Earnings Report /
Egypt

Egypt Aluminum: Q2 19/20 results: All odds against EGAL

    Al Ahly Pharos Securities Brokerage
    13 February 2020

    FX rate and low aluminum prices weigh on performance

    EGAL reported 2Q19/20 revenue of EGP1,695mn, down 44.1% y/y and 10.5% q/q. While commodity prices were almost flat q/q (USD1,756/ton vs USD1,765 in 1Q19/20), top line declined on the back of 1) decreasing run rates as well as 2) 2.3% strength in the EGP. Gross loss margin contracted to 26.0% vs 29.6% in 1Q19/20 and GPM of 3.8% in 2Q18/19. Net loss came in at EGP318mn vs net loss of EGP278mn in 1Q19/20 and net income of EGP289mn in 2Q18/19.

    Recovery in aluminum prices needed along with lower tariff

    As per our estimates, every EGP0.01/KWh reduction in electricity tariff results in savings of EGP48.5mn assuming 100% utilization rate. In light of current circumstances, we believe that EGAL’s performance will remain depressed going forward. It is worth noting that even if the tariff was reduced to EGP1.0/KWh, the company will continue reporting losses given current aluminum prices and appreciating EGP. The tariff reduction will minimize losses but will not lead to recovery in profitability if aluminum prices did not recover.

    Reiterate UW on FV of EGP8.00

    We reiterate our UW recommendation on EGAL. The company will likely miss our FY19/20e estimates for net loss of EGP1,754mn as the company scales down its production to minimize losses. We factor in terminal aluminum prices of USD2,200/ton vs USD1,711/ton currently and fx rate of 17.21.