITDA margin of 21% vs. 1% a year earlier.
We note that Egyptian Refining Company (ERC) was responsible for most of the y/y improvement. If we exclude ERC, revenues would have grown by only 28% y/y. Nonetheless, other subsidiaries had a good quarter as well, including TAQA Arabia with EBITDA up 93% y/y. We note that ERC's GRM improved to USD2.7mn/day, thanks to strong revenue growth as well as wide HSFO-LSFO spreads. In addition, Q1 2021 was a weak base, given that ERC faced operational difficulties that led to a 29-day stoppage and 20 days of production slowdown.
Despite notable improvement on the EBITDA level for CCAP, its net losses widened in Q1 2022 to EGP584mn vs. EGP479mn a year earlier on the back of EGP1.3bn in FX losses and 29% y/y growth in borrowing costs to EGP1.1bn. With persistently high oil prices in Q2 2022 as well as wide HSFO-LSFO spreads, the outlook should be positive. However, the current HSFO-LSFO spread, also known as Hi-5 spread, is seriously shortening the payback period for fuel scrubbers, thus suggesting over the long term that Hi-5 spreads will normalize from their current elevated levels.
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