electro cable egypt
TRANSCRIPT
10 November 2010 11
Electro Cable Egypt
Ticker: ELEC Price (EGP): 0.98 Fair Value (EGP): 1.36 Recommendation: BUY* (Upside 39%)
Shares (Mn): 496.4 Capital (EGP Mn): 496.4 Market Cap. (EGP Mn): 486.4 Free Float: 83%
ELEC vs. EGX30 Net IncomeShareholder Structure
Sector: Building Materials Research Note: 1H10 Date: November 10th, 2010
Good restructuring, no surprises
10 November 2010 2
Industry Overview
∑ The cables industry, and mainly high voltage power cables (HV), is linked to power generation projects and extending electricity networks as well as electrical interconnection among countries.
∑ The cables industry in the MENA region witnessed strong demand since 2005, fueled by government infrastructure expansions related to electricity generation and electrical interconnection projects among countries in the region.
∑ The MENA region witnessed some developments, either through acquisitions or through building green field operations such as Saudi Cable Co. (Turkey and Bahrain), Riyadh Cables (the UAE) and the Egyptian group El Sewedy Electric (Algeria, KSA, Syria, Yemen, and Sudan).
∑ However, based on the International Cable makers Federation (ICF)’s study, the cable industry in the MENA region remains fragmented as cable producers still cannot be compared with large groups, since the MENA region’s countries are not yet integrated economically.
∑ According to Energy Information Administration (EIA), total Middle East installed power generation amounts to 152GW representing 3.5% of global electricity generation with investments exceeding USD225Bn expected over the coming 10 years to fill in the infrastructure gap.
∑ Demand for electrical power in the MENA region will continue to grow backed by an annual population growth rate of 3% with electricity consumption expected to rise at an average rate of 6% per annum until 2011 and around 3% until 2030 according to EIA estimates.
MENA Region Electricity &
Cables Industry’s Overview
Electro Cable Egypt
Electricity & Cables Sector’s
Backgroundin Egypt
∑ The government approved in 2010 to spend EGP9Bn out of the EGP11.2Bn stimulus package on infrastructure to stimulate the economy and minimize the effect of the global economic slowdown. It is worth mentioning that the package is the third adopted by the government. The first stimulus, introduced in October 2008, was for EGP15Bn and the second was in June 2009 for EGP8Bn.
10 November 2010 3
Industry Overview Cont’d
EconomicRole
Electro Cable Egypt
∑ According to the CBE figures, Egyptian production of electricity reached 129.8Bn KWh in FY08/09 compared to 124.6Bn KWh in FY07/08 while consumption reached 112.4Bn KWh in FY08/09 vs. 106.9Bn KWh in FY07/08.
∑ The electricity sector’s contribution in GDP remained flat at 1.4% in 9M09/10 vs. 9M08/09. During 9M09/10, electricity sector investments grew 7% reaching EGP8.7Bn out of which 87% amounting to EGP7.6Bn were made by the public sector representing an 8% increase over 9M08/09. The private sector contributed the balance of 13% with investments of EGP1.16Bn, down 2% from EGP1.18Bn during the same period of the previous year.
∑ According to Business Monitor International (BMI), Egypt is estimated to account for 10.3% of the Middle East and Africa’s regional power generation by 2014.
∑ In Egypt, the main cable producers are El Sewedy group, Electro Cable Egypt (ELEC), Giza Cables Co. and International Cable Co. The latter is a subsidiary of Nexans group. In addition to these large groups, there are also several other smaller Egyptian cable manufacturers mainly active in low voltage (LV) energy cables.
Electricity & Cables
Sector’s Background
in Egypt
Cont’d
∑ Egypt has adopted the philosophy of electrical interconnection with neighboring countries such as The Eight-Country Interconnection Project, which involves interconnecting the electrical grids of Egypt, Iraq, Jordan, Libya, Lebanon, Palestine, Syria, and Turkey.
∑ A shift towards alternative renewable energy sources has been witnessed over the past decade to reduce dependence on oil and gas. Therefore, the government focused on wind energy generation which accounted for 1.7% of power generated in 2009 compared to 0.8% in 2005 with hydropower generation accounting for 13%, natural gas representing 35% and steam power generation contributing for the remaining 50%, according to the ministry of electricity and energy.
