the efg hermes egypt day summit egypt 2019: …...still running on below 2016 volumes) and an...

The EFG Hermes Egypt Day SummitEgypt 2019: What to Expect

Table of contents

Egypt Recent Developments 2

Companies

Research Team & Sales Contacts 38

Disclaimer 42

ADES 14 CIB 16

CIRA 18

Cleopatra Hospitals 20

Dice 22

Domty 24

EFG Hermes 26

Elsewedy Electric 28

Juhayna 30

Raya Contact Center 32

TMG Holding 34

2

Egypt Recent Developments

3


4

Earnings growth in 2018 has remained strong, especially for consumer names in 2Q-3Q18; however, sentiment in general has taken a hit, and we now see limited catalysts for the market in the short term apart from slight potential re-rating for non-banking names due to very low valuations. Having said that, the oil price risk and EM/FM volatility risks seem more subdued, with oil prices back to cUSD60/barrel at the time of writing, and EM ETFs taking in some inflows.

Going forward, the main catalyst for the market remains resumption in monetary easing, which could start in 2H19. This should help lower COEs, improve liquidity and lead to a re-rating in multiples following a massive de-rating in 2018. Another important point is that the bulk of net selling from Apr 2018 onwards came from local institutions, which have net sold nearly cEGP4bn of Egyptian stocks in 2018, but they have now turned net Buyers (from early November). We think they could drive the market from this point onwards if they deploy more cash – falling interest rates would further support that move, in our view.

Non-banks offer better value/upside; proposed tax amendments for banks support that callWe see better value in non-banks vs. banks, as banks ROEs have peaked, while non-banks’ ROEs have further room to grow, in our view. Also banks are more expensive, valuation-wise, than the market. We have recently removed COMI from our MENA Top 20 and FEM Top Picks lists as the proposed Tax Law amendments pose an overhang, in our view. While the impact is unlikely to be fully felt until 2020, we are unlikely to see investors rushing to the sector (especially since COMI is already very well owned by foreign investors) until there are signs that banks will be able to succeed in shifting their asset mix.

Will COMI’s leader status be replaced by a basket of other heavyweights? While it is true that historically COMI and the market have moved in the same direction, since devaluation COMI has actually underperformed by 17% (peak underperformance was 41% on 26 Apr 2018). This is best illustrated by the decline in COMI’s weight within EGX30 from a peak of c40% in 2016 to c30% now. We think COMI’s weight in the benchmark could fall further on the back of continued underperformance; after all, it was only 21.8% of EGX30 at end-2010. Foreign investors’ holdings in Egypt are concentrated in COMI and account for 53% of total disclosed holdings by funds. Thus, potentially, foreign investors that are still bullish on Egypt could partially rotate out of COMI, which would be supportive of other heavyweights (i.e. SWDY, TMGH, etc.).


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Egypt – Favourable outlook, with higher rates remaining a key challenge

Egypt’s economy is set in 2019 for a combination of stable GDP growth of 5%, elevated interest rate environment and further fiscal measures to rein in the budget deficit. We, therefore, expect growth to remain strong; nevertheless, policymakers will continue to face the challenge of stimulating growth in the private sector amidst a high inflation/interest rate environment.

We expect economic growth to remain robust at +5%, thanks to a strong recovery in tourism, gas production and public investment. These have been largely the same driving forces in the economy in the past two years, and we see further room for growth there in 2019. Tourism is recording a wide-ranging recovery, where revenues have nearly tripled in the past three years to USD9.8bn in FY17/18, with further potential for upside if and when Russia removes its travel ban on flights to Red Sea destinations. On the gas side, production in the Zohr field, which started in Dec 2017, continues to ramp up, aiming to reach 3bcfd by Jun 2019. The country has officially announced that it has stopped importing gas and that it has started exporting some small quantities to Jordan.

Finally, the government is pressing ahead with its megaprojects in both infrastructure and housing.


7

Meanwhile, domestic demand, at large, is likely to continue its muted recovery as it faces a persistently elevated interest rate environment. For consumers, inflationary pressures have been gradually subsiding, but they are not completely vanishing, with a fourth fuel price increase in three years set for Jun 2019 (when the government is set to liberalise fuel prices). Slow growth in private consumption (most companies are still running on below 2016 volumes) and an extended period of high interest rates point to another year of slow recovery in private sector capex, in our view.

We forecast inflation to remain within the range of 13-14% for the next couple of years, considering the upcoming fuel subsidy cuts. The latter, in addition to global tightening conditions, feeds our expectations of a stable policy rate environment for most of next year. Hence, we do not see rate cuts before 4Q19, when the last inflationary wave should subside post June’s fuel price hike. Obviously, the trend for oil prices will remain a decisive factor for the inflation outlook.

The macro management of the economy amidst this elevated inflation environment clearly poses challenges to policymakers and is likely to ensure that any future easing of monetary policy would be largely gradual. This is likely to continue, given that we are expecting the EGP to come under pressure at the time when CBE will be pressing ahead with an easing cycle later in 2019. We, therefore, expect to see some weakness in the range of 3-5%, setting later in 2019 or early 2020.


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Generally, we do not see major short-term pressures on the currency, with CBE enjoying a strong reserve position, manageable current account deficit at 2.5% of GDP and interest rates remaining elevated (ensuring both attractiveness of the local currency and muted domestic demand growth). In addition, our real effective exchange rate model still indicates that the EGP remains an undervalued currency. The higher inflation and stable currency over the past two years, however, has meant that the EGP has appreciated significantly in real terms, meaning that weakness in the EGP in 2019 would be healthy for long-term fundamentals.


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Egypt Macroeonomic Indicators (Year-end Jun)


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EFG Hermes Egypt Coverage

Ticker Company Price(EGP)

TP Rating YTD Perf.(%)

ADVT(USDmn)

MCap(USDbn)

P/E (x)2017

2018 2019 P/B (x)2018

DY (%)2018

Consumer

ACGC.CA Arab Cotton Ginning 1.7 3.5 Buy (64.8) 0.4 0.0 2.1 2.7 3.4 0.3 17.6

DOMT.CA Arabian Food Industries (Domty) 9.0 14.0 Buy (9.6) 0.1 0.1 58.1 18.2 10.8 4.0 1.8

CIRA.CA CIRA 8.0 9.2 Buy N/A 1.4 0.2 82.3 36.5 23.0 9.4 0.7

DSCW.CA Dice Sport & Casual Wear 15.7 35.0 Buy (35.8) 0.0 0.0 4.8 3.8 3.4 2.1 0.0

EFID.CA Edita Food Industries 14.0 22.5 Buy (16.7) 0.2 0.6 44.6 26.0 15.8 7.6 1.8

AUTO.CA GB Auto 4.9 7.5 Buy 8.2 0.2 0.3 N/M 9.8 6.7 1.5 0.0

JUFO.CA Juhayna 11.0 14.5 Buy 4.6 0.7 0.6 51.7 20.5 13.6 4.1 1.8

OLFI.CA Obour Land For Food Industries 8.1 14.0 Buy (26.4) 0.1 0.2 14.9 12.9 10.6 5.4 3.1

ORWE.CA Oriental Weavers 10.4 12.5 Buy (37.4) 0.5 0.3 6.5 8.0 8.0 0.7 14.5

Energy

ADES.L ADES International Holding* 14.1 27.0 Buy 6.0 0.7 0.6 12.4 12.1 6.7 1.6 0.0

MOIL.CA Maridive* 0.4 0.7 Buy (4.6) 0.1 0.1 7.1 5.3 5.1 0.4 0.0

Financials

ADIB.CA Abu Dhabi Islamic Bank - Egypt 10.4 17.5 Buy (33.3) 0.1 0.1 3.4 2.1 1.8 0.7 0.0

SAUD.CA Al Baraka Bank Egypt 13.6 22.0 Buy 11.2 0.0 0.1 3.4 2.9 2.6 0.8 7.4

COMI.CA CIB 69.4 105.0 Buy (10.3) 4.8 4.5 12.1 9.8 8.0 2.4 2.2

CIEB.CA Credit Agricole Egypt 39.5 53.1 Buy (5.7) 1.0 0.7 6.9 6.4 5.6 2.5 7.6

EGBE.CA Egyptian Gulf Bank 0.7 0.9 Neutral (23.0) 0.0 0.2 9.4 9.3 7.6 1.0 0.0

EKHO.CA EK Holding 1.1 1.5 Buy 26.1 0.9 1.1 9.1 10.5 8.1 2.1 5.6

FAITA.CA Faisal Islamic Bank of Egypt 1.0 1.2 Neutral (10.4) 0.0 0.4 4.1 3.1 2.8 0.6 6.2

HDBK.CA Housing & Dev. Bank 42.5 70.4 Buy (11.5) 0.4 0.3 4.6 3.5 3.0 1.1 4.7

Healthcare

PHAR.CA EIPICO 102.5 113.0 Neutral (33.0) 0.4 0.5 11.9 14.8 14.2 3.5 4.4

IDHC.L Integrated Diagnostics Holdings* 4.0 5.9 Buy (13.3) 0.1 0.6 27.8 22.2 17.7 6.1 5.0

Industrials

ALCN.CA Alex. Containers and Goods 14.0 22.5 Buy (14.4) 0.1 1.2 10.1 9.0 9.7 4.7 12.0

