As heavyweight companies continue to report their Q1 2021 results, investors are reacting to the news on a case-by-case basis. Yesterday, EFG Hermes Holding [HRHO] reported strong y/y performance on both the top and bottom lines. Investors buoyed the results, bidding the stock 1.5% higher, having risen 2.6% intraday. We see three catalysts at play, two long term and one short term. The long term catalysts are its non-banking financial services platform strong performance and its acquisition of aiBank. These two catalysts alone should drive ROAE higher over time. The short term catalyst is the proposed 20% stock dividend that HRHO shareholder will vote to approve today.
Meanwhile, another heavyweight, Elsewedy Electric’s [SWDY] Q1 2021 results were good enough to save the stock of the market pullback following MSCI’s decision to remove it from MSCI EM index. The company just had its conference call discussing Q1 2021 results, which our industrials analyst Dina Abdelbadi attended and left with the below takeaways:
Optimistic for the full year: SWDY's management is satisfied with Q1 2021 results, boasting higher revenues, gross profit, EBITDA, and net income as well as lower SG&A as a percentage of revenues with higher margins on an annual basis. Despite turnkey's lower revenues, SWDY kept a strong backlog position, ending Q1 2021 with almost EGP50bn, having added EGP5.2bn in new awards during the quarter. Management indicated that turnkey revenues are not linear, and with such a sizable backlog, there is no need to worry about revenues over the coming couple of years.
Net debt position is monitored: SWDY had a net debt position of EGP1.34bn in Q1 2021 due to higher copper prices that exceeded USD10,000/ton and the partial finance of the transformers acquisitions that will be financed through both debt and equity. However, the debt level is monitored in order not to affect the financials negatively. As for the shares cancellation, it will take place in Q2 and Q3 2021 according to the regulations.
The effect of higher copper prices: Copper prices witnessed a high level of USD10,000/ton compared to USD6,000-7,000 expected in SWDY's budget. This may affect the company's working capital needs and hence increase its short-term debt, which may affect demand negatively as the products as well as some turnkey projects would be deemed expensive. In the meantime, SWDY sells cables not copper, so the risk is minimal as the price increase will be passed on to customers.
More acquisitions to come? After the two acquisitions in Indonesia (the company works well) and Pakistan (the company needs some restructuring), we may have more acquisitions this year. The two transformer acquisitions will start to be consolidated partially in Q2 2021 and fully in Q3 2021 as they are already operational.
Guidance for 2021: Capex is expected to be around EGP1.2bn (normal maintenance), excluding acquisitions. Turnkey revenues are expected to range between EGP24-25bn (higher than 2020 revenues of EGP22.7bn), with a GPM of 12-13% (close to 2020 GPM of 13.9%). Meters segment is also expected to expand more in Latin America, Argentina, and the GCC.
POSITIVE
HRHO: Still trading below book at 0.8x, we monitor HRHO's ROAE which crossed into double digits in Q1 2021, albeit just 11%. We see 23% upside to our 12M PT of EGP17.7/share.
SWDY: SWDY is trading at attractive multiplies (P/E of 5.7x and EV/EBITDA of 3.6x), leaving a 45% upside.