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EGAL: 3Q20/21 – Surging prices and volume growth boost performance

  • Surging Aluminum prices induce topline growth, bottom line approaches breakeven point
  • Net losses recorded EGP6 million, marking a significant improvement both sequentially and annually
  • The company is on track towards a profitable FY21/22, provided prices sustain above USD2,100/tonne (breakeven level)

Surging Aluminum prices induce topline growth, bottom line approaches breakeven point 

Net losses recorded EGP6 million, marking a significant improvement both sequentially and annually compared to a net loss of EGP424 million in 3Q19/20 and a net loss of EGP190 million in 2Q20/21, with NLM recording -0.2% during the quarter which is better than both 2Q20/21 NLM of -6.7% and  3Q19/20 NLM of -21.3%. The company almost hit the breakeven point, as we had predicted, owing to 1) sky-high aluminum prices, where LME 3M 1Q21 Avg Prices were USD2,110/tonne, +23.2% YoY, and +8.8% QoQ, as well as 2) strong volumes (+36.8% YoY but -1.7% QoQ). 

EGAL top line recorded EGP3.13 billion (+57.3% YoY, +10.8% QoQ). The surge in topline resulted from the rally of Aluminum prices and high volumes (recorded 84.3k tonnes, +36.8% YoY, but -1.7% QoQ), We expect EGAL to turn into profitability during 4Q20/21 on the continuing Aluminum prices rally, with a YTD average of USD2,220/tonne, and current prices are above the USD2,450 mark.

Aluminum price recovery and electricity cuts to the rescue 

We reiterate that a game-changer for the company and our recommendation would be a hike in aluminum prices which averaged USD2,110/tonne in 1Q21 or 3Q20/21 for EGAL and averaged USD2,200 YTD in 2021. We believe that the company is on track towards a profitable FY21/22, provided that prices sustain above USD2,100 per tonne (breakeven level). Further reduction in electricity tariffs or weakness in EGP would also be a plus, but do not seem highly probable over the ST.

The company has released its FY21/22 budget, where the company is targeting an EGP138 million in the bottom line and a topline of EGP11,295 million, implying a P/E multiple of 48.84x.


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