Equity Analysis /
Egypt

Gemma: 2021 valuation update – Quality and flexibility are key

  • Large-scale projects, purchasing power recovery, and production flexibility push FV upwards

  • Trading below historical averages; high yield play

  • Mega projects support sales & profitability; exports to maintain momentum

Al Ahly Pharos Securities Brokerage
14 September 2021

Large scale projects, purchasing power recovery, and production flexibility push FV upwards

 We update our valuation on ECAP to 18.70/share and our recommendation to Overweight with an upside of 63.2%. We increase our FV to factor in the recovery in purchasing power in both the local and export markets after receiving a strong hit by the pandemic, as well as recovery of world trade which supported exports noticeably during 1H21. 

Sales are expected to be solid and show recovery during the rest of 2021 and throughout our forecast horizon, supported by large scale projects locally, which have been the company’s main focus, export revenues, flexibility in production of a variety of product mix. As for the cost structure, we do not expect drastic changes, where margins should face a gradual recovery supported by shifting the revenue mix towards higher profitability products.  

Trading below historical averages; high yield play  

ECAP is currently trading at a FY22 P/E of 6.0x, which is way below its historical average as shown in the charts below. Stock is trading at FY22 EV/EBITDA of 5.8x. We expect ECAP to maintain a dividends payout ratio of 52% throughout our forecast period, which is in line with its historical average, with a dividend yield of 7.9% in FY22.