CSAG.CA Canal Shipping 11.7 19.0 Buy (3.5) 0.2 0.1 15.0 8.6 7.8 3.2 8.7

SWDY.CA Elsewedy Electric 14.1 23.0 Buy (4.6) 1.5 1.7 4.8 6.1 6.1 1.9 8.5

GSSC.CA General Silos 37.7 65.0 Buy (38.1) 0.0 0.0 5.3 4.1 4.7 1.4 6.6

GGCC.CA Giza General Contracting 1.1 1.7 Sell (27.0) 0.0 0.0 3.7 3.5 3.1 0.6 0.0

ORAS.CA Orascom Construction Limited 110.3 170.0 Buy (21.4) 0.2 0.7 9.7 5.2 4.7 1.4 5.3

UEGC.CA Upper Egypt Contracting 0.6 0.5 Sell (24.9) 0.2 0.0 6.5 5.8 4.7 0.5 0.0

*Currency in USDSource: Company data, EFG Hermes estimates

11

EFG Hermes Egypt Coverage

Ticker Company Price(EGP)

TP Rating YTD Perf.(%)

ADVT(USDmn)

MCap(USDbn)

P/E (x)2017

2018 2019 P/B (x)2018

DY (%)2018

Materials

ABUK.CA Abu Qir Fertilizers 24.9 32.0 Buy 16.0 0.3 1.8 16.4 14.2 10.9 6.4 4.4

IRAX.CA Al Ezz Dekheila 950.6 1,500.0 Buy 31.1 0.0 0.7 8.9 5.2 4.3 2.0 16.8

AMOC.CA AMOC 6.0 9.0 Neutral (35.3) 0.9 0.4 4.7 5.2 6.7 2.1 14.2

ARCC.CA Arabian Cement Company (Egypt) 5.3 9.0 Buy (30.8) 0.2 0.1 9.3 8.5 15.8 1.3 8.1

EFIC.CA EFIC 9.2 13.0 Buy (46.8) 0.1 0.0 4.3 5.4 8.3 0.6 8.7

EGCH.CA Egyptian Chemical Industries 6.1 6.5 Neutral (20.7) 0.4 0.3 25.8 53.7 48.8 1.5 0.0

ESRS.CA Ezz Steel 17.8 30.0 Buy (14.5) 0.7 0.5 N/M N/M 16.0 2.0 0.0

MFPC.CA MOPCO 71.6 120.0 Buy (24.1) 0.1 0.9 24.3 10.4 6.3 1.2 7.0

OCI.AS OCI NV** 19.4 32.0 Buy (7.8) 7.7 4.6 N/M 25.6 7.9 3.7 0.0

SKPC.CA Sidi Kerir 16.8 23.0 Buy (33.8) 0.3 0.5 8.7 8.0 7.0 2.4 9.5

SVCE.CA South Valley Cement 2.3 6.5 Buy (54.6) 0.1 0.1 26.7 N/M N/M 0.3 0.0

Real Estate & Hospitality

EGTS.CA Egyptian Resorts Company 1.8 1.3 Neutral 21.0 1.0 0.1 45.1 42.4 20.1 1.9 0.0

EMFD.CA Emaar Misr for Development 3.0 5.6 Buy (15.2) 0.5 0.8 5.9 5.4 4.8 1.0 0.0

HELI.CA Heliopolis Housing 15.6 40.0 Buy (55.6) 1.0 0.4 19.5 26.2 27.7 10.9 0.0

ORHD.CA Orascom Development Egypt 5.9 8.0 Buy 23.9 0.8 0.4 22.6 16.6 13.5 3.1 3.7

PHDC.CA Palm Hills 2.2 4.7 Buy (42.1) 1.6 0.4 6.5 6.3 5.3 0.6 0.0

PORT.CA Porto Group 0.8 1.8 Neutral (50.4) 0.2 0.0 2.5 2.1 1.6 0.6 0.0

TMGH.CA TMG Holding 9.1 18.0 Buy (6.8) 0.8 1.1 14.2 12.5 8.7 0.6 2.0

Telecom Services

GTHE.CA Global Telecom Holding 3.0 6.5 Buy (59.5) 3.7 0.8 N/M 14.7 9.2 N/M 0.0

OIH.CA OIH 0.5 0.5 Sell (26.4) 0.8 0.2 5.8 6.4 7.4 0.5 0.0

ETEL.CA Telecom Egypt 11.7 15.7 Buy (12.5) 0.6 1.1 5.6 6.9 5.8 0.6 8.5

Information Technology

RACC.CA Raya Contact Center 11.0 18.0 Buy (18.5) 0.1 0.1 7.9 6.5 6.1 2.5 7.7

**Currency in EUR

Source: Company data, EFG Hermes estimates

12


Companies

ADES 14

CIB 16

CIRA 18

Cleopatra Hospitals 20

Dice 22

Domty 24

EFG Hermes 26

Elsewedy Electric 28

Juhayna 30

Raya Contact Center 32

TMG Holding 34

Investment Thesis

Questions

Rating and risks

Target PriceRating

14

ADES International Holdingwww.adesgroup.com

USD27.0

With ADES’ rig acquisitions strategy seemingly coming to an end, what will management be focused on now to extract more value?

ADES’ rig day rates have fallen in 2018, particularly in Egypt, as the company gave discounts to its customers; does management still see that this trend will continue, or will higher oil prices spark some upward revisions?

Renewal of Egypt contracts seems to be executed only on a short-term basis, i.e., a few months at a time; does management expect its clients to come back to longer-term maturity contracts?

Have there been any developments with regard to ADES’ proposed asset-light model, particularly the drillship JV with Vantage Drilling? How long will it be until the marketing agreements with rig owners expire?

Is the company planning on paying out dividends, given the sizable FCF generation, once all rigs are deployed? When will dividends likely come?

ADES is a driller, workover, maintenance and production services provider headquartered in Egypt, with a focus on shallow water offshore (OS) work and, to a lesser extent, onshore work within the MENA region. The company currently owns 48 rigs (34 onshore + 12 offshore) backed by its most recent acquisitions and enjoys a backlog of cUSD1.25bn. The company has presence across MENA, with assets deployed in Egypt, Saudi Arabia, Algeria, Kuwait and Iraq. ADES has grown substantially in the past few years from a single rig operator back in 2011 to one of the top offshore and onshore drillers in MENA markets. This growth has been backed by a solid strategy to acquire legacy rigs at bargain prices, while maintaining an advantageous cost struc-ture. ADES is still planning to grow on the back of: i) recent capacity additions (11 idle rigs) and ii) adding an asset-light model to the mix, through utilising marketing agreements that are already in place with owners of idle rigs. The fresh injection of equity in 2017, along with new debt facilities, has allowed ADES to expand its fleet and widen its footprint in the MENA region. Now, the company will be shifting its strategy from a growth mode to focus on value extraction through expanding margins and utilising idle rigs. We have a Buy on ADES.

We value ADES using the DCF-based methodology, which yields a target price (TP) of USD27/share. The main assumptions used in our DCF analysis include: i) a risk-free rate of 6.3%, based on a weighted terminal EBITDA by country ii) an equity risk premium of 5.8% iii) a cost of debt of 7% iv) a debt-to-equity ratio of 25% and v) a termi-nal growth rate of 2.5%. We exclude the asset-light model because of delays in it materialising until now. We also exclude Admarine I from our numbers, since ADES’ client has the option to Buy after five years. We have incorporated the company’s recent acquisi-tions in our model (offsore and onshore), which should contribute gradually starting from 2H18. Upside risks to our numbers include: i) higher-than-expected dayrates ii) new contract awards and assetacquisitions and iii) faster-than-expected margin expansion for newly acquired rigs. Downside risks to our estimates include: i) lower-than-expected dayrates and margins ii) delays in contract renewals iii) higher-than-expected daily costs and iv) disruptions in operating rates due to prolonged maintenance activities.