10 November 2010 4
Industry Overview – Cont’d
Source: Bloomberg Source: New & Renewable Energy Authority (NREA)
Copper & Aluminum Prices (Chrt. A) Net Electricity Generation (Chrt. B) Egypt’s Wind Energy Capacity (Chrt. C)
Source: EIA
∑ Copper and aluminum are essential materials for the production of cables and were affected by the global financial crisis with copper prices plummeting 64% to reach a low of USD3,070/ton in December 2008, down from USD8,549/ton in June 2008 then rebounded to USD7,375/ton in December 2009 then continued to rise reaching a high of USD7,440/ton in September 2010. Similarly, aluminum prices declined 57% to a low of USD1,342/ton in February 2009 from as high as USD3,106/ton a year earlier then rose to reach USD2,058/ton in September 2010. (see chart A)
∑ According to EIA estimates, electricity generation in the Middle East will grow by 2.5% per annum, from 0.7tn KWh in 2007 to 1.3tn KWh in 2035 while demand on electricity in Africa is expected to rise at an average annual rate of 2.6% over the same period. (see chart B)
∑ The ministry of electricity is planning to pump USD110Bn in new power generation units by 2027. It is worth mentioning that 1,425 MW of electricity is expected to be added in September 2010 (on the back of the frequent summer power cuts) bringing the estimated total electricity generation to 27,440 MW at the end of 2010 compared to 5,000 MW in 1981.
∑ In February 2008, the Egyptian Supreme Council of Energy has put in place an ambitious plan to generate 20% of the country’s electricity requirements from renewable energy sources by 2020 to meet its energy needs and diversify energy sources, thereby allowing the country's oil and gas reserves to last longer. For instance, Egypt aims to increase wind energy from 850 MW in the current year to 5,410 MW by 2020. (see chart C)
∑ On the other hand, Egypt decided to construct its first nuclear power station in El Dabaa, about 100 miles west of Alexandria, to be operational by 2019. Moreover, The government is expected to announce the auction for the construction of the nuclear power plant by the end of 2010. It also plans to build another three nuclear power plants by 2025 with aggregate capacity of 1,800MW.
Copper
Aluminum
Electro Cable Egypt
10 November 2010 5
Business Summary & Background
∑ Electro Cable Egypt (ECE) is one of the largest cable manufacturers in Egypt. It produces low, medium and high voltage power cables and telecommunication cables with a total production capacity amounting to 65,000 tons. Production is mainly geared and sold locally.
∑ The company operates seven factories on an area of 80 acres located in Mostorod’s industrial zone with an annual production capacity of aluminum and copper cables reaching 60,000 tons per annum.
∑ ELEC has separated the production from the marketing process so that the plant would be devoted to the production, development and preservation of quality standards. Therefore, Electro Cable for Marketing (ECM) was established in 2004 (18.5% owned by ELEC) to be specialized in advertizing, promoting and marketing ELEC’s products locally and internationally as well as providing technical support. The company has paid in capital of EGP65Mn. On the other hand, ELEC produces cables for ECM for a fee, with the latter providing ELEC with the required raw materials (Toll Manufacturing).
∑ Misr Insurance Company owns 9% of ELEC, Social Insurance Funds hold a 5% stake in the company, the Employee Stock Ownership Plan (ESOP) represents 3% of ELEC’s capital while the remaining 83% is freely floated on the EGX.
Reduced its par value through a stock split from EGP15/share to EGP1/share
Raised its issued and paid-in capital from EGP222.8Mn to EGP472.8Mn through a rights issue
The Holding company sold a majority stake and the company was privatized
Listed in the Egyptian Stock Exchange
Became an affiliate for the Holding Company for Engineering Industries
2008
2007
1997
1995
1991
The company was nationalized
Founded as a private investment company
1960
1954
Raised its issued and paid-in capital from EGP472.8Mn to EGP496.4Mn through a stock dividend2009
Established Electro Cable for Marketing2004
Electro Cable Egypt
10 November 2010 6
Financial Performance
Item FY09 Comment and Analysis 1H10 Comment and Analysis
Revenue -9%
∑ FY09 revenue decreased despite a 5% increase in sales volume reaching 19,367 tons up from 18,483 tons in FY08 mainly due to lower copper and aluminum prices in FY09 compared to FY08 levels with the company’s FY09 weighted average selling price (80% aluminum & 20% copper) falling 13% to reach EGP21,296/ton vs. EGP24,402/ton in FY08.
