Equity Analysis /
Egypt

Egypt: Nitrogen Fertilizers – November 2021 update

  • Urea market is tearing it up

  • Abu Qir Fertilizers: Long-term feedstock prices and local quote prices determine where valuation settles

  • MOPCO: Long-term feedstock pricing uncertainty lingers; Hopes for high yield ended by new project announcement

Omar Attia
Al Ahly Pharos Securities Brokerage
11 November 2021

Urea market is tearing it up

Just as the pandemic dragged Urea prices in early 2020, it appears to have completely turned a corner and grew into a contributor to the rally, albeit in an implicit way as prices hit (USD950/ ton in Egypt, USD875/ton in Europe, USD750/ton in North America and lastly USD625/ton in China). Prices have been buoyed by several factors, including: i) the ensuing energy crunch in Asia and Europe, which forced major urea producers to scale back production, and in some cases, cease production entirely as producers grappled with mounting feedstock costs, ii) supply cuts from China as authorities opted to divert natural gas to households rather than urea producers and cut back on coal usage in fertilizer production in a bid to meet environmental targets, iii) tight export volumes from China as meeting local demand remains a top priority for the Chinese authorities, and iv) sustained favorable crop prices.

Abu Qir Fertilizers: Long-term feedstock prices and local quote prices determine where valuation settles

We incorporated the following changes to our projections: i) an upward revision for urea prices over the forecast horizon (2022-2026); ii) an updated timeline for the Abu Qir 3 expansion, which should reflect on ABUK’s sales figures by FY24/25; and iii) an upward revision of ABUK’s feedstock pricing which as per the recent natural gas price hikes, without assuming future changes with urea price changes. Given the current surge in urea prices, we anticipate ABUK to report an FY21/22 topline figure of EGP12,463 million and a bottom-line figure of EGP4,930 million.  If we assume that the current feedstock cost and local quote prices do not change much from the current levels, our FV goes down to EGP21.30/share, driving and Equalweight recommendation.

Misr Fertilizers Production Co (MOPCO): Long-term feedstock pricing uncertainty lingers; Hopes for high yield ended by new project announcement

We upgrade our FV on MFPC to EGP113.66/share from EGP98.93/share, with an Overweight recommendation. Our FV integrates higher urea selling prices for MOPCO and maintains feedstock pricing formula over the forecast horizon (2022-2026). We expect MOPCO to reach a topline figure of EGP13,909 in 2022, and a bottom-line figure of EGP4,402 million for 2022. MOPCO is trading at 2022 P/E of 5.2x and EV/EBITDA of 3.3x.