BUY

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2017a 2018e 2019e 2020e

158 197 408 46980 94 176 20160 70 136 159(0) (4) (8) (10)

N/A N/A N/A N/A50 51 93 119

137 91 131 183588 882 1,025 1,111270 492 542 509318 390 483 602

76 359 319 218

80 90 168 191(26) 16 (21) (2)(52) (398) (74) (63)

0 0 0 01 (292) 73 126

135 246 (32) (75)132 (46) 41 52

1.13 1.17 2.12 2.730 0 0 1.772

7.27 8.91 11.03 13.76

12.4x 12.1x 6.7x 5.2x1.9x 1.6x 1.3x 1.0x7.7x 6.9x 3.7x 3.2x

-5.8% -10.8% 6.6% 8.4%0.0% 0.0% 0.0% 12.6%11.9x 10.2x 5.4x 4.7x

2.4x t1.3x 1.2x 1.2x22.8% 18.4% 29.6% 30.5%21.0% 14.4% 21.2% 22.0%

17.5% 25.3% 106.5% 15.1%13.5% 16.8% 87.8% 14.4%50.3% 47.9% 41.8% 42.9%50.9% 47.5% 43.2% 42.9%37.8% 35.6% 33.3% 33.8%

0.9% 8.0% 8.0% 8.0%0.2x 0.9x 0.7x 0.4x

Dec Year End) In USDmn, unless)otherwise statedIncome StatementRevenueEBITDANet operating profit (EBIT)Taxes or zakatMinority interestNet incomeBalance SheetCash and cash equivalentsTotal assetsTotal liabilitiesTotal equityTotal net debt (cash)Cash Flow StatementCash operating profit after taxesChange in working capitalCAPEXInvestmentsFree cash flowNet financingChange in cashPer Share Financial SummaryEPS (USD)DPS (USD)BVPS (USD)Valuation MetricsPrice to earningsPrice to book valuePrice to cash flowFCF yieldDividend yieldEV / EBITDAEV / Invested capitalROAICROAEKPIsRevenue growth (Y-o-Y)EBITDA growth (Y-o-Y)Gross profit marginEBITDA marginNet operating profit (EBIT) margin Effective tax rateNet Debt (Cash) / EquityNet Debt (Cash) / EBITDA 0.9x 3.8x 1.8x 1.1x

Source: ADES International Holding, EFG Hermes estimates

Closing Price USD14.1 as of 06 Dec 2018

Last Div. / Ex. Date N/A / N/A

Mkt. Cap / Shares (mn) USD617.5 / 43.8

Av. Daily Liquidity (mn) USD0.70

52-Week High / Low USD17.5 / USD12.3

Bloomberg / Reuters ADES LN / ADES.L

Est. Free Float 40.0%

Source: ADES International Holding, EFG Hermes estimates

Energy Equipment & Services

Energy

Yousef Husseini

[email protected]

Ahmed Hazem Maher

[email protected]

Data Miner Stock Data

Investment Thesis

Questions

Rating and risks

Target PriceRating

16

CIBwww.cibeg.com

EGP105BUY

Impact of proposed tax changes: assuming no increase in T-Bill yields, what will the impact be on your tax rate for a full year of the new tax calculation, as per the Ministry of Finance, and in accordance with the Egypt Banks Federation’s proposal?

Deposit mix: do you think there is further room for improving the structure of deposits? What is your strategy for retail deposit collection?

Why has fee income growth been slower than that of loan so far this year? Is this due to pricing competition?

What is your SME strategy, and what is the status of the 20% share of the loan book target by 2020 that was set by the Central Bank?

Will the proposed changes to the Tax Law alter your deposit-driven strategy going forward?

Commercial International Bank (CIB) is Egypt’s largest private sector bank by as-sets, with a lending market share of c7% and by market capitalisation. CIB’s market share is relatively small in the sector context, as Egypt’s three main state-owned banks account for c45% of sector assets. However, CIB has one of Egypt’s strongest corporate franchises, which has traditionally been its core business. CIB has also focused, in the past few years, on increasing its retail banking exposure a sector offering significant growth potential in Egypt, as household loans only account for c10% of nominal GDP. We like CIB’s positioning in the domestic market, its current focus on growing retail loans, and low credit risk profile, as it primarily banks with blue-chip Egypt corporates.

We derive our target price for CIB using a Discounted Equity Cash Flow (DECF) methodology. We calculate equity cash flows by sub-tracting from our net income estimates (a proxy for cash flows) the amount required to finance growth in risk-weighted assets so that the tier-1 ratio is maintained at an estimated 10% target level. We use our profit and balance sheet growth forecasts for seven years and calculate the terminal value for the business at the end of the forecast period (2024) based on a terminal perpetuity of 8.5%. We use a CAPM model to arrive at our discount rate of 17%. We use a risk-free rate of 12% and an equity risk premium of 5%. Key down-side risks to our estimates are: i) stronger-than-expected stress in the loan book and ii) a lack of revival of corporate lending demand in the next two years.

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Closing Price EGP69.4 as of 06 Dec 2018

Last Div. / Ex. Date EGP1.00 / 20 Mar 2018

Mkt. Cap / Shares (mn) EGP81,002 / 1,167

Av. Daily Liquidity (mn) EGP86.03

52-Week High / Low EGP95.0 / EGP69.4

Bloomberg / Reuters COMI EY / COMI.CA


Source: CIB, EFG Hermes estimates

Source: CIB, EFG Hermes estimates

Ahmed El-Shazly

[email protected]

Elena Sanchez-Cabezudo, CFA

[email protected]

2017a 2018e 2019e 2020e

12,504 13,981 15,315 17,1802,625 3,431 4,475 5,728

15,129 17,412 19,790 22,907(3,243) (3,710) (3,996) (4,156)11,886 13,703 15,794 18,752(1,857) (1,288) (915) (968)

291 0 0 010,320 12,415 14,879 17,783(2,781) (3,104) (3,571) (4,179)

(892) (1,057) (1,283) (1,544)6,647 8,254 10,025 12,060

88,427 102,241 126,666 160,520285,867 322,871 366,261 425,661168,619 195,598 244,498 303,177294,782 332,594 376,572 436,615250,723 279,614 315,463 362,324256,276 285,445 321,186 369,382

26,409 32,921 40,448 49,371

5.72 7.10 8.63 10.381.00 1.50 2.15 2.7022.7 28.3 34.8 42.522.7 28.3 34.8 42.5

12.1x 9.8x 8.0x 6.7x6.8x 5.9x 5.1x 4.3x3.1x 2.4x 2.0x 1.6x3.1x 2.4x 2.0x 1.6x

1.4% 2.2% 3.1% 3.9%2.4% 2.6% 2.8% 3.0%

28.6% 27.8% 27.3% 26.9%28.6% 27.8% 27.3% 26.9%12.1x 10.6x 9.7x 9.1x

3.8% 15.6% 23.9% 26.7%35.3% 36.6% 40.2% 44.3%29.0% 15.1% 13.7% 15.8%29.7% 15.3% 15.3% 18.7%24.8% 24.2% 21.4% 20.3%4.05% 4.07% 3.90% 3.75%17.3% 19.7% 22.6% 25.0%21.4% 21.3% 20.2% 18.1%

7.0% 6.7% 6.3% 6.0%154.4% 153.0% 140.8% 124.6%

174.7 117.0 70.0 60.016.2% 16.8% 16.4% 16.2%

(Dec Year End) In EGPmn, unless otherwise statedIncome StatementNet interest incomeNon interest incomeTotal banking income Operating expensesOperating incomeTotal provisionsOther income / (expense) Income before taxes or zakat Taxes or zakatMinorities & other itemsNet incomeBalance Sheet - Key Highlights Customer loansTotal interest earning assets Risk-weighted assetsTotal assetsCustomer depositsTotal interest bearing liabilities Common shareholders' equity Per Share NumbersEPS (EGP)DPS (EGP)BVPS (EGP)BVPS (EGP) (tangible)Valuation MetricsPrice to earningsPrice to pre-provision earnings Price to book valuePrice to book value (tangible)Dividend yieldROAAROAEROAE (tangible)Leverage (Assets / Equity)KPIsLoan growth (Y-o-Y)Loans / DepositsBanking income growth (Y-o-Y) Operating income growth (Y-o-Y) Earnings growth (Y-o-Y)Net interest spreadNon-interest income / Banking inc. Cost-to-incomeNPL ratioNPL coverageCost of risk (bps)Tier 1 ratioCapital adequacy ratio 19.3% 19.5% 18.6% 18.0%

BanksFinancials


Investment Thesis Rating and risks

Target PriceRating

18

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Questions

www.cairoinvest.com.egEGP9.20CIRA

BUY

When do you expect full capacity to be reached? To what extent could margins improve further, with the rise in enrolment and change in mix (K-12 vs. higher ed)?

What is the current utilisation level across the university’s different faculties? Why has ramp-up been slow at some academic majors, such as business and lin-guistics? How quickly do you expect student figures to ramp up for the new faculties that will be launched? What is the optimal utilisation rate per faculty?

How is the competitive environment in the higher-ed segment evolving? Are there any new players coming to the market or an existing player that is adding capacity? What is Badr University’s current market share? How does CIRA differentiate its offering vs other players?

Has the company secured land/permits needed to launch its Assiut University branch? How significant of a contribution will it have to the total higher education segment? Will branding and tuition be the same as BUC? Will it have a negative impact on margins?

What is your guidance on average growth in tuition per student in the K-12 and higher education segments? Is there any regulation on tuition fees in either seg-ment? How aggressive is the company’s new school opening plan?

CIRA is Egypt’s largest integrated education provider operating in the K-12 and higher-education segments. CIRA operates 19 schools (c50% of FY17/18e revenue, c34% of EBITDA) in six governorates offering affordable mid-income education (avg. tuition EGP12k) and plans to add six more in four years (capacity +21% to c32k capex EGP245mn). In higher-ed, CIRA opened Badr University in Cairo (BUC) in 2014 on the east side of Cairo (c50% of revenue and c66% of EBITDA, to rise to c68% and c81%, respectively, by FY22/23e), with a current capacity of 13k (nine faculties) and utilisation of c60% (FY18/19e). CIRA will add seven new faculties to BUC over five years (capacity to more than double to 28.9k capex EGP415mn) and build a second campus in Assiut by FY20/21e (four faculties, c4.8k students initially, capacity +37% capex EGP335mn). We are Buyers of CIRA as the large room to ramp-up utilisation, in addition to large capacity additions, in an underserved market will drive a c29% 5YR revenue CAGR. Earnings will grow at a faster pace (c42%) on margin improvement mainly from greater contribution from higher ed (c55% EBITDA margin vs. c29% for K-12). We also like the company’s impressive profitability profile (FY17/18e RoAE: c29%, RoAIC: c24%, net margin c23%), its neg-ative cash conversion cycle (60-70% of tuition collected before start of academic year) and low leverage.

