Dina Abdelbadie, Equity Analyst
DAbdelbadie@egy.primegroup.org
Elsewedy Electric’s [SWDY] management held a conference call yesterday to discuss its Q2 2020 results. Below is our brief of the key highlights of the call.
The pandemic is behind: SWDY’s second quarter is the worst in 2020 but a recovery in H2 2020 is expected by the management. Things have already gotten better in July and August so far, yet projects and margins are not as strong as they were before COVID-19. Nonetheless, all SWDY's factories and projects are operational. Management is optimistic about H2 2020 in general and especially on the turnkey segment. Meanwhile, the cables segment is seen rebounding in H2 2020 but the full-year performance will still be weaker y/y.
Soft turnkey margins in H1 2020: Management is not satisfied with the margins in H1 2020, where some projects were delayed. In H2 2020, a large project with an expected increase in execution rate should be closed. This should raise the turnkey segment’s margin to 15% in H2 and around 12% for the full year.
Growth opportunities: Management is studying some projects in Libya, and they are ready to go. In Tanzania, there is a good appetite for SWDY's cables. Also, there is a big team studying many water desalination projects in and outside Egypt. Margins cannot be forecast now because they depend on the tenders submitted and SWDY’s partners, but management believes they will be within an acceptable range. Meanwhile, the collection of receivables is going well so far, with the Egyptian government already paying off some of its arrears to the company.
Guidance for 2020: Management is expecting revenues of EGP40-42bn in 2020, a gross margin of 12-13%, and a net margin of 7%. Also, SG&A is expected to decrease. When it comes to M&A opportunities, management did not provide details on their plans but alluded to a potential "good" acquisition, pointing to no specific segment, before the end of the year. Meanwhile, management said it will not decide on dividends before the release of its full-year results.
Today’s Trading Playbook
Amr Hussein Elalfy CFA, Head of Research
KEY THEMES
In line with our view in the market Sunday morning, EGX 30 continued to march northward. Meanwhile, two of our recent calls are bearing fruit, namely MM Group [MTIE] and B Investments [BINV]. The former we had picked on 16 July and reiterated on 16 August, while we picked the latter on 5 August. Since our calls, MTIE is up 10%, and BINV is up 52%. If Fawry [FWRY] is worth in excess of EGP18bn nowadays, shouldn’t this transcend to MTIE and BINV somehow? Both companies have skin in the “fintech” game. MTIE just revealed its intention to float in Q1 2021 a stake in its newly-established e-payment arm that includes both of its operating companies Masary and Bee. EFG Hermes Holding [HRHO] has reportedly been tapped to advise on the IPO. Meanwhile, MTIE and BINV both have stakes in Ebtikar, a private equity play with exposure to non-banking financials including both Masary and Bee, could also be eyeing a potential EGX listing later on.
POSITIVE
MTIE, BINV, HRHO: Reiterating our prior POSITIVE view and in light of the above.
Our other calls: If we were to select only two stocks at maximum per sector, here is what we would be picking:
1. Banks: CIB [COMI], Suez Canal Bank [CANA].
2. Consumer Discretionary: MTIE, Cairo for Investment & Real Estate [CIRA].
3. Consumer Staples: Eastern Co. [EAST], Obour Land Food Industries [OLFI].
4. Energy & Utilities: Egypt Kuwait Holding Co. [EKHO].
5. Health Care: Cleopatra Hospital [CLHO], Ibnsina Pharma [ISPH].
6. Industrials: SWDY, Orascom Construction [ORAS].
7. Materials: Abu Qir Fertilizers [ABUK], Misr Chemicals Industry [MICH].
8. Non-Banking Financials: HRHO, CI Capital Holding [CICH].
9. Real Estate: Madinet Nasr Housing & Development [MNHD], SODIC [OCDI].
10. Telecom Services & IT: Telecom Egypt [ETEL].
Now, on to the top news and analysis for the day.