KEY THEMES
A promising year: SWDY's management is satisfied with its Q2 2021 results, expecting revenues and earnings to grow y/y by 15% and 10%, respectively, and a gross profit margin of 13-13.5% in 2021. The management believes all segments will contribute to the expected growth. It sees growth opportunities locally, e.g. in infrastructure upgrades under "the Decent Life" initiative, and outside Egypt. In H1 2021, the cable segment performed well as exports were grown by the company’s exposure to new markets and the recovery in European markets.
Vowing flat debt: Management blamed its increased debt on: (1) the rise in global commodities prices, (2) recent transformer acquisitions, (3) the dividend distributed to shareholders, (4) and normal capex spending. Management expects to wind up the year indebted with EGP4-4.5bn, which is about the same as the current debt level.
Turnkey: SWDY managed to control its costs as much as possible to keep its gross profit margin around 12-13%, which is the target for 2021. Maybe we can see a decline in GPM next year or the year after is probable depending on the project mix. On this note, 25% of Tanzania's project is completed so far and the company expects 40% completion by the end of the year. The project is expected to bring in revenues in the EGP23-24bn range.
More growth underway: Management is pinning high hopes on its transformer and meter segments. Although meters performed poorly, with some raw material shortage, it is seen to rebound. Another acquisition is expected before the end of 2021. The recent transformer takeover deals should be consolidated in H2 2021 (Indonesia in Q3 2021 and Pakistan in Q4 2021) due to company restructuring in Pakistan.
Positive on SWDY: We have a positive outlook on SWDY’s performance in Q2 2021 and we maintain our Overweight rating and 12M PT of EGP12.7/share.