∑ Finished goods revenue fell 10.5% to EGP388.7Mn down from EGP434.1Mn (affected by the decline in global metal prices), representing 94% of total FY09 revenue vs. 96% in FY08 (on average 95% of total revenue over 2007-2009).
∑ ELEC’s revenue generated from producing cables to Electro Cable for Marketing (ECM) soared 40% from EGP16.9Mn to EGP23.7Mn, representing the remaining 6% of total revenue vs. 4% in FY08 (on average 5% of the company’s total revenue over 2007-2009). It is noteworthy that the considerable increase in this segment resulted from an increase in ECM’s sales volume offsetting the declines in copper and aluminum prices in order to maintain its margins.
+0.4%
Despite the rebound in the global metal prices (a 48% increase in aluminum prices and a 71% hike in copper prices in 1H10 over 1H09) and an 11% increase in the company’s sales volume from 10,635 tons to 11,803 tons, 1H10 revenue remained almost flat due to the following:
∑ A 10% fall in the company’s weighted average selling prices reaching EGP20,974/ton in 1H10 vs. EGP23,204/ton in 1H09 as ELEC could not raise its prices to cope with the global metal prices increases because it relied more on public sector projects resulting from governmental auctions with the company fixing its selling prices during the contract period and consequently, failed to capitalize on higher price levels.
∑ Only 2% rise in finished goods revenue recording EGP239.4Mn vs. EGP234.9Mn in 1H09 accounting for 97% of total revenue.
∑ A 32% plunge in toll manufacturing revenue reaching EGP8.1Mn in 1H10 compared to EGP11.9Mn in 1H09 representing 3% of total revenue.
COGS -14%
COGS fell in FY09 as a result of a decline of around 28% in the weighted average metal costs during 2009 reaching EGP13,349/ton down fromEGP18,633/ton. It’s worth noting that raw materials (RM) represented 82% of COGS in FY09 with aluminum accounting for 80% of RM cost while copper represented 20% of RM cost.
+4.5%
1H10 COGS rose 4.5% since the global metal prices rose during 1H10 in line with the economic rebound. Therefore, the weighted average metal costs rose approximately 58% from EGP10,942/ton in 1H09 toEGP17,264/ton in 1H10 with aluminum accounting for 80% of RM cost while copper represented 20% of RM cost.
Gross Profit +14%
The decrease in revenue (due to slow growth in sales volume and fall in selling prices) was lower than the significant decline in COGS leading to higher FY09 gross profit with gross profit margin rising from 20.8% in FY08 to 26% in FY09.
-10%Flat revenue (on the back of lower selling prices) combined with higher COGS resulted in a lower in gross profit with the gross profit margin falling to 24.6% in 1H10 compared to 27.5% in 1H09.
Provisions +17%
FY09 provisions amounted to EGP21Mn vs. EGP18Mn in FY08 as contingent liability provisions grew more than 2-fold recording EGP14.5Mn vs. EGP6Mn in FY08 in addition to a 46% increase in delay fines as the company was not able to meet the delivery dates and existing contracts losses provisions recording EGP6Mn in FY09 vs. EGP4.1Mn in FY08.
-90.5%
1H10 provisions fell dramatically compared to 1H09 as law suits and contingent liability provisions recorded zero in 1H10 vs. EGP22Mn in 1H09 with the only provision taken during the period was related to delay fines and existing contracts losses provision, plunging 80% to record EGP2Mn in 1H10vs. EGP10Mn in 1H09 as the company was ableto overcome some of its operating problems.
