Earnings Report /
Egypt

EK Holding: Expected quarterly stumble is mitigated by YoY growth

  • Quarterly topline decline is mitigated by YoY increase

  • Energy segment boosts YoY growth

  • Maintain OW stance on EKHO's stock

Al Ahly Pharos Securities Brokerage
16 August 2020

Broadly stable quarter for EKHO; Operational efficiency remains evident   

EK Holding reported its 2Q20 results, recording revenues of USD150 million (-7% QoQ, +13% YoY).  Strong YoY increase performance is attributable to its energy segment which reported a 34%YoY increase in revenues as well as robust operational performance across EKHO’s other business segments.  2Q20 Gross profit came in at USD58mn (+3%QoQ, 18%YoY) driven by increased profitability by Sprea Misr and Offshore North Sinai (ONS). 

Quarterly net income recorded USD39.5 million (-3%QoQ, +15%YoY) on the back increase in interest expense and FX losses.

Alex Fert: Strong Sales Volume Overcomes Subdued Urea Prices 

Alex Fert reported 2Q20 sales of USD54.6 million (+15% QoQ, +8% YoY). A 6% growth in volumes sold locally and an 18% uptick in export sales managed to offset weak urea prices during 2Q20. 

Gross margin stood at 26% in 2Q20 versus 28% in 1Q20. Gross margin contracted annually and sequentially mainly on weaker pricing (-2pps QoQ, -3pps YoY). Also, the increase in volumes sold induced quarterly increases in natural gas costs and other opex, thus bringing down profitability. 

EBITDA margin for 2Q20 stood at 41% versus 37% in 2Q19 in (-3pps QoQ , -4pps YoY). Although SG&A to sales came in at 2% in comparison to 3% in 1Q20, shrinkage in EBITDA took place due to decrease in profitability on the gross profit level. 

Attributable net income came in at USD4.8mn (-0.7%QoQ, +5%YoY).

Sprea: Quarterly slip-up induced by halt of inventory build-up by clients 

Sprea’s sales amounted to USD26.3 million (-21% QoQ, -15% YoY) for 2Q20. Sequential drop in topline came on the back of decreased export activities and the inability to replicate the hike in sales in 1Q that saw Sprea’s clients ramp up demand in anticipation of possible supply shocks. However, Sprea was able to cover the slack in topline by reporting a gross margin of 38% (+19%QoQ, +19%YoY) capitalizing on depressed methanol prices during 2Q20 that averaged USD160/ton (-24%QoQ -42%YoY). The squeezing of topline coupled with FX losses weighed on bottom line though, as it was reported at USD8.7 million (-24%QoQ, +5%YoY). 

Nat Energy: Stable bottom line despite topline shrinkage 

Nat Energy’s revenue stumbled to USD29.9 million (-19% QoQ, +16% YoY) for 2Q20. While the gas installations segment saw a 149% QoQ increase of revenues reported, overall topline tumbled on the back of decrease in commission, electricity generation and customer service segments. 

Gross margin for the quarter expanded sequentially to reach 37% (+7pps QoQ, -5pps YoY). The expansion in GP margin was led by cost efficiencies denoted in decrease in the other opex. 

Bottom line for the quarter came in at USD11.4 million (+4%QoQ, -3%YoY) and NPM stood at 38% (+2ppsQoQ, -7ppsYoY). Stability in bottom line was evident despite the pressure on revenues, mainly because of higher efficiency.

ONS: Uptick in profitability driven by expanded production 

ONS recorded revenue of USD13.7 million (-7% QoQ, +101% YoY). Strong YoY performance is driven by ONS’ operation of six wells versus two in 1Q20 and with no material impact brought on by Covid-19. Operational efficiencies were evident as GPM expanded to 59% (+7ppsQoQ, -2pps YoY) and EBITDA margin reached 80% (+1pps QoQ, +12YoY).

Net profit came in at USD6.5 million (+2%QoQ, 124%YoY). ONS remains well positioned amongst the natural gas producers as it is shielded from volatility in the oil market and relatively immune from demand shocks due to its small footprint relative to international players. 

Maintain Overweight on FV of USD1.61/share 

We reiterate our Overweight stance on EKHO’s stock based on sound fundamentals across all its subsidiaries that continue to deliver healthy operational and financial performance.