Today’s Trading Playbook
KEY THEMES
Absent general themes that we see driving the market in the coming period, we opt to pick single stock stories that we think are worth looking at, especially when valuation is relatively cheap and on top of that offering potentially high yield. In terms of relatively cheap valuation, we recently discussed Dice Sport & Casual Wear [DSCW] which we think it offers a decent upside following its recent rollercoaster ride. In terms of both relatively cheap valuation and high dividend yield, we discuss today General Silos & Storage [GSSC].
GSSC released its 8M 2020/21 figures, achieving net earnings before minorities of EGP67mn. That’s another small cap name, which had quite a fortunate run in 2020. We note that GSSC’s net income in January-February 2021 is about EGP16.4mn (i.e. 24% of the entire 8M 2020/21 EPS). However, minority interest captures a considerable share of the name’s bottom line (nearly 50%). The main overhang related to GSSC is the EGP390mn fine due to the General Authority for Supply Commodities (GASC) over a 20-year period. However, given the length of such period, we think the per-share effect is substantially reduced. Also, GSSC is flush with cash and is debt free. Its net cash position as of H1 2020/21 ended 31 December 2020 hit c.EGP350mn. Interestingly, GSSC’s current market cap is around EGP463mn. If we subtract the net cash from its market cap, and with TTM earnings after minority standing at EGP39mn (adjusted for interest income), we end up with a cash-adjusted P/E close to 3x.
Valuing GSSC, we find the company enjoys notable sustainability when it comes to its business model variables. We valued the name using a 3-year DCF method. We forecast revenues to grow at a 4-year CAGR (2019/20-2022/23) of c.4%. We see GSSC achieving a top line of c.EGP477mn by 2022/23, with GPM stabilizing at 40.5%. Our projections lead to an average NOPAT of c.13% of total revenues, with reinvestment rate averaging c.12%. Assuming a terminal growth rate of 3% and a terminal WACC of c.14% for GSSC, we reach a 12M PT of EGP59/share (ETR +28%), after taking into consideration the aforementioned settlement with GASC. Consequently, our 12M PT implies 2021/22e EV/EBITDA of 4.4x, which is not too demanding.
POSITIVE
GSSC, BINV, OFH: GSSC offers decent dividend yield in the vicinity of 7%, while offering some 28% upside. Today’s reported 2020 results by B Investments Holding [BINV] confirms our positive view on the name, at a time when it is undertaking some profitable exits. Last but not least, Orascom Financial Holding [OFH] is making its first move after its spinoff. We like the name because we think there is more up its sleeves in the fintech sector.
Now, on to the top news and analysis for the day.