Taxes +19-fold
The company posted losses for seven consecutive years since 2000. Therefore, in FY08, the company benefited from a provision in tax law allows companies to reduce any tax loss occurs in previous years from the following years profits (maximum for 5 years). Consequently, the company has reduced its tax loss carried forward from FY08 taxes and became subject to tax starting FY09. However, the company booked EGP610,877 deferred tax of in FY09 vs. EGP874,159 in FY08.
+11% 1H10 taxes rose to EGP10Mn up from EGP9Mn in 1H09 as a result of a 9% increase in earnings before tax.
Net Profit +50%
Despite the decline in top line (on the back of low metal prices), FY09 net profit soared due to significant decline in COGS as witnessed by a 14% increase in the gross profit in addition to other income of EGP14Mn (mainly as a result of custom tariff rebates of EGP8.3Mn in FY09 vs. zero in FY08 and revenue from investments in sister companies of EGP4.8Mn vs. zero in FY08) replacing other expenses of EGP2Mn with the net profit margin rising to 14.6% up from 8.9% in FY08.
+9%
In spite of the decrease in 1H10 gross profit, the considerable plunge in 1H10 provisions over 1H09 was the main reason behind the growth in the company’s bottom line with the net profit margin rising to 15.3% in 1H10 up from 14.2% in 1H09.
ELEC
Income Statement (EGP Mn) 2008 2009 1H09 1H10Revenues 451 412 247 248Cost of Goods Sold -357 -306 -179 -187Gross Profit 94 107 68 61SG&A and Depreciation -25 -23 -8 -9Other Income/Expense -2 14 3 -4Net Interest -8 2 1 2Provisions -18 -21 -21 -2Net Profit Before Tax 41 80 44 48Taxes -1 -19 -9 -10Net Profit 40 60 35 38Balance Sheet (EGP Mn) 2008 2009 1H09 1H10Cash 57 106 113 61Accounts Receivable 86 67 76 93Inventories 83 96 67 109Other Current Assets 36 34 40 35Total Current Assets 262 303 297 297Fixed Assets 379 374 376 387Other Long Term Assets 10 27 12 17Total Assets 651 704 685 701Short Term Debt 19 12 11 10Accounts Payable 15 9 9 8Other Current Liabilities 57 37 34 40Total Current Liabilities 91 59 54 58Long Term Debt 41 22 33 13Provisions 12 32 32 34Other Long Term Liabilities 2 1 1 1Total Liabilities 145 115 120 106Total Common Equity 506 590 565 595Total Liabilities and Equity 651 704 685 701
10 November 2010 77
Restructuring Story
Source: ELEC
Short and Long Term LoansRevenue and Gross Profit Net Profit/(Losses)
∑ ELEC witnessed severe problems for eight consecutive years since 2000 due to the following: ∑ Margins erosion: raw material prices exceeded the prices determined in the previously signed contracts which reflects the
lack of a good vision. ∑ Very high A/R DoH: caused a sever liquidity shortage.∑ Interest Burden: the company raised its short and long term debts in order to increase its production efficiency. However,
growing interest together with a liquidity shortage resulted in a delay in supplying orders assigned to the company. As a consequence, ELEC was subject to delay fines.
∑ The year 2008 marked the end of a negative performance and the beginning of a new successful phase. ELEC’s new management raised its issued and paid in capital in FY08 from EGP222.8Mn to EGP472.8Mn, an increase of EGP250Mn, then raised another EGP23.6Mn to reach a paid in capital of EGP496.4Mn in FY09 in order to increase the company’s liquidity.
∑ The excess liquidity coupled with receiving loan forgiveness from banks reaching EGP159.8Mn allowed the company to settle its debts which now stand at EGP34Mn in FY09 VS. EGP60Mn in FY08.
∑ ELEC signed new contracts after finalizing its delayed contracts and injected EGP16.26Mn for the development and renewal of its equipment and production lines to improve its operational performance. It purchased two copper wire drawing and stranding machines, added a wire drawing line to produce aluminum transformers which will start operations in 2011.
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Electro Cable Egypt
10 November 2010 8
SWOT Analysis
∑ One of the largest power cable producers in Egypt.
