KEY THEMES
Narrower losses: Arabian Cement Co. [ARCC] said, in its quarterly earnings call, that Q2 2021 consolidated net losses after minorities narrowed to a net loss of EGP17mn from EGP21.5mn a year before. Meanwhile, revenues decreased by 14% y/y to EGP532.4mn, as volume sold shrank 18% y/y to 814,000 tons, which more than offset the 3.6% y/y increase in prices to EGP630/ton.
Higher cash cost per ton: Although cash costs decreased 9% y/y to EGP454mn on lower volume, cash cost per ton increased by 11% y/y to EGP558 inflated by a rise in the prices of pet coke, coal, and freight. ARCC does not keep pet coke inventory for long, only for one or two months. Piling up inventory is costly and, while prices fluctuate, is also risky.
Cement seen to get pricier: We have seen prices rise to EGP900-930/ton, and management expects a gradual increase in the company's selling prices until prices reach the desired level of EGP1,000-1,200/ton. Cement consumption in Egypt has already recovered in H1 2021 to 24.1mn tons (+5% y/y).
Pinning higher hopes for H2 2021: Management expects H2 2021 EBITDA could be 2-3x that of the first half’s EGP133mn which was affected by a technical problem in one of the company's production lines.
Positive industry outlook: We see the bottom line of cement companies recovering in H2 2021, if the price increase and demand recovery are sustained.
ARCC trades at a P/S of 1x, EV/EBITDA of 18.2x, and EV/ton of USD51.