On Solid Foundations

Apr 10, 2023

New Research

Orascom Construction [ORAS]: On Solid Foundations

An essential piece of Egypt’s construction boom puzzle in the last decade, Orascom Construction [ORAS] enjoys a robust business model that benefits from the country’s infrastructure spending and a stronger USD. This is apparent in ORAS's strong backlog and portfolio of projects that include Cairo’s Monorail, the Grand Egyptian Museum, and more. Moreover, ORAS tries to diversify its portfolio in other countries, including the US, Saudi Arabia, and Europe (either directly through ORAS or indirectly through its 50%-owned BESIX). We believe ORAS is currently traded at unjustifiably cheap multiples (2022a/2023e P/Es of 3.3x/3.5x) despite its solid earnings quality and stable dividend stream. We value ORAS at USD6.1/share (equivalent to EGP189/share) with a 12MPT of USD6.9/share (equivalent to EGP215/share), all based on an FX rate of EGP30.9/USD.

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Today’s Top News & Analysis

Finance Ministry assures the continuation of the subsidized loan initiative
Financial inclusion reaches 64.8% of population in 2022
EAST raised Pall Mall and Viceroy selling prices
MICH intends to fully own land used in expansion
New USD110mn Indian polyethylene plant in Ain Sokhna

Macro

Finance Ministry assures the continuation of the subsidized loan initiative

In a statement published yesterday, the Ministry of Finance assured the continuation of the 11% subsidized loan initiative for industrial and agricultural players despite the hike in interest rates. The statement also unveiled that the government will bear more than EGP13bn annually to cover the difference between market rates and the subsidized rate. (Ministry of Finance)

Financial inclusion reaches 64.8% of population in 2022

The Central Bank of Egypt announced Financial Inclusion Indicators for 2022, where it reached 64.8% of financially included citizens (+5.6mn citizens in 2022), with a growth rate of 147% from 2016 to 2022. (CBE)

Corporate

EAST raised Pall Mall and Viceroy selling prices

Eastern Co. [EAST] BoD approved raising the selling prices of Pall mall and Viceroy on Saturday 8 April 2023. The prices were raised by 6% to EGP35/pack. It is worth mentioning that EAST raised all of its product selling prices in March. (Company disclosure)

MICH intends to fully own land used in expansion

Misr Chemical Industries Co. [MICH] is reportedly negotiating with M.O.T Investment & Development, the investment arm of the Egyptian National Railways Authority, to purchase 15,000 sqm of land intended for MICH’s expansion. Previously, negotiations were centered on a right of use agreement for the land, set at a minimum of EGP50mn with a 10% annual increase over 25 year. (Al-Mal)

New USD110mn Indian polyethylene plant in Ain Sokhna

India’s Flex PET has started laying the foundations for its new polyethylene plant in Orascom Construction’s [ORAS] Industrial Park located in the Ain Sokhna Industrial Zone. The facility will cover a total area of 250,000 sqm and have a 30,000 ton monthly production capacity. The first phase will commence in mid-2024, while the second phase will begin in mid-2025. (Economy Plus)