We value CIRA using a five-year DCF methodology yielding a target price of EGP9.2/share. Key upside risks include: i) faster-than-expect-ed capacity expansions (new majors and/or additional universities and schools) ii) better-than-expected ramp-up of utilisation (especial-ly for non-science majors at BUC) iii) higher-than-expected tuition in-creases (we assume c10% p.a. for K-12, c7% for higher ed) iv) better margin improvement mainly on scale benefits in higher ed v) low-er-than-expected staff cost increases (c63% of cash costs) vi) disposal of non-core real estate assets (10 buildings and an undeveloped land plot in Cairo valued at EGP208mn expected in two-three years) and vii) associate income from ‘CAPMED’ (25% stake in greenfield megahospital project in the New Administrative Capital). Key downsiderisks include: i) delays in new capacity additions and/or difficultyin ramping up utilisation ii) lower-than-expected tuition growth iii)margin pressure from staff cost inflation and/or negative mix impact(faster growth in K-12 that has lower margins) iv) difficulty in staffingteachers v) competition from new entrants especially in higher edvi) weaker-than-expected cash conversion cycle vii) regulatory risks(price controls, etc.) and viii) key person risk.

19

Source: Cairo Investment & Real Estate Development (CIRA), EFG Hermes estimates

Diversified Consumer ServicesConsumer

Nada Amin

[email protected]

Hatem Alaa, CFA

[email protected]

Mirna Maher

[email protected]

(Aug Year End) In EGPmn, unless otherwise stated 2017a 2018e 2019e 2020e

Income StatementRevenue 347 522 694 868EBITDA 136 219 309 399Net operating profit (EBIT) 97 175 257 328Taxes or zakat (22) (37) (57) (73)Minority interest (5) (6) (7) (10)Net income 53 120 190 231Balance SheetCash and cash equivalents 55 57 202 165Total assets 840 920 1,333 1,667Total liabilities 419 409 483 696Total equity 420 511 850 971Total net debt (cash) 65 36 (124) 35Cash Flow StatementCash operating profit after taxes 114 183 252 326Change in working capital 25 (0) (0) (0)CAPEX (75) (94) (270) (385)Free cash flow 63 89 (18) (59)Net financing (62) (78) 191 41Change in cash 4 2 145 (36)Per Share Financial SummaryEPS (EGP) 0.097 0.219 0.347 0.421DPS (EGP) 0.036 0.055 0.113 0.218BVPS (EGP) 0.69 0.85 1.45 1.66Valuation MetricsPrice to earnings 82.3x 36.5x 23.0x 19.0xPrice to book value 11.5x 9.4x 5.5x 4.8xPrice to cash flow 31.7x 24.0x 17.4x 13.4xFCF yield 0.9% 1.5% -0.8% -1.9%Dividend yield 0.5% 0.7% 1.4% 2.7%EV / EBITDA 34.2x 21.2x 15.1x 11.7xEV / Invested capital 9.4x 8.3x 6.3x 4.5xROAIC 15.2% 23.6% 25.3% 23.5%ROAE 17.4% 28.8% 30.5% 27.3%KPIsRevenue growth (Y-o-Y) 24.8% 50.5% 32.9% 25.1%EBITDA growth (Y-o-Y) 17.8% 61.8% 41.0% 29.0%Gross profit margin 41.9% 49.2% 51.3% 51.5%EBITDA margin 39.1% 42.0% 44.6% 46.0%Net operating profit (EBIT) margin 28.0% 33.5% 37.1% 37.8%Effective tax rate 25.3% 22.5% 22.5% 22.5%Net Debt (Cash) / Equity 0.2x 0.1x (0.1)x 0.0xNet Debt (Cash) / EBITDA 0.5x 0.2x (0.4)x 0.1x

Source: Cairo Investment & Real Estate Development (CIRA), EFG Hermes estimates

Data Miner Stock DataClosing Price EGP8.00 as of 06 Dec 2018

Last Div. / Ex. Date EGPN/A / N/A

Mkt. Cap / Shares (mn) EGP4,382 / 547.8



Bloomberg / Reuters CIRA EY / CIRA.CA


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www.cleopatrahospital.comCleopatra Hospitals

How has the company been able to increase average revenue per patient? What is the expected increase in prices going forward?

What are the key expected drivers of growth (i.e., patient figures for both inpatient and outpatient), pricing, margin management, etc.?

Do you foresee any room for further cost efficiencies (centralisaton, etc.)?

Do you have any updates regarding the renovations at Cairo Specialized Hospital (CSH) and expansions at existing hospitals, as well as Greenfield projects (Beni Suef hospital, etc.)?

What are the criteria for acquisition targets (tier, size, etc.)? Are there any updates on other impending acquisitions (West and North Cairo acquisitions)?

Cleopatra Hospitals Group (CHG) is the largest private hospital operator in Egypt. The company owns four hospitals, with 643 beds, including 420 rooms (treating c50k inpatients annually) and 65 clinics (serving over 870k cases per annum). The four hospitals are located in prime locations in Cairo, have a strong track record and are well-known brands: Cleopatra Hospital (47% of 3Q18 revenues), Cairo Spe-cialized Hospital (CSH; 19%; 53.7%-owned), Nile Badrawi Hospital (NBH; 17%) and Al Shorouk Hospital (16%). It is also assessing a number of expansion and acquisi-tion opportunities (detailed in the investment thesis).

CHG operates in Egypt’s high-growth, under-penetrated healthcare market, with a significant market share (operates four of the top 10 hospitals) and with several expansions in the works. The company is planning to continue leveraging on scale and extract synergies. CHG has proven to be resilient to inflationary pressures in Egypt post the EGP floatation – it has managed to maintain profitability levels in 2017 and improve it significantly in 2018e. CHG raised EGP700mn via a rights issue in 4Q17, mainly to fund hospital acquisitions and pay down debt. The Group is planning to launch its polyclinic model in 1Q19 and has signed definitive agreements to acquire a fifth hospital in West Cairo (pending regulatory approval), which should add c92 beds to total capacity. It will also lease and operate a 50-bed hospital in East Cairo and is assessing some brownfield acquisitions. Also, the BoD entered a JV with Taaleem to complete a 200-bed hospital in Up-per Egypt. In the medium to long term, the company should benefit from the recently issued Universal Healthcare Act.

(Dec Year End ) In EGPmn, unless otherwise stated 2015a 2016a 2017a 9M2018a

(TTM)

Income StatementRevenue 410 864 1,127 1,382 EBITDA 108 177 216 333 Net operating profit (EBIT) 98 145 176 290 EBT 96 120 155 340 Net income 67 76 106 248 Balance SheetCash and cash equivalents 110 440 1,007 964 Current assets 234 637 1,250 1,360 Net fixed assets 267 397 473 517 Intangibles & others 97 246 385 241 Total assets 598 1,280 2,107 2,262 Current liabilities (Including debt) 185 284 355 276 Long-term liabilities (Including debt) 254 386 366 398 Total liabilities 439 670 721 673 Total net worth 126 566 1,330 1,520 Minority interest 33 45 56 68 Total equity & liabilities 598 1,280 2,107 2,262 Total net debt (cash) (22) (61) (655) (763)Cash Flow StatementCF from operations 171 85 175 205 CF from investments (380) (612) 116 63 CF from finance & non operating CF 203 525 660 515 Per Share Financial SummaryEPS (EGP) 0.05 0.05 0.07 0.16DPS (EGP) N/A N/A N/A N/ABVPS (EGP) 0.08 0.35 0.83 0.95Valuation MetricsPrice to earnings 90.5x 79.1x 58.3x 27.7x Price to book value 54.6x 12.2x 5.2x 4.5x FCF yield -14.9% 0.7% 7.0% 8.9%Dividend yield 0.0% 0.0% 0.0% 0.0%EV / EBITDA 57.5x 34.9x 28.7x 18.6x ROAIC 45.8% 21.0% 12.1% 18.0%ROAE 51.1% 22.1% 11.1% 11.4%KPIsRevenue growth (Y-o-Y) 41.1% 111.1% 30.3% 30.0%EBITDA margin 26.3% 20.5% 19.1% 24.1%Net operating profit (EBIT) margin 24.0% 16.8% 15.6% 21.0%Effective tax rate -28.2% -25.5% -23.9% -17.2%Net debt (cash) / equity (0.1)x (0.1)x (0.5)x (0.5)xNet debt (cash) / EBITDA (0.2)x (0.3)x (3.0)x (2.3)x

Investment ThesisBusiness Description

21

Nada Amin

[email protected]

Hatem Alaa, CFA

[email protected]

Health Care Providers & Services Health Care

(Dec Year End ) In EGPmn, unless otherwise stated

2015a 2016a 2017a 9M2018a (TTM)

