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Orascom Construction: Management webinar key takeaways

  • On the ground updates

  • Plans and outlook

  • The company has approved the distribution of an interim dividend of USD0.21 per share

Al Ahly Pharos Securities Brokerage
17 January 2021

On-the-Ground Updates:

  1. The company witnessed healthy operations in 2020, despite having some delays in a few projects owing to the spread of the pandemic that reflected on 2Q20 numbers. However, 3Q20 numbers showed a rebound with a backlog of USD5.3 billion and net cash of USD209 million.

  2. BESIX has returned to profitability in 3Q20 (with c.USD20 million in profits) after facing some challenges during 1H20, The pressure was caused by three projects, two of which in the UAE and the third in the Netherlands. The company expects BESIX to at least break even on full-year figures and the pressure to be alleviated going forward from these projects.

  3. The company has approved the distribution of an interim dividend of USD0.21 per share bringing the total announced dividends in 2020 to USD0.42 per share which implies a payout ratio of 40.5% on FY19 profits.

  4. 4Q20 saw the signing of a sizable award for a consortium with Mitsubishi Corporation, for a project by The National Authority for Tunnels; Cairo Metro line phase 4 where the total value of the contract is USD800 million of which OC's share exceeds USD350 million, to be financed by JICA.

  5. There could be some delays in early-stage projects due to the spread of the second wave across the globe, however, FY2020 numbers would show healthy progress even in the US data centers which are seeing rising demand there and comprising a larger share of awards in the US.

  6. From a construction standpoint, the Grand Egyptian Museum is almost complete with full completion expected to be in 2021 instead of the end of 2020 due to the pandemic and tourism challenges.

Plans and Outlook

  1. Management sees the current portfolio constituting the backlog standing at a healthy position since it exceeds the USD4 billion figure with projects that they have expertise on. Moreover, the management is comfortable with backlog figures that provide 18 months of revenue visibility in the MENA region and 12 months of revenue visibility in the USA.

  2. The company maintained its guidance for an FY2020 EBITDA margin of 10-12% in MEA and 1.5-2% in the USA and more or less the same CAPEX spending of c. USD40 million, excluding any investments. As of now, they don't see a need for changing their guidance changing for the next year, but management would give more guidance later into the year.

  3. OC is targeting more projects that have a build own and operate "BOO" scope to result in more recurring income in sectors including water treatment. The company is currently eyeing a stake in a 500MW wind farm in Ras Ghareb but hasn't been signed yet which would be adjacent to the one existing there of 262.5MW and of which OC has a 20% stake and a 20-year PPA with the government. The company is also focused on growing an Operation and Maintenance business, which it already has in facilities management, water treatment, and the monorail.

  4. The company successfully surpassed the USD2.5 billion new awards figure for 2020 which is quite healthy, and management sees a strong pipeline of projects in 2021 like metro, railways, new roads & highways, water, infrastructure, O&M contracts in renewables, water desalination, water treatment, wastewater treatment, power, and facilities management.

  5. The company stressed its expertise in securing financing on behalf of the client for large scale projects like the Monorail and water treatment plants through foreign currency financing where 52.2% of the group’s total backlog is in FCY or priced in FCY as of September 2020 end, while 37.2% of the backlog in Egypt is in FCY.

  6. The company is selectively looking at other countries like Iraq which they are focused on and some countries in Africa, but this would depend on financing and the type of projects that become available. They see more awards in data centers and commercial projects in the US.