Earnings Report /
Egypt

Misr Fertilizers: 2Q21 – Urea price rally is a game changer

  • Sales, margins, and earnings boom on urea price rally

  • Strong results should persist on the medium term

  • Maintain Overweight

Al Ahly Pharos Securities Brokerage
30 August 2021

Sales, margins, and earnings boom on urea price rally

MOPCO achieved a 2Q21 sales figure of EGP2,186 million (+9% QoQ, +12% YoY), primarily boosted by the ongoing rally in urea prices.

Gross profit for the quarter hit EGP1,235 million (+19% QoQ, +43% YoY), implying a GPM of 56.5%. The healthy GPM could be also heavily attributed to the urea price rally, alongside modest levels of feedstock costs.

The strong gross profit figure filtered down to the company’s EBITDA as It recorded EGP1,425 million (+15% QoQ, +38% YoY).

Net profit for the quarter amounted to EGP1,383 million (+75% QoQ, +113% YoY), Implying an NPM of 63.3%. The bottom line figure was buoyed by a significant decrease in net interest expense, as the figure hit EGP5.3 million versus EGP91 million in 2Q20, and by a tax credit of EGP172 million.

Strong results should persist in the medium term; Maintain Overweight  

MOPCO’s positive MFPC results for 2Q21 and 1H21 are a direct result of the urea price rally which heavily benefited the company, with MOPCO having been able to leverage its cost structure and sales mix to extract the highest possible margins given that it exports c.80% of its urea production and obtains its feedstock needs at a discounted price of c.USD2.8/mmbtu versus the industry average of USD4.5/mmbtu.

We believe that MOPCO’s strong results should persist in 2H21 given that urea prices have continued their rally and have averaged USD447/ton in 3Q21, which beats 2Q21’s average of USD349/ton and bodes well for MOPCO.

MOPCO is currently trading at 2021e P/E of 6.5x and EV/EBITDA of 4.0x.