KEY THEMES
With the Central Bank of Egypt’s (CBE) decision to leave interest rates unchanged, investors’ eyes will be back on Q2 2021 earnings reports. A couple of large-cap stocks are due to report this week, namely Ezz Steel [ESRS], Sidi Kerir Petrochemicals [SKPC], Telecom Egypt [ETEL], and Ibnsina Pharma [ISPH]. Meanwhile, just this morning, Abu Qir Fertilizers [ABUK] and MOPCO [MFPC] reported their results ending 30 June 2021—both exhibiting double-digit earnings growth.
Abu Qir Fertilizers’ [ABUK] preliminary indicators showed 2020/21 top line of EGP8.8bn (+3.3% vs. Prime Research estimates) because of robust urea prices during the last quarter. Consequently, ABUK’s pretax income managed to beat our estimates of EGP4.2bn, recording EGP4.3bn (+2.8% vs. Prime Research estimates). However, lower effective tax rates resulted in relatively a wider beat in net earnings, which recorded EGP3.5bn (+8.0% vs. Prime Research estimates). ABUK managed to achieve a strong growth of 12% and 30% in top and bottom lines, respectively, supported by nearly 8pp expansion in GPM y/y.
Meanwhile, MOPCO [MFPC] stand-alone H1 2021 EPS grew to EGP2.86 (+16% y/y) as top line recorded EGP1.47bn (+25% y/y). Meanwhile, GPM has furthered improved by c.200bps to 59%.
The very strong rally in global nitrogen fertilizer prices is showing evidence to continue during the rest of 2021 and a good part of the upcoming 2022. The reasons appear to be squeezed supply levels, coupled with higher natural gas prices globally, as well as higher crops’ prices (e.g. wheat and soybeans). We note that the stock prices of nearly all members of the EGX industrial and materials universe have reflected the current rally in global commodity market, except for fertilizers’, having been lagging despite a set of solid results.
We remind you that we have an Overweight rating on ABUK, with a 12M PT of EGP26/share (+34%). ABUK is currently traded at 2021/22 P/E and EV/EBITDA of 7.0 and 4.7x respectively. Meanwhile, our back-of-the-envelope valuation for MFPC gives us a 12M PT of EGP100/share (+28%).