KEY THEMES
Last Thursday, Elsewedy Electric [SWDY] has held a conference call to address the broad lines of SWDY’s performance in 2021, alongside expectations for the 2022. Below are the highlights of the call.
• The year 2021 in general was a tough year due to COVID-19 and volatility in commodities on the back of supply chain disruptions. This has caused meters business to shrink and Q3 2021 to witness weak margins.
• SWDY’s net cash turned to EGP6bn of net debt at 2021, which was driven mainly by investments in acquisitions and inventory stocking (i.e. EGP4.9bn growth in inventory).
• Speaking of new investments, SWDY is planning for several expansions and investments in Africa, including Ethiopia, Tanzania, Zambia, and other countries. In addition, the plan includes USD600mn to expand Egyptian Wires and Cables factories.
• SWDY’s current debt is 40% USD based, while the rest is local currency based. SWDY managed to benefit from the governmental initiative to support industrials with lower funding costs.
• SWDY’s growth plan strategy are based on both geographical and product mix expansion, while maintaining sufficient margins, which is challenging for the turnkey segment due to competition.
• SWDY expects commodities’ prices to remain high for a while, on persistent supply chain problem. However, management strategy is to maintain margins and pass the cost to the end user.
• Management is not eying dividends payout for 2021’s earnings due to pressure on cash position while supporting expansion plans. Meanwhile, management is looking resume the dividends payout policy right after 2022.
• For 2022, SWDY' targets revenue mix that is 43% wires and cables, 46% Turnkey, 5% Meters, 5% Transformers, and 1% for the remaining business lines. Finally, SWDY’s infrastructure projects in Iraq are awaiting the conclusion of the presidential election there to start operating.
SWDY is now trading at a 2022e P/E of 5x and EV/EBITDA of 4x. We have an Overweight rating for SWYD with 12M PT of EGP14.3 (ETR +62%).