Equity Analysis /
Egypt

OIH: Performance lacks clear strategic direction; downgrade FV to EGP0.45

    Al Ahly Pharos Securities Brokerage
    22 October 2019

    OIH’s stock price performance continues to lack a clear strategic direction, or “value-accretive” acquisitions. Being 30% owned by OIH, SRWA will be a key value driver for OIH, on both the valuation and the profitability levels. We downgrade our FV to EGP0.45 from EGP0.66 for the following reasons:

    1. OIH’s current net cash/debt position has changed since our last valuation update from a net cash position of cEGP373.2mn (cEGP0.07/share, book value as of Q3 18) to a net debt position of cEGP816.9mn (cEGP0.16/share) in Q2 19
    2. Lack of a clear strategic direction after the withdrawal of Nile Sugar.
    3. Valuing OIH’s stake in Beltone at market cap using a 1-year average closing price rather than at BV.
    4. Valuing OIH’s 30% ownership in Sarwa Capital Holding at an acquisition price of EGP7.36/share rather than our previous FV of EGP10.0 that was based on assumptions that were not achieved.
    5. A stronger exchange rate has negatively impacted OIH’s cash flows and sequentially on FV, since c62.0% of revenues in H1 19 were denominated in foreign currency (+4.6ppts yoy). The shift in revenue mix is mainly due to lower revenue contribution from Beltone Financial Holding.

    We note here that we have excluded the US$170mn credit facilities that the BoD have previously approved from our net cash and valuation calculations since the loan hasn’t been disbursed and the company did not disclose the use for it yet.

    Koryolink is the sole game changer

    Another key catalyst for OIH would be a clear resolution on Koryolink’s profit repatriation or sustainable dividend payout in Euros (which is not included in our SOTP valuation and will add EGP0.43 per share to OIH FV), to avoid exchange rate question marks, which can translate into some realisable FV.

    Vague expansion plans pressure stock performance

    Among OIH’s current investment portfolio, Pakistani Cables and BTFH will continue to drive revenues and lead contribution. Although the Pakistani Cables and SRWA uphold profitability, they are not be enough to offset higher losses from BTFH, EGP appreciation and expenses on the holding level. 

    Despite OIH withdrawing plans to acquire Nile Sugar and announcing, before an intention, to expand operations in Real Estate, Agri-Industries, Entertainment and Logistics Segments, no clear steps have been taken to achieve any targets.