Pitch: ARCC| An Efficient Player in Tough Times; Upgrade FV to EGP9.94/share. We expect a healthy growth in cement prices (5-year CAGR of 14%, compared to a CAGR of 3% previously), driven mainly by a 50% hike in 2023 to cover up the soaring coal and pet coke prices post currency depreciation. ARCC is enjoying an efficient energy mix (pet coke and alternative fuels fulfill around 80% of ARCC’s energy requirements, a cheaper alternative to coal). We expect ARCC to maintain a solid GPM of 20% in 2023 and maintain an average of 17% going forward. We forecast ARCC to post net profits of EGP625 million, marking a 79% YoY growth in 2023. We expect a dividends payout ratio of 70% of 2023 net profit, which translates into EGP1.15/share (DY of 18%). ARCC is currently trading at FY23e P/E of 3.9x and EV/EBITDA of 2.3x.
The IMF has cut its economic growth forecast for Egypt, saying it sees GDP growing 4.0% this year, a 0.4% trim from its previous forecast in October.
Egypt's net foreign assets (NFAs) improved by EGP47.28 billion in December (USD2.0 billion), marking a second month of increases after it allowed its currency to depreciate sharply in October, Central Bank data showed. NFAs improved to a negative EGP494.3 billion from a negative EGP541.5 billion in November.
The EBRD provided EUR1.3 billion to Egypt in 2022, 70% of which was directed towards the private sector to promote social inclusion and green transformation.
The EBRD, the EU, and the Green Climate Fund (GCF) will provide USD175.5 million to local banks to on-lend to green projects and SMEs in Egypt.
An Indian company showed interest to establish a renewable and green hydrogen project in Egypt with investments of EGP1 billion.
Fitch Solutions expects an increase in Egyptian tourism arrivals to reach 52 million tourists until 2026, due to a predicted decrease in the effects of COVID-19 pandemic and the Russian-Ukrainian war. The international economic institution expects the number of tourists who will visit Egypt to reach 11.5 million in 2023, 13 million in 2024, 13.5 million in 2025, and 14 million in 2026.
We upgrade our valuation for AUTO to EGP7.50/share, up from EGP6.55/share, maintaining OW. Our update is based on: GB Auto enhancing margins despite the challenging circumstances faced by the industry, the multiple price increases implemented helped the company’s margins as volumes dropped significantly due to FCY shortage, supporting revenue streams from after-sales-services. GB Capital and its subsidiaries continue to hold the majority of the value within the group’s valuation, forming 78.8% of our FV. We expect GB Capital’s portfolio to grow by a 5yr CAGR of 24.8% and maintain a healthy loan quality. AUTO is currently trading at a FY23 P/E of 2.4x and an EV/EBITDA of 3.6x.
We upgrade our valuation for EFID to EGP19.00/share, up from EGP13.33/share, maintaining OW. Our update is based on: The company’s plan to be present throughout multiple price points allowed the company to strengthen its market share without risking margins, the company’s strong presence in the snack food market as well as its product offering will serve as the main substitute for imported products that are becoming less affordable to the end consumer, EFID’s solid market position allowed it to penetrate multiple market segments and increase volumes and overall demand despite the multiple price increases implemented to offset for rising costs, gaining a relatively large market share in its first year in Morocco, which should gain further momentum with planned expansion plans. EFID is currently trading at a FY23 P/E of 10.2x and an EV/EBITDA of 5.9x.
SKPC released FY22 unaudited financial indicators posting 131% YoY growth in net profit to record EGP1,238 million. Net profit increased by 179% YoY (+78% QoQ) to EGP494 million in 4Q22. SKPC is trading at 2023f P/E of 6.5x and