∑ A vertically integrated business model with the company establishing a PVC production line.
∑ Produces cables to ECM in order to generate more revenue and make use of the unutilized capacity.
∑ A diversified product range with competitive prices.
∑ New management team with a better vision improved the company’s performance.
∑ One of the largest power cable producers in Egypt.
∑ A vertically integrated business model with the company establishing a PVC production line.
∑ Produces cables to ECM in order to generate more revenue and make use of the unutilized capacity.
∑ A diversified product range with competitive prices.
∑ New management team with a better vision improved the company’s performance.
Strengths Weaknesses
∑ No clear strategy to avoid raw material prices fluctuations (aluminum & copper) that represent more than 80% of costs.
∑ Excessive number of workers increases the company’s cost with no added value.
∑ High free float with no strategic investor in the shareholder structure.
∑ Weak regional presence with export sales representing only 4% of ELEC total sales in FY09.
∑ No clear strategy to avoid raw material prices fluctuations (aluminum & copper) that represent more than 80% of costs.
∑ Excessive number of workers increases the company’s cost with no added value.
∑ High free float with no strategic investor in the shareholder structure.
∑ Weak regional presence with export sales representing only 4% of ELEC total sales in FY09.
Opportunities Threats
∑ The company’s new production lines along with the replacement and renewal of equipment will raise its production efficiency.
∑ The growing household electricity consumption (mainly on the back of increasing number of air conditioning) along with the rise in per capita income is expected to result in rapid growth in demand on electric power.
∑ The increasing demand on infrastructure and power generation with the government planning to increase the electricity generation as well as resorting to renewable energy resources grants the company potential for growth.
∑ The company’s new production lines along with the replacement and renewal of equipment will raise its production efficiency.
∑ The growing household electricity consumption (mainly on the back of increasing number of air conditioning) along with the rise in per capita income is expected to result in rapid growth in demand on electric power.
∑ The increasing demand on infrastructure and power generation with the government planning to increase the electricity generation as well as resorting to renewable energy resources grants the company potential for growth.
∑ Fierce competition may force the company to lower its selling prices thus reducing margins and earnings.
∑ ECM’s new plant in Beni Suef may reduce toll manufacturing revenue gradually starting 2012.
∑ Sudden hikes in raw material prices may erode margins when the contracts predetermined prices are much lower.
∑ Any change in the government’s power generation plan may negatively affect demand on cables.
∑ Fierce competition may force the company to lower its selling prices thus reducing margins and earnings.
∑ ECM’s new plant in Beni Suef may reduce toll manufacturing revenue gradually starting 2012.
∑ Sudden hikes in raw material prices may erode margins when the contracts predetermined prices are much lower.
∑ Any change in the government’s power generation plan may negatively affect demand on cables.
Electro Cable Egypt
10 November 2010 9
Business Drivers & Outlook
∑ After witnessing eight years of losses, followed by a strategic financial restructuring, ELEC is currently focusing on benefiting from the growth momentum in the cable industry. The renovation and the renewal of the company’s equipment since FY08 until 1H10 are expected to further enhance the company’s earnings and profitability.
∑ On the other hand, the company is planning to establish a manufacturing insulation line Polyvinyl Chloride (PVC) which precedes the cable production with an investment cost of EGP8.90Mn to be operational in 2011. This new production line will supply ELEC with the insulation materials and reduce its dependence on importing them with the excess production expected to be sold to other cable producers, granting the company a new source of revenue.
∑ However, ELEC’s subsidiary “ECM” decided to establish its first high, medium and low voltage power cable production plant in the industrial zone in Beni Suef (about 85Km from Cairo), to be operational starting 2011. This new plant will have a gradual negative effect on ELEC’s revenue from operating to ECM, since the latter will reduce dependence on ELEC’s cable manufacturing and start its own production. On the other side, ELEC should benefit from revenue generated from ECM’s plant through its stake in the latter.
The government is planning to pump money to add new power generation units in the coming years in order to meet the increasing power consumption. It will build a new power generation in El Ein El Shoukhna with an expected investment cost of EGP10Bn. The first power generation unit is forecasted to start operations in July 2013, generating 650 MW of electricity while the second unit is expected to come online in October 2013.
