Flash Report /
Egypt

Elsewedy Electric: Management webinar key takeaways

  • On -the-ground update: 2021 looks healthy expansion plans in focus

  • Cables volumes to recover, margins are on the rise. Turnkey awards in focus across several markets and sector

  • Meters, transformers and renewables continue to be solid, capex to be financed by debt and internal funds

Al Ahly Pharos Securities Brokerage
19 January 2021

On the ground updates

  • The management is very optimistic on 4Q20 results and hopes it would be one of the best quarters in such a challenging year. They are also very optimistic about 2021 especially since there are no signs of lockdowns in Egypt and everything is operational, and all their factories are operational too

  • Management has stressed that they were confident that the relatively weak performance seen in 2Q20 won’t persist and they expected 2H20 to see a recovery which indeed occurred after they managed to deal with the risk of the pandemic across all segments leading to solid results even amidst the prevailing uncertainty. The management was extra cautious in 2Q20 through taking excess provisions for the turnkey segment but later on and as the picture got clearer, they reversed excess provisions in 2H20

  • Management said that a lot of restructuring has been happening in the company to face any challenges that might occur

  • The company was able to withstand the challenges owing to the net cash position and the precautionary measures taken

  • All projects are functioning, and construction is ongoing even though some of the projects in Dubai have only 50% of staff capacity onsite due to the country’s regulations during 2Q20 yet the projects are still progressing according to plan.

  • The Tanzanian dam project is on track, has a large share of the backlog, and will contribute well to revenues in 2021

  • Sales volumes across all segments have improved in the majority of the company’s markets. The company started returning to its normal GP levels

  • Cables exports from Egypt are still on track. The company’s exports to the UK are still progressing even after Brexit thanks to the bilateral trade agreement that Egypt signed with the UK

2021 looks healthy; expansion plans in focus

  • For 2021, management is seeking growth across all segments and has a goal of doubling the top line in the next 4-5 years. They are seeking a minimum of 15-20% growth per annum in revenues for 2021, which would occur through both organic (10% of growth) and inorganic routes or acquisitions (the other 10%).

  • The company guided for a 13-13.5% for group-level gross profit margin

  • The company gave no preliminary guidance of NPM, but they believe profits would be better than 2020

  • Management is continuously working on optimising costs as much as possible. Management links cost management to the performance of each subsidiary. Additionally, they see competition in projects intensifying, which induces further cost optimisation to protect margins

  • The company promised to announce new expansion plans and They are studying the building of greenfield factories in Africa and studying some Acquisitions too in Asia and Europe.

  • The company has another IPP station in the pipeline

  • All these expansions would aid them in achieving the targeted 15-20% growth, assuming that upcoming waves of the pandemic don’t hinder any processes

  • Management sees all segments to be stable and expects them to grow, they seek more growth in cables segment inside Egypt and outside (for example in Africa) where they are building factories and warehouses and would have at least four companies for trading other than the ones that would manufacture the cables. The objective is to Increase distribution, manufacturing, and projects

Cables volumes to recover; margins are on the rise

  • Wires & cables volumes of 2021 would be far better than 2020 since volumes in 2020 were down 6% YoY. in 2021, they seek growth a 10-12% in 2021 which will offset the lost sales in the prior year. The volume growth would come mainly from Egypt, Saudi (to achieve great profits this year after having losses or weak performance historically), Qatar (since the political conflicts are starting to resolve), and Algeria (which carries some risks due to the political situation there which has impacted the whole market, that is in addition to a pandemic, but they still have ordered over there)

  • For the cables gross profit margins, management projects c.11% for the whole segment

  • The copper price rally would improve gross profit in terms of value but not the GPM%

  • Management noted that copper prices would not impact sales volumes

Turnkey awards in focus across several markets and sectors

  • Management is focusing on the same countries for Turnkey projects, which are mainly Egypt, GCC countries, and Africa. They are focusing on power generation, transmission and distribution, civil engineering, and renewable energy

  • Africa team is scanning for a lot of projects to be tapped in 2021, especially in the power sector and IPPs

  • Management guided for much better Turnkey revenues due to higher execution in Tanzania’s dam project, the UAE projects, and Egypt's transmission & distribution and civil engineering projects. Gross profit margin level of 12-13% is expected until they see 1Q21 results

  • Management stated that they expect many companies to be working on the newly announced electric railway system since it is an EGP360 billion project and in which they might have a share of but it is too early to confirm Meters, Transformers and Renewables continue to be solid

  • For the meters segment, management opened a new small factory In Argentina, and they have a small factory in India

  • Meters segment will still witness growth coming from Europe and the GCC

  • Transformers segment is very promising, and they are looking for more expansions. The segment is maintaining its healthy margins of 24%, Egypt transformers volumes are still growing while Algeria started picking up again

  • Renewables-IPPs segment was fully consolidated as of 3Q20 and in 4Q20 they expect the same level of performance. Management is adjusting the gross profit margin to be maintained over the next 20 years, and they are looking forward to adding more IPPs in 2021.

Capex to be financed by debt and internal funds

  • Management expects 2021 to start with a small net debt position, yet the cash position is still strong which will be used in some investments which will typically be financed through 60% debt and 40% equity. They see their leverage to be significantly lower than the industry or competition with lower finance charges also. The management believes that their low levered structure is healthy especially in uncertain times like the pandemic.

  • The company has capex plans for the cable's factory, new machinery and to add extra production lines, in transformers as well, in addition to the brownfield and greenfield investments mentioned earlier but the amount is not finalised yet.