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Orascom Construction [ORAS]
Egypt / Industrials / Q4 2021 Results
12M PT: EGP146.0 (+99%)
set on 26 Jan 2022
Investment Rating: Overweight | Risk Rating: Medium
Steady growth
Orascom Construction’s [ORAS] 2021 net income after minorities surged by 25% y/y to USD113.4mn, in line with our estimates of USD113mn, on higher total revenues of USD3.5bn (+5% y/y). Also, GPM improved slightly to 9.8% in 2021 vs. 9.6% a year earlier. While EBITDA grew 3% y/y to USD204.4mn, EBITDA margin fell slightly to 5.8% vs. 5.9% in 2020 due to lower other revenues of USD2.3mn (-83% y/y). We note that annual earnings growth was sparked by a notable recovery in BESIX which turned into profitability.
BESIX – finally profitable
It seems that the turnaround story is finally here; BESIX’s turnaround during H2 2021 was nothing short of spectacular. Net income contribution from BESIX stood at USD10.7mn in Q4 2021, contributing to 2021 total net income by USD15.7mn vs. a USD6.2mn loss in 2020. Also, BESIX managed to increase its stand-alone backlog to EUR4.9bn (+15.6% y/y), and new awards surged 55.4% y/y to EUR3.5bn in 2021.
Strong backlog supported by healthy new awards
By end of 2021, ORAS’s backlog (excluding 50% of BESIX) increased 12% y/y to USD6.1bn, with new awards jumping 22.1% y/y to USD3.6bn. Meanwhile, new awards in Q4 2021 alone were USD785mn. This was driven by MEA (a 55% contribution), including transportation and power projects in Egypt and water projects in Egypt and Tunisia.
We maintain our Overweight
We appreciate the recovery seen in BESIX in 2021 and the decent growth in U.S. net income. We also note that ORAS continues to boast a net cash position of USD442mn, representing a whopping 95% of ORAS’s market cap at yesterday’s close on the EGX (88% based on close in the UAE). Meanwhile, ORAS is trading at a TTM P/E of only 4x. We see that ORAS is a clean winner from the EGP devaluation, simply by way of currency conversion. Despite the troubles that could face the path of recovery of BESIX in Europe in light of the ongoing geopolitical conflict, we still have an optimistic view for ORAS in general. That said, we will revise our model and valuation in view of the full-year results, keeping in mind recent changes in FX and interest rates. For now, we opt to maintain our Overweight rating.
Research Team