Equity Analysis /
Egypt

Gemma: Q2 19: Performance revives against all the odds

    Mai Ayoub
    Mark Adeeb
    Al Ahly Pharos Securities Brokerage
    22 August 2019

    Revenues and margins unexpectedly improve

    Gemma reported 2Q19 revenue of EGP305mn, up 21.4% yoy and 18.7% qoq. The GPM improved both annually and sequentially, owing to rising selling prices coupled by an apparent demand recovery despite Ramadan and the seasonal holidays. GPM came in at 24.8%, compared with 22.0% in 2Q18 and 23.9% in 1Q19. The company reported net income of EGP12mn versus EGP6mn in 2Q18 and EGP11mn in 1Q19.

    Commercial operations might have saved the day

    The company’s growth in the bottom line is against our FY19 expectations, as we expected the company to achieve a net loss of EGP18mn and 1H19 bottom line recorded EGP22mn. It seems that the company has successfully hiked prices and demand responded positively. We do not rule out that this quarter might have been boosted by commercial project sales.

    Reiterate UW; Gemma trades at paradoxically high multiples

    Despite beating our bottom-line estimates, we believe that Gemma is trading at unjustifiably high multiples based on 1H19 annualized figures (FY19 P/E 20.1x)  and FY19 EV/EBITDA 20.1x based on our assumptions. We reiterate our UW recommendation with an unchanged FV of EGP7.50/share.