Income StatementRevenue 410 864 1,127 1,382 EBITDA 108 177 216 333 Net operating profit (EBIT) 98 145 176 290 EBT 96 120 155 340 Net income 67 76 106 248 Balance SheetCash and cash equivalents 110 440 1,007 964 Current assets 234 637 1,250 1,360 Net fixed assets 267 397 473 517 Intangibles & others 97 246 385 241 Total assets 598 1,280 2,107 2,262 Current liabilities (Including debt) 185 284 355 276 Long-term liabilities (Including debt) 254 386 366 398 Total liabilities 439 670 721 673 Total net worth 126 566 1,330 1,520 Minority interest 33 45 56 68 Total equity & liabilities 598 1,280 2,107 2,262 Total net debt (cash) (22) (61) (655) (763)Cash Flow StatementCF from operations 171 85 175 205 CF from investments (380) (612) 116 63 CF from finance & non operating CF 203 525 660 515 Per Share Financial SummaryEPS (EGP) 0.05 0.05 0.07 0.16DPS (EGP) N/A N/A N/A N/ABVPS (EGP) 0.08 0.35 0.83 0.95Valuation MetricsPrice to earnings 90.5x 79.1x 58.3x 27.7x Price to book value 54.6x 12.2x 5.2x 4.5x FCF yield -14.9% 0.7% 7.0% 8.9%Dividend yield 0.0% 0.0% 0.0% 0.0%EV / EBITDA 57.5x 34.9x 28.7x 18.6x ROAIC 45.8% 21.0% 12.1% 18.0%ROAE 51.1% 22.1% 11.1% 11.4%KPIsRevenue growth (Y-o-Y) 41.1% 111.1% 30.3% 30.0%EBITDA margin 26.3% 20.5% 19.1% 24.1%Net operating profit (EBIT) margin 24.0% 16.8% 15.6% 21.0%Effective tax rate -28.2% -25.5% -23.9% -17.2%Net debt (cash) / equity (0.1)x (0.1)x (0.5)x (0.5)xNet debt (cash) / EBITDA (0.2)x (0.3)x (3.0)x (2.3)x

Source: Cleopatra Hospitals

Closing Price (EGP) EGP4.30 on 06 Dec 2018

MKT Cap (mn) / Shares (mn) EGP6,880 / 1,600


52-week High / Low EGP5.84 / EGP3.20

Bloomberg / Reuters CLHO EY / CLHO.CA


Source: Cleopatra Hospitals


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Target PriceRating

22

Dicewww.dicefactory.net

EGP35.0BUY

Why did volumes disappoint in 9M18? Is the company facing pricing pressure, and have clients demanded any discounts? What will drive revenue to its targets of EGP1.5bn for 2018 and EGP2.0bn in 2019? How quickly is the local business expected to grow, and will it be more price- or volume-driven?

What has been driving the recent margin decline? Where are margins expected to stabilise at? Is ACC on track with its profitability turnaround plan? How quickly is the company planning to ramp up utilisation at Cairo Cotton Center (CCC)? Are there plans to purchase the CCC facilities?

How is the company working to improve its key client exposure risk?

Does the company need additional capacity increases? Are there any acquisitions being considered?

What caused the worsening of the company’s working capital cycle? What are the targeted inventory days?

Established in 1989, Dice Sport and Casual Wear is a major integrated garment manufacturer with significant export exposure. It operates 18 sewing, dyeing and knitting facilities, plus two screen print facilities and 136 retail stores, giving it con-trol over the entire value chain. Dice is one of Egypt’s leading garment exporters (c70% of 9M17 revenues, c59% of gross profit). Accordingly, it has been a major beneficiary of the EGP floatation (USD revenues c70% of sales vs. cash costs at c28%). Client concentration is high, with two clients representing more than 90% of exports in 1H17. A deal to rent six facilities from Cairo Cotton Center (CCC) for three years (renewable) from 2018e nearly doubles capacity and adds Inditex and Levi’s to the company’s client roster (top two clients to drop to c65% of exports in ST). In 2011, Dice tapped into Egypt’s high-potential retail market (c12%, c17%), mainly selling men’s underwear. Dice is also one of a few large players offering dyeing services (c14%, 22%) after it completed three acquisitions (c45% of pro-duction used internally). The company also operates three knitting facilities, all of which sell c100% of their volumes internally. We have a Buy rating on Dice as its valuation is attractive with the company poised to deliver strong earnings growth in 2018e (+28% Y-o-Y) due to increased export orders from CCC.

We value Dice using a discounted cash flow (DCF) methodolo-gy, yielding a TP of EGP35.0/share. Upside risks include: i) fast-er-than-expected volume growth in main export markets through new and repeat orders, ii) further devaluation of the EGP, which would result in higher margins (we assume EGP/USD of 16.5), iii) shorter inventory days on hand, iv) continued strong growth in retail sales on store network expansion (target to open 20-25 stores per annum), v) an extension of Egypt’s export rebate programme (fac-tored into forecasts until 2021e), and vi) value accretive acquisitions to add capacity and/or increase integration. Downside risks include: i) higher client concentration, ii) weaker export volumes and/orpressure for price discounts from key clients, iii) longer-than-expect-ed working capital cycle, and, accordingly, leverage, mainly due to elevated inventory levels to meet export orders, iv) unfavourable changes to the export rebate programme (c27% of 9M17 recurring earnings), v) tougher competition in the retail segment leading to higher SG&A costs, vi) margin pressures due to a surge in raw material prices (48% of total cash costs, c75% of which are import-ed) and/or labour costs (c29%), vii) key person risk, and viii) trade disruptions.

23

Textiles, Apparel & Luxury GoodsConsumer

2017a 2018e 2019e 2020e

1,149 1,601 1,805 2,054288 370 423 488263 342 393 456(20) (65) (79) (96)

(2) (2) (2) (3)172 221 244 295

26 45 90 1061,169 1,369 1,600 1,829

973 951 1,045 1,106196 418 556 722639 603 456 403

268 306 344 365(272) (164) (116) (132)

(57) (51) (39) (42)(61) 91 188 191

1 (72) (144) (202)(48) 19 45 16

3.25 4.16 4.60 5.560 0 2.046 2.471

3.43 7.59 10.15 13.24

4.8x 3.8x 3.4x 2.8x4.6x 2.1x 1.5x 1.2xN/M 5.9x 3.7x 3.6x

-7.4% 10.9% 22.7% 23.0%0.0% 0.0% 13.0% 15.7%5.2x 4.0x 3.8x 3.3x1.8x 1.5x 1.5x 1.3x

33.8% 28.9% 26.5% 28.1%226.0% 76.1% 52.2% 47.7%

59.2% 39.3% 12.8% 13.8%92.1% 28.3% 14.4% 15.3%30.3% 28.2% 28.7% 29.1%25.1% 23.1% 23.5% 23.8%22.9% 21.4% 21.8% 22.2%10.0% 22.5% 22.5% 22.5%

3.3x 1.4x 0.8x 0.6x

Dec Year End) In EGPmn, unless)otherwise statedIncome StatementRevenueEBITDANet operating profit (EBIT)Taxes or zakatMinority interestNet incomeBalance SheetCash and cash equivalentsTotal assetsTotal liabilitiesTotal equityTotal net debt (cash)Cash Flow StatementCash operating profit after taxesChange in working capitalCAPEXFree cash flowNet financingChange in cashPer Share Financial SummaryEPS (EGP)DPS (EGP)BVPS (EGP)Valuation MetricsPrice to earningsPrice to book valuePrice to cash flowFCF yieldDividend yieldEV / EBITDAEV / Invested capitalROAICROAEKPIsRevenue growth (Y-o-Y)EBITDA growth (Y-o-Y)Gross profit marginEBITDA marginNet operating profit (EBIT) margin Effective tax rateNet Debt (Cash) / EquityNet Debt (Cash) / EBITDA 2.2x 1.6x 1.1x 0.8xSource: Dice, EFG Hermes estimates

Nada Amin

[email protected]

Hatem Alaa, CFA

[email protected]



Mkt. Cap / Shares (mn) EGP832.1 / 53.0



Bloomberg / Reuters DSCW EY / DSCW.CA


Source: Dice, EFG Hermes estimates


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24

Domtywww.domty.org

EGP14.0BUY

What sustainable growth rate is the company targeting for its cheese segment? What caused volumes to be flat in 3Q18? How has market share evolved over the past year, and how has the company been able to maintain a leading market position?

Is there a need for further price increases (especially since margins dropped in 3Q18)? Does the company think of price increases as likely to be in line with infla-tion? Has the pricing environment been different for juice vs cheese?

What is the normalised gross margin level for Domty? What is the outlook for SMP pricing (and contribution to cost base)? Has the company changed its raw materials mix over 2016-17 to include more local components?

How is the newly introduced “Domty Sandwich” product faring? What is its target contribution to top-line? Will distribution/marketing expenses see a step-up to support the product?

Is there a targeted receivable collection period? What is the contribution and collection period of government sales, and is there a plan to reduce it? What is the ultimate target contribution of agents to total business?

