Today’s Trading Playbook
KEY THEMES
Ezz Steel’s [ESRS] Q3 2021 consolidated net earnings after minority grew to EGP896mn (i.e. EPS of EGP1.65) vs. net losses of EGP929mn a year earlier. Profitability turnaround was sparked by a 116% y/y growth in revenues to EGP18.6bn. From a quarterly window, ESRS’s bottom line scored a 12% growth in EPS, while top line expanded at a 10% speed. Overall, earnings before minority came 5% ahead our estimates of EGP1.30bn, recording EGP1.36bn for the quarter. Average selling prices for long rebar products upped 5% between Q2 2021 and Q3 2021. On the other hand, flat steel prices during the quarter grew a solid 20% q/q.
ESRS was able to utilize the relative stability in average selling prices, capitalizing on lower iron ore prices during Q3 2021, as prices for iron ore slipped 20%. This allowed ESRS to maintain a robust GPM of 19% (albeit -177bps q/q). We note that the strong bottom line performance was further complemented by a 10% lower borrowing cost y/y to EGP813mn.
Volumes came in slightly weaker this quarter (-2% q/q), mainly driven by a 2% decrease in long rebar volumes. Meanwhile, flat steel volumes were unchanged q/q, contributing 40.5% to overall volume mix vs. 39.9% in Q2 2021.
ESRS’s net debt position upped to EGP34.8bn, up some EGP140mn compared to Q2 2021, which diverges from the pattern this year of adding c.EGP1.0bn each quarter. Meanwhile, 9M 2021 operating cash flows (OCF) were positive, despite H1 2021 being in the red territory.
On an annualized basis, ESRS is trading at ridiculous 2021 P/E of only 2.1x. With almost a month and half left to go in 2021, and given the recent hike in local prices, we believe the prospect for ESRS is for Q4 2021 to be fairly strong. We expect Q4 2021 to be minimally affected by the recent hike in natural gas prices on the back of: (1) the hike in natural gas covers only two thirds of Q4 2021, (2) the recent uptick in local rebar selling prices, and (3) lower global iron ore should help maintaining elevated GPM levels.
Now, on to the top news and analysis for the day.