Today’s Trading Playbook
KEY THEMES
Orascom Construction [ORAS] is one of our EGX top picks as we highlighted several times before and most recently in our STANDPoint annual strategy note. The company just reported last Thursday its 2020 results. Below are the key highlights that our industrials analyst Dina Abdelbadie took away from the company’s Q4 2020 earnings call.
2020 was a challenging year: ORAS managed to increase its revenues by 6% y/y to USD3.37bn despite COVID-19, keeping a decent backlog of USD5.4bn with an average executions of 18 months in the MENA region and one year in the U.S. Meanwhile, net income and margins decreased, reflecting the pandemic effects, with the inflation in raw materials prices. For example, prices of copper, steel, and aluminum increased in addition to a stronger EGP compared to USD. Yet, ORAS believes its management will be able to control costs. ORAS managed to decrease its net financing costs significantly to USD9.8mn in 2020 compared to USD98.5mn in 2019.
BESIX’s improved performance: BESIX was profitable in Q4 2020; however, it came below expectation due to the difficult conditions in some European countries affected by COVID-19. Meanwhile, BESIX is expected to deliver a better performance in 2021.
Strong net cash position: ORAS's net cash position is USD359mn; hence, it proposed distributing a cash dividend of USD0.23/share implying a dividend yield of 4%. The increase in cash is driven by strong collections, especially in Q4 2020.
2021 guidance: ORAS is looking to keep the same levels of 2020 figures; Egypt will remain a cornerstone for the backlog backed by the recent infrastructure spending push. At the same time, ORAS is actively seeking other opportunities in Sudan, Libya, and Africa. Margins are expected to improve and the contribution of the U.S. to its bottom line is expected to increase to gradually match its contribution to revenues.
Positive
ORAS: We continue to like ORAS in view of its attractive valuation levels (P/E of 7.4x and EV/EBITDA of 1.8x).
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