Established in 1990, Domty is Egypt’s largest white cheese producer (c40% overall cheese market share), owing to its positioning in carton pack cheese (c73% of 2017 revenues). Its first diversification away from cheese was in 2013, with the launch of juice (c11%, number five, c7-8% market share) and will further diversify with the launch of cheese sandwich and hard cheese (largest cheese segment) as well as other products in 2018. Domty has ample room to grow after raising capacity c37% in 2016 (c317k tpa capacity of which 101k in juice), leveraging on a new second factory (23 lines in both). It has 530 sales vehicles and 35 distibution branches. Exports represent c7% of revenues, and there are plans to increase international revenues with a focus on sub-Saharan Africa. Given that Domty is Tetra Pak’s larg-est white cheese producer client globally, it receives benefits, including discounts and flexible machinery payment terms. Domty injected cEGP300mn from its 2016 IPO proceeds, mainly to reduce reliance on agents (used to be 30%+ of local sales in 2015, negligible now) via deploying 300 vehicles. We have a Buy rating on Domty as: i) carton pack white cheese has proven to be one of the fastest food items to see volume recovery, and ii) the company’s strategy to restore profitability to 2015 levels is bearing fruit.

We value Domty using a discounted cash flow (DCF) methodology, yielding a target price of EGP14.00/share. Upside risks include: i) faster-than-expected volume recovery, ii) capacity additions, iii) better margins on lower input costs, new products/SKUs and/or cost optimisation, iv) shorter receivable collection period (long due to sales to government – 20%+ of total), v) acceleration in exports and international revenues, vi) fast ramp-up of planned new products (cheese sandwich and hard cheese) and any further diversifica-tion efforts, vii) higher-than-expected product prices, and viii) any value-accretive acquisitions. Downside risks include: i) prolonged weakness in volumes post aggressive price increases, ii) competition risk (especially from Obour Land), iii) FX risk, as 70%+ of the compa-ny’s raw materials are USD-linked, iv) a spike in prices of main inputs (SMP, vegetable oils, etc.), v) difficulty in raising product prices to pass on large cost increases (most challenging for on-the-go SKUs), vi) longer receivable collection days, vii) elimination/reduction ofTetra Pak benefits, viii) weak uptake of new ventures, and ix) keyperson risk.

25

Food Products Consumer

Nada Amin

[email protected]

Hatem Alaa, CFA

[email protected]

(Dec Year End) In EGPmn, unless otherwise stated 2017a 2018e 2019e 2020e

Income StatementRevenue 2,253 2,727 3,179 3,671EBITDA 218 343 486 564Net operating profit (EBIT) 174 288 422 486Taxes or zakat (22) (45) (76) (92)Minority interest (0) 0 0 0Net income 44 141 236 286Balance SheetCash and cash equivalents 129 204 336 490Total assets 1,750 1,935 2,191 2,483Total liabilities 1,203 1,294 1,418 1,584Total equity 547 641 772 899Total net debt (cash) 655 577 450 308Cash Flow StatementCash operating profit after taxes 196 292 395 445Change in working capital (87) (30) (35) (41)CAPEX (118) (50) (55) (61)Free cash flow (9) 212 304 344Net financing (45) (9) (58) (119)Change in cash (159) 75 132 154Per Share Financial SummaryEPS (EGP) 0.16 0.50 0.84 1.01DPS (EGP) 0 0.166 0.371 0.562BVPS (EGP) 1.94 2.27 2.73 3.18Valuation MetricsPrice to earnings 58.1x 18.2x 10.8x 8.9xPrice to book value 4.7x 4.0x 3.3x 2.8xPrice to cash flow 23.3x 9.7x 7.1x 6.3xFCF yield -1.0% 6.1% 7.0% 9.6%Dividend yield 0.0% 1.8% 4.1% 6.2%EV / EBITDA 15.7x 10.2x 7.2x 6.2xEV / Invested capital 2.8x 2.7x 2.7x 2.8xROAIC 11.0% 16.5% 21.4% 22.3%ROAE 8.4% 23.6% 33.4% 34.2%KPIsRevenue growth (Y-o-Y) 32.4% 21.0% 16.6% 15.5%EBITDA growth (Y-o-Y) 71.8% 57.7% 41.7% 15.9%Gross profit margin 20.4% 23.0% 25.5% 25.5%EBITDA margin 9.7% 12.6% 15.3% 15.4%Net operating profit (EBIT) margin 7.7% 10.6% 13.3% 13.2%Effective tax rate 26.7% 22.5% 22.5% 22.5%Net Debt (Cash) / Equity 1.2x 0.9x 0.6x 0.3xNet Debt (Cash) / EBITDA 3.0x 1.7x 0.9x 0.5x

Source: Domty, EFG Hermes estimates






Bloomberg / Reuters DOMT EY / DOMT.CA


Source: Domty, EFG Hermes estimates


26

Investment ThesisBusiness Description

Notes

www.efghermes.comEFG Hermes Holding

..........................................................................................................................................................................................................................................................................................................

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EFG Hermes Holding is the leading financial services corporation, headquartered in Egypt, with presence in the UAE, Saudi Arabia, Kuwait, Jordan, Oman, Kenya, Pakistan, Bangladesh, Nigeria, USA and UK. The company offers diverse financial services through the investment bank and non-bank finance platforms. The invest-ment bank platform offers sell-side, buy-side and merchant-banking services. The sell side includes a brokerage arm that holds leading positions across MENA and Frontier markets, with a notable research house that covers MENA and Frontier markets and an investment banking division, with total executions exceeding USD85bn to successfully top the Thomson Reuters ECM leage tables in 2017. The buy-side services include an Egypt and a regional asset manager with total AuMs of USD3.1bn, following its strategic investment in frontier investment management ‘FIM’ and a growing private equity arm with USD1.6bn of AuMs, which mainly manages European renewable energy (Vortex) that produces a total capacity of 822MW. Leveraging on a liquid balance sheet, the company offers merchant-bank-ing activities, equity and debt-underwriting services, and provides financing facilities. The non-bank finance platform (NBFIs) includes Leasing, Tanmeyah and recently launched businesses: the instalment sale services (valU) and Factoring. The platform continues to grow, with the Leasing business’s outstanding portfolio reaching EGP2.8bn and its micro-finance player’s (Tanmeyah) outstanding portfolio having reached EGP2.6bn by end of 9M18.

EFG Hermes’ Strategic Plan 2020 focuses on growing its operations in MENA and Frontier markets by offering a wide variety of products that cater to retail, institutional and corporate clients. The company has successfully implemented its strategy to establish a Frontier House by tapping several Frontier markets, expanding its presence beyond the MENA region. EFG Hermes now operates in Pakistan, established Greenfield presence in Kenya, opened an office in Bangladesh and completed an acquisition in Nigeria. The company is committed to continuing its focus on achieving more stable revenues and earnings through growing the non-banking finance platform by developing its existing businesses and offering a wider suite of products/businesses that complement the existing ones. In addition, it is also keen on growing its public and private AuMs organically and inorganically. As EFG Hermes continues to enjoy a liquid balance sheet, it offers new products, including equity and debt underwrit-ing, in addition to providing financing facilities to its clients.

27

Diversified FinancialsFinancials

Mohab Bakr

[email protected]

Hanzada Nessim

[email protected]

Closing Price EGP13.98 on 06 Dec 2018

Bloomberg / Reuters HRHO EY/HRHO.CA

MKT Cap (mn) / Shares (mn) EGP10.7mn/768.6mn

3M ADVT (mn) EGP29.2 mn

Float 66%

Foreign Ownership Limit No Limit

Source:

(Dec Year End) In EGPmn, unless otherwise stated 2016a* 2017a 9M18

Income StatementNet Interest Income 61 334 477Non Interest Income 3,965 3,336 2,573Total Revenue 4,026 3,670 3,051Operating Expenses 1,939 2,200 2,041Net Income before Tax 1,814 1,377 920Net Income 1,616 1,250 767Balance SheetCash & Due from banks 11,508 9,634 7,644Investments at fair value through P&L 1,908 14,811 5,466

Loans to customers 923 866 2,120AFS Investments 2,648 4,189 8,906Net Fixed Assets 207 224 164Net Leased Assets 1,179 1,984 2,497Assets held for sale 1,057 - 627Other Assets 3,333 9,545 7,531Total Assets 22,763 41,252 34,956Due to Banks & Fin. Institutions 727 6,727 5,185Customers' Deposits - - - Accounts Payable 4,313 16,000 9,655Creditors and other credit balances 1,661 1,697 1,758Provisions 502 512 429Other Liabilities 1,742 2,395 3,317Total Liabilities 8,945 27,331 20,344Total Shareholders' Equity 13,818 13,921 14,612Per Share Financial SummaryEPS 2.6 2.0 1.1DPS 0 0 0BVPS 22.3 22.6 19.0Valuation MetricsP/E (x) 8.1 10.7 12.6Dividend Yield N/A N/A N/AP/BV (x) 0.9 1.0 0.7KPIs (Annualized)Group Operating Revenue Growth 53% -9% 7% Group Operating Expenses Growth 16% 12% 25%Group Net Profit Growth 149% -13% -27%Group Net Profit Margin 40% 34% 24%Employee Expenses/Operating Revenue 35% 39% 43%

Source: EFG Hermes

EFG Hermes

* Credit Libanais was deconsolidated in 2Q16, thus the figures above reflects theInvestment Bank performance


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Target PriceRating

28

Elsewedy Electricwww.elsewedyelectric.com

EGP23.0BUY

What is the company’s strategy pertaining to its sizable cash balances? Are there plans for M&A, sizable capex spending, or will there be sizable dividends going forward?

How has cables demand progressed, specifically in the Saudi market, given a relative slowdown in capex spend?

