High prices compensate for sequential lower booked volumes
ABUK released its 3Q20/21 audited financial statements, posting a sales figure of EGP2,269 million (+25% YoY, Flat QoQ). On a yearly basis the rebound in sales was both volume and price driven given that 3Q20/21 volumes sold were 559k tons versus 536k tons in the comparable period and average urea prices recorded USD315/ton during 3Q20/21 versus a weak USD222/ton in 3Q19/20. However, despite strong urea price growth, topline came in flat QoQ. This was on the back of lower volumes sold during the quarter ABUK recorded volumes sold of 559k tons versus 634k tons during 2Q20/21, albeit with much subdued price levels than the ones witnessed in 3Q20/21. Nevertheless, management remarked that the slump in volumes is not a concern given that there remain volumes which were not booked in 3Q20/21 that should be booked in the preceding quarter at the same elevated prices witnessed last quarter owing to shipping and logistical variables.
Gross profit for the quarter came in at EGP1,067 million (+53%YoY, +14%QoQ), implying a GPM of 47.0% (+8.5ppsYoY, +6ppsQoQ). The strong surge in GP on yearly basis was due to a weak base effect during 3Q19/20 which saw the plant AbuQir 2 undergo its planned maintenance which elevated costs associated with materials and maintenance. While the GP’s strengthening on a sequential basis was due to improved selling prices, stable FX rate and full capacity utilizations which ensures GP maximization.
Strong GPM filtered across to the company’s EBITDA as it hit EGP953 million (+63%YoY, +13%QoQ), implying an EBITDA margin of 42.1%, while noting that SG&A as % of sales declined from 8% in 3Q19/20 to 6% in 3Q20/21.
Bottom line surges on favorable margins
Finally, despite weaker YoY interest income and income from associates, High selling prices and sturdy margins allowed the company to record a 3Q20/21 bottomline figure of EGP953 million (+37%YoY, +18%QoQ), implying an NPM 42.0%.
Urea rally cools down, price levels remain favorable
In spite of weaker volumes, as stated. 3Q20/21 results hammer home the importance of strong urea prices to urea producers; to not only spur topline growth, but to ensure heightened profitability levels as globally, producers in Europe, the U.S and China are battling surging natural gas and coal prices and are hoping for the persistence of the strong demand brought about as the global economy begins to recover from the pandemic, however urea prices have been cooling down recently and has reached levels of USD320/ton, which is still considered healthy, but well below the levels of USD380-400/ton seen during 3Q20/21.
In our valuation update on ABUK we raised our TP from EGP23.00/share to EGP25.58/Share to better incorporate urea price growth and the volume increase which is anticipated to kick in by FY23/24 owing to the increase in the production capacity of the plant Abu Qir 3. We incorporate average Urea prices of USD285/ton for FY20/21 and USD280/ton for FY21/22.
ABUK is trading at FY20/21 P/E of 9.2x and EV/EBITDA of 7.7x and FY21/22 P/E 8.9x and EV/EBITDA of 7.1x.