Infrastructure projects are the key engine for the cable industry and other industrial sectors as well. The majority of the government’s three stimulus packages in order to spur the economy were mainly directed to infrastructure investments which reflects the increasing demand on this sector. Moreover, the government is looking to increase private sector participation in infrastructure projects during the coming period.
Indu
stry
Com
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Mac
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In an attempt to maintain the country’s hydrocarbon reserves to last longer (reaching 18.4 BBOE in 2009/2010 up from 11.8 BBOE ten years ago and is expected to reach 20 BBOE in the next two years) and diversify power generation, Egypt is focusing on generating 20% of its electricity sources from renewable energy, out of which 12% will be generated from wind energy. This, in addition to establishing four nuclear power generation plants.
Electro Cable Egypt
10 November 2010 10
Valuation Assumptions
∑ Aluminum metal accounts for 80% of ELEC’s cable manufacturing since it targets the local market. Consequently, we project a slow growth in aluminum prices during the forecasted period since historically, this metal did not witness any volatility except during the global economic slowdown. As for the copper that represents 20% of the cable production, it is forecasted to continue risingduring 2010 on the back of increasing demand for copper from China (the world’s biggest metal consumer).
∑ ELEC’s total revenue is forecasted to grow 3% in FY10 (at a CAGR of 4% between FY10 and FY14) with finished products revenue is projected to account for 95% of the total revenue while operating to others revenue will represent the remaining 5%. Since the company relies more on the local market, local sales are forecasted to average 95% of the company’s total revenue during the coming five years with exports accounting for the remaining 5%. FY11 revenue is projected to increase 6% on the back of the renewal and renovation of the company’s equipment and production lines during FY10 and is expected to come on stream beginning FY11. However, the company’s top line will be negatively affected by the establishment of ECM’s cables plant which will gradually reduce revenue from operating to ECM starting FY12.
∑ FY10 COGS is projected to increase 7% on the back of higher raw material prices (at a CAGR of 4% for the coming 5 years).
∑ Gross Profit is expected to decline 8% in FY10 with an expected gross profit margin of 23% in FY10 vs. 25.9% in FY09.
∑ In FY10, ELEC is projected to witness a 15% growth in net profit(2010-2014 CAGR of 6%) mainly due to lower provision charge since the company has ended its dispute with the tax authority and did not record any lawsuit provision during 1H10 with the net profit margin rising to 16.3% in FY10 up from 14.6% in FY09.
∑ N.B. Apart from the direct negative effect of ECM’s new plant on ELEC’s top line, the latter will indirectly benefit from the revenue generated from the plant through its stake in ECM.
2010f 2011f 2012f19,754 20,544 21,161
2% 4% 3%21,573 22,004 22,334
426 452 4733% 6% 5%
405 430 4504% 6% 5%95% 95% 95%21 22 23
-10% 4% 2%5% 5% 5%426 452 4733% 6% 5%
410 429 4463% 5% 4%96% 95% 94%16 23 27
12% 38% 19%
% Growth
Export Sales (EGP Mn)% Growth
Sales (EGP)% GrowthWeighted Avg Selling Price (EGP/ton)
% GrowthTotal Revenue (EGP Mn)
Valuation Assumptions
Finished Products Revenue (EGP Mn)% Growth
Operating to Others Revenue (EGP Mn)% Growth