How have African markets fared, in terms of demand for SWDY products? Does management see larger contribution from African markets going forward?

Management has indicated that SWDY would be pushing ahead with infrastructure projects going forward (such as sewage and rail); are there any developments in these new ventures?

The Tanzania dam project is likely to be a sizable addition to SWDY’s portfolio (USD3bn). What is the likely duration of the contract and SWDY’s scope?

With an annual cable capacity of c277k tonnes, Elsewedy Electric is a global power components manufacturer and integrated energy solutions provider, selling to Africa (Egypt 52% of revenue, other African countries 17%), GCC (22%) and Europe (7%). SWDY operates a well-diversified business model in: i) wire & cable manufac-turing (52% of 2016’s cash profit) ii) turnkey solutions (34%of 2016’s cash profit) and iii) electrical products (14% of 2016’s cash profit) as well as iv) owning a 65MW solar plant in Egypt (USD70mn investment cost, commencing operations by 2019). This model helped the company weather political instability and relatively weaker demand in some of its operational markets. With a primary focus on power gener-ation projects and ongoing expansion in Egypt’s power grid, the turnkey projects’ backlog has seen significant additions. We think the company will continue to en-joy a substantial market share in the turnkey segment and maintain a normalised project execution level of EGP17bn per annum. With most major turnkey projects set to be completed in 2018, we think SWDY is well positioned to benefit from Egypt’s next wave of investment in transmission lines, venturing into infrastructure projects, and increasing exposure in GCC and Africa.

We value Elsewedy Electric using the discounted cash flow (DCF) methodology, which yields a target price (TP) of EGP23/share. We as-sign a cost of equity of c14% and a terminal growth rate of 4%. Upside risks to our numbers include: i) sustained additions to turnkey projects backlog in the Middle East and Africa ii) faster-than-expected recovery in cable demand in the GCC, Egypt, as well as restoration of orders from politically unstable countries in the region and iii) entry into large build-operate-transfer (BOT) or independent power producer (IPP) projects, such as the proposed 500MW wind project. Downside risks include: i) delays in turnkey deliveries or demand slowdown in main markets ii) delays in receivables collection and iii) stronger-than-ex-pected EGP vs. our estimate of EGP17.5/USD. We assign a Buy rating for Elsewedy Electric.

29

Alaa Saleh Aly

[email protected]

Ahmed Hazer Maher

[email protected]

Electrical EquipmentIndustrials


Last Div. / Ex. Date EGP8.00 / 20/6/2018




Bloomberg / Reuters SWDY EY / SWDY.CA


Source:


Income StatementRevenue 42,911 48,724 51,129 53,422EBITDA 7,532 5,710 6,311 6,580Net operating profit (EBIT) 6,983 5,121 5,682 5,915Taxes or zakat (1,184) (1,197) (1,296) (1,363)Minority interest (119) (105) (105) (111)Net income 6,241 4,869 4,881 5,145Balance SheetCash and cash equivalents 9,073 8,395 8,461 8,191Total assets 42,427 41,462 39,503 40,038Total liabilities 28,272 24,510 20,253 18,480Total equity 14,156 16,952 19,250 21,558Total net debt (cash) 497 (1,368) (2,453) (3,306)Cash Flow StatementCash operating profit after taxes 6,348 4,513 5,015 5,218Change in working capital (242) (204) (920) (1,205)CAPEX (977) (1,470) (1,023) (1,015)Investments 33 0 0 0Free cash flow 5,162 2,839 3,072 2,998Net financing (5,165) (4,308) (3,701) (4,012)Change in cash 550 (678) 66 (270)Per Share Financial SummaryEPS (EGP) 2.92 2.31 2.32 2.44DPS (EGP) 1.60 1.20 1.20 1.40BVPS (EGP) 6.19 7.44 8.47 9.51Valuation MetricsPrice to earnings 4.8x 6.1x 6.1x 5.8xPrice to book value 2.3x 1.9x 1.7x 1.5xPrice to cash flow 5.0x 7.1x 7.5x 7.7xFCF yield 16.8% 9.2% 10.0% 9.8%Dividend yield 11.4% 8.5% 8.5% 10.0%EV / EBITDA 4.3x 5.7x 5.2x 5.0xEV / Invested capital 2.2x 2.0x 1.9x 1.7xROAIC 47.0% 31.7% 32.9% 31.6%ROAE 52.0% 33.9% 29.1% 27.2%KPIsRevenue growth (Y-o-Y) 74.1% 13.5% 4.9% 4.5%EBITDA growth (Y-o-Y) 51.3% -24.2% 10.5% 4.3%Gross profit margin 21.1% 15.1% 15.6% 15.6%EBITDA margin 17.6% 11.7% 12.3% 12.3%Net operating profit (EBIT) margin 16.3% 10.5% 11.1% 11.1%Effective tax rate 15.4% 18.9% 20.1% 20.0%Net Debt (Cash) / Equity 0.0x (0.1)x (0.1)x (0.2)xNet Debt (Cash) / EBITDA 0.1x (0.2)x (0.4)x (0.5)x

Source: Elsewedy Electric, EFG Hermes estimates

Elsewedy Electric, EFG Hermes estimates


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Target PriceRating

30

Juhaynawww.juhayna.com

EGP14.5BUY

When are volumes expected to return to 2015 levels? What measures have been taken to regain volume growth? Has the company implemented all necessary price increases to restore its gross margin, and will further price increases be mostly in line with inflation?

What has the competitive environment been like for the different segments, especially juice, where there is head-to-head competition with Almarai? Is promo-tional activity more rational now? How does the company maintain its leading milk market share?

What are the updates on the joint venture with Arla? How significant is the cheese segment expected to be for the business? How have cheese sales been faring, and what is the company’s pricing relative to the market?

What is the company’s raw materials split? How are SMP and raw milk prices expected to change in the coming year, and is there a change in the ingredients to include more of a localised raw milk component?

In 2017, the company took several steps to increase cost efficiency (capacity reduction, layoffs, etc.). Is there room for further cost-cutting, and what are the company’s targeted margin levels?

Established in 1983, Juhayna is Egypt’s leading dairy and juice producer, with 62% market share in plain milk, 32% in spoonable yoghurt (55% drinkable) and 21% in juice. Dairy is the largest contributor to revenues (48% in 2017), followed by yo-ghurt (22%) and juice (20%). The company has seven production facilities (two for dairy, two for yoghurt, one for juice and two for concentrates). Juhayna’s compet-itive edge lies in its strong brand equity and unmatched distribution network (29 distribution centres and a fleet of 1.2k+ vehicles, covering c50k retail outlets in 26 governorates). The company has been working to backward-integrate its business by establishing agricultural and dairy farms to have some raw milk self-sufficiency (c4k milking cows providing c10% of needs). We expect the company to contin-ue to benefit from: i) its leading position in a fast-growing market with immense potential, driven by conversion from loose to packaged milk (only 43% of con-sumption), ii) Egypt’s low per-capita consumption (13kg for dairy, 2kg for yoghurt and 7kg for juice), and iii) a relatively flexible pricing environment. We have a Buy rating, with the stock being relatively cheap on normalised (2018-19e) earnings as volumes and margins recover post successfully raising product prices by an unprec-edented c45% on average to pass on EGP-devaluation-related cost pressures.

We value Juhayna using a discounted cash flow methodology, yield-ing a target price of EGP14.5/share. Upside risks include: i) a fast-er-than-expected consumption shift to packaged products, ii) market share gains in core categories, iii) additional price increases for main products, iv) faster-than-expected execution of vertical integration plans, v) a value-accretive acquisition of a relevant business, vi) suc-cessful rollout of the Arla JV (sales could reach cEGP1bn by 2020e, management targeting cheese at c20% of business), and vii) a pick-up in exports (c3% of revenue, high-margin). Downside risks include: i) rising raw material costs, ii) growing price elasticity of demandleading to slow recovery in volumes post aggressive price hikes,iii) FX risk (c60% of inputs in FC, raw milk is USD-linked), iv) weak-er-than-expected volume growth due to competition (especially injuice and yoghurt), v) slower-than-expected conversion to packagedproducts, vi) weaker FCF generation and increasing leverage if capexand working capital investments remain high, vii) possible marginvolatility as agriculture exposure grows, and as the Arla JV rampsup, viii) key person risk (lawsuit against Juhayna’s Chairman), and ix)unfavourable regulations (such as price labeling proposal).