Total Revenue (EGP Mn)% Growth
By Products
By Distribution ChannelLocal Sales (EGP Mn)
Contribution to total Revenue
Contribution to total Revenue
Contribution to total Revenue
Electro Cable Egypt
10 November 2010 11
Financial Statements and Indicators
Income Statement (EGP Mn) 2009a 2010f 2011f 2012fRevenues 412 426 452 473Cost of Goods Sold -306 -328 -348 -363Gross Profit 107 98 104 110SG&A and Depreciation -23 -25 -27 -28Other Income/Expense 14 15 15 16Net Interest 2 4 6 8Provisions -21 -5 -6 -6Net Profit Before Tax 80 87 93 99Taxes -19 -17 -19 -20Net Profit 60 69 75 79EPS 0.12 0.14 0.15 0.16
Balance Sheet (EGP Mn) 2009a 2010f 2011f 2012fCash 106 117 134 152Accounts Receivable 67 69 73 77Inventories 96 99 105 110Other Current Assets 34 35 37 39Total Current Assets 303 320 350 378Fixed Assets 374 393 401 408Other Long Term Assets 27 21 23 25Total Assets 704 734 773 810Short Term Debt 12 13 15 16Accounts Payable 9 10 10 11Other Current Liabilities 37 39 41 43Total Current Liabilities 59 62 66 70Long Term Debt 22 11 8 5Provisions 32 35 36 36Other Long Term Liabilities 1 2 2 3Total Liabilities 115 109 112 113Total Common Equity 590 624 661 697Total Liabilities and Equity 704 734 773 810
Key Financial Indicators 2009a 2010f 2011f 2012fLiquidityCurrent Ratio 5.2 5.2 5.3 5.4Quick Ratio 3.5 3.6 3.7 3.8
EfficiencyInventory Turnover 3.2 3.3 3.3 3.3Inventory DOH 115 111 111 111Receivables Turnover 6.2 6.2 6.2 6.2Average Collection Days 59 59 59 59Fixed Assets Turnover 1.1 1.1 1.1 1.2Total Assets Turnover 0.6 0.6 0.6 0.6
Leverage Debt Ratio 0.2 0.1 0.1 0.1
ProfitabilityRevenue Growth -9% 3% 6% 5%Gross Profit Margin 26% 23% 23% 23%EBITDA Margin 20% 17% 17% 17%Net Profit Growth 49% 15% 8% 7%Net Profit Margin 15% 16% 16% 17%ROA 9% 9% 10% 10%ROE 10% 11% 11% 11%Dividend Payout Ratio 41% 50% 50% 55%
N.B: We don’t foresee significant volatility
Electro Cable Egypt
10 November 2010 12
Valuation & Recommendation
Price (10/11/2010): EGP 0.98/shareUpside Potential: 39%
Fair Value
EGP1.20/share
∑ We are comfortable with a 16% cost of equity and a 3% terminal growth rate giving the share a DCF based fair value of EGP1.20.
∑ The simple average between P/E, P/BV, and EV/EBITDA multiples based on 2010 results of international peers yielded a fair value of EGP1.76/share.
DCF(Weight 70%)
Multiples(Weight 30%)
Combined FV: EGP1.36/shareRecommendation: BUY*
Electro Cable Egypt
Country PE P/Bv EV/EBITDAEl Swedy Electric Egypt 10.10 1.78 9.53Oman Cables Oman 13.19 2.32 13.05Fiolex Cables India 10.63 1.48 naHu An Cable China 8.04 1.46 6.45Houston Wire & Cable 15.79 2.44 naGeneral Cable 14.85 1.00 7.15Leoni AG Germany 13.55 1.88 6.06
12.31 1.77 8.45
1.76ELEC's Multiple Based Fair Value (EGP)
Peers average
USA
∑1.20 14% 15% 16% 17% 18%
3% 1.37 1.28 1.20 1.13 1.07
4% 1.40 1.31 1.22 1.15 1.095% 1.43 1.34 1.25 1.18 1.126% 1.47 1.37 1.28 1.21 1.147% 1.50 1.40 1.31 1.24 1.17
Cost of Equity
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10 November 2010 1313
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Research Team
Ahmed AlNaggar Deputy Head of Research (Acting Head)
Mohamed Waked Senior Analyst
Shereen Hammam Senior Analyst
Mohamed A. Salem Financial Analyst
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Ola Tayel Financial Analyst
Amany Mattar Content Aggregator
Research Team
Ahmed AlNaggar Deputy Head of Research (Acting Head)
Mohamed Waked Senior Analyst
Shereen Hammam Senior Analyst
Mohamed A. Salem Financial Analyst
Amira Atef Financial Analyst
Ola Tayel Financial Analyst
Amany Mattar Content Aggregator