31

Food ProductsConsumer

Nada Amin

[email protected]

Hatem Alaa, CFA

[email protected]


Last Div. / Ex. Date EGP0.15 / 24 Feb 2016




Bloomberg / Reuters JUFO EY / JUFO.CA


Source:


Income StatementRevenue 6,065 7,241 8,641 10,298EBITDA 936 1,289 1,616 2,002Net operating profit (EBIT) 660 969 1,266 1,619Taxes or zakat (54) (164) (247) (340)Minority interest (0) (2) (5) (10)Net income 201 505 760 1,044Balance SheetCash and cash equivalents 86 57 137 276Total assets 4,919 5,082 5,447 5,937Total liabilities 2,717 2,561 2,537 2,632Total equity 2,202 2,521 2,910 3,305Total net debt (cash) 1,534 1,201 781 304Cash Flow StatementCash operating profit after taxes 850 1,104 1,313 1,578Change in working capital 340 (134) (150) (179)CAPEX (119) (301) (382) (432)Free cash flow 1,071 669 780 967Net financing (1,052) (677) (643) (742)Change in cash (44) (29) 81 138Per Share Financial SummaryEPS (EGP) 0.21 0.54 0.81 1.11DPS (EGP) 0.10 0.20 0.40 0.70BVPS (EGP) 2.34 2.67 3.08 3.49Valuation MetricsPrice to earnings 51.7x 20.5x 13.6x 9.9xPrice to book value 4.7x 4.1x 3.6x 3.2xPrice to cash flow 8.7x 10.7x 8.9x 7.4xFCF yield 6.7% 4.1% 5.8% 8.2%Dividend yield 0.9% 1.8% 3.6% 6.4%EV / EBITDA 13.0x 9.7x 7.8x 6.3xEV / Invested capital 3.2x 3.2x 3.2x 3.3xROAIC 14.8% 20.2% 25.2% 31.0%ROAE 9.7% 22.3% 29.1% 34.8%KPIsRevenue growth (Y-o-Y) 21.5% 19.4% 19.3% 19.2%EBITDA growth (Y-o-Y) 36.9% 37.7% 25.4% 23.9%Gross profit margin 29.9% 32.3% 33.7% 34.8%EBITDA margin 15.4% 17.8% 18.7% 19.4%Net operating profit (EBIT) margin 10.9% 13.4% 14.7% 15.7%Effective tax rate 21.6% 22.5% 22.5% 22.5%Net Debt (Cash) / Equity 0.7x 0.5x 0.3x 0.1xNet Debt (Cash) / EBITDA 1.6x 0.9x 0.5x 0.2x

Source: Juhayna, EFG Hermes estimates

Juhayna, EFG Hermes estimates


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32

EGP18.0BUY

What long-term EBITDA margin could RCC maintain? How can the company continue to have high margins vs. global peers, despite salary/rent hikes and increas-ing competition?

What is RCC’s strategic focus, in terms of revenue models? Is UAE’s increasing contribution expected to continue? When are you expecting to start generating revenue from KSA?

How much revenue contribution comes from contracts that have already been renewed at a discount after the devaluation? Are you seeing more pricing pres-sure from clients?

What have the IPO proceeds been used for? How much could their contribution to RCC’s EBITDA be going forward?

Could you outline the capacity expansions planned in Egypt for the next two years? How much will these affect revenue growth?

Raya Contact Centerwww.rayacc.com

RCC is one of the largest providers of business process outsourcing (BPO) services in Egypt and in MENA, offering a comprehensive range of services to longstanding clients in EMEA through several facilities in Egypt, UAE, and Poland. Its competitive edge stems from a currency mismatch between its revenues (mostly FC-denomi-nated) and its costs (mostly EGP-denominated), a disparity that was accentuated following the devaluation of the EGP in Nov 2016. Moreover, it boasts above-aver-age EBITDA margins compared to global peers in competitive markets (e.g. India, Malaysia), thanks to Egypt’s ranking as one of the top outsourcing locations global-ly, particularly in terms of financial attractiveness. RCC enjoys a solid balance sheet with almost no leverage, leaving ample room for fast-tracking capacity expansions through debt, if needed. This is further supported by an asset-light business model – all facilities are rented, none owned – that means low capex intensity and allowsfor a more efficient allocation of balance sheet liquidity. RCC is looking to expand its capacity significantly in 2018-19 via new facilities in Egypt, some of which could be acquired rather than rented.

We value RCC using a DCF model that yields a TP of EGP18.0. We have a Buy rating on the stock, which trades at attractive valuations vs. global peers, considering its superior profitability and growth profile. Since most of RCC’s business is earned in FCs, our RFR is 77% weighted on Egypt’s 10-year Eurobond, which currently yields c6%. The largest catalysts for the stock would be: i) further weakening in the EGP ii) faster-than-expected earnings growth and iii) potential acquisition by a larger competitor. Key risks to our valuation and forecasts are: i) faster-than-expected EGP appreciation ii) stron-ger-than-expected hike in competition, owing to Egypt’s attrac-tiveness after the devaluation, resulting in margin erosion and iii) faster-than-expected wage hikes as a result of inflationary pressures, also eroding margins. Moreover, RCC has a rather high revenue concentration by client, industry, and contract, but we believe this is a normal industry characteristic. Investors also run a governance risk with the parent company, which in the past has pushed for high dividend pay-out levels; this could stand in conflict with RCC’s need to retain cash for expansions.

33

Omar Maher

[email protected]

Information TechnologyIT Services


Last Div. / Ex. Date EGP0.62 / 11 Jun 2018




Bloomberg / Reuters RACC EY / RACC.CA


Source:


Income StatementRevenue 759 917 1,084 1,231EBITDA 205 244 263 293Net operating profit (EBIT) 182 214 223 245Taxes or zakat (41) (50) (53) (59)Minority interest (1) (1) (1) (1)Net income 143 179 191 210Balance SheetCash and cash equivalents 244 294 346 378Total assets 532 680 799 892Total liabilities 177 215 250 278Total equity 355 465 549 614Total net debt (cash) (236) (286) (338) (370)Cash Flow StatementCash operating profit after taxes 166 194 210 234Change in working capital 66 17 (6) (8)CAPEX (49) (106) (65) (74)Free cash flow 182 105 139 153Net financing 37 (54) (87) (121)Change in cash 218 51 52 31Per Share Financial SummaryEPS (EGP) 1.40 1.69 1.80 1.98DPS (EGP) 0.65 0.85 1.23 1.60BVPS (EGP) 3.33 4.36 5.13 5.73Valuation MetricsPrice to earnings 7.9x 6.5x 6.1x 5.5xPrice to book value 3.3x 2.5x 2.1x 1.9xPrice to cash flow 4.8x 5.5x 5.7x 5.1xFCF yield 17.2% 12.0% 15.6% 17.3%Dividend yield 5.9% 7.7% 11.1% 14.6%EV / EBITDA 4.6x 3.9x 3.7x 3.3xEV / Invested capital 7.4x 4.9x 4.2x 3.6xROAIC 103.3% 110.3% 87.4% 82.1%ROAE 53.6% 43.8% 37.9% 36.5%KPIsRevenue growth (Y-o-Y) 43.4% 20.8% 18.2% 13.5%EBITDA growth (Y-o-Y) 14.5% 19.0% 7.9% 11.5%Gross profit margin 45.6% 43.9% 41.5% 40.7%EBITDA margin 27.0% 26.6% 24.3% 23.8%Net operating profit (EBIT) margin 24.0% 23.4% 20.6% 19.9%Effective tax rate 20.4% 20.0% 20.0% 20.0%Net Debt (Cash) / Equity (0.7)x (0.6)x (0.6)x (0.6)xNet Debt (Cash) / EBITDA (1.2)x (1.2)x (1.3)x (1.3)x

Source: Raya Contact Center, EFG Hermes estimates

Raya Contact Center, EFG Hermes estimates


Investment Thesis

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34

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www.talaatmoustafa.comEGP18.0TMG Holding

A leading developer in Egypt that managed to establish itself within its target market segment through its strong branding and 30+ years track record. TMG has access to 50mn sqm of land bank having developed 8.5mn sqm so far, concentrat-ed mainly in a single project, Madinaty (78%), in East of Cairo. The company has an attractive business model, in our view, leveraging its cheap land acquired on favourable terms with no initial cash outflow, off-plan sales to finance the construc-tion process and strong position in the growing middle/upper-income segment. TMG offers investors unique exposure to Egypt’s growing real estate market, with a number of strengths that distinguish it as an attractive investment opportunity, in-cluding: i) strong earnings and cash flow visibility ii) future growth potential, given its access to the largest land bank amongst listed property stocks and iii) exposure to the improving local tourism sector through the ownership of 875 hotel rooms, with ambitious plans to triple the number of rooms. Management indicated that it is targeting a minimum of 35mn sqm of land bank at any point in time.

We set our target price of EGP18.0 per share, based on 0.5x 2019e NAV, in line with the stock’s average eight-year discount to its for-ward NAV. We estimate 2019e NAV at EGP36.0 per share. Our NAV is derived by valuing: i) the company’s development plan for its proj-ects ii) the commercial land bank and iii) the investment portfolio that comprises mainly hotel assets. We assign 50% discount to our calculated 2019e NAV, given the company’s current commercial land bank size and our relatively low visibility regarding its monetisation timeline, although we think that, should the strong commercial sales that started in 2017 continue, this will lead us to lower our assigned discount. Downside risks to our valuation include: i) a hard landing of Egypt’s property market, lowering the value of land and result-ing in stagnant sales activity and ii) political instability that would worsen the outlook for the tourism sector in Egypt. On the upside: i) actual sale of large commercial space, setting a new price rangeand increasing the potential of land monetisation hence, reducing our assigned discount to NAV ii) better-than-expected operating environment that would result in a boost in sales activity and iii) better-than-expected outlook for Egypt’s tourism industry, with the company adding more hotel rooms than our forecasts.

BUY

What is management’s outlook on the property market? Any short-term plans to acquire new land plots?

When is management expecting Celia to be fully sold? When is the first units’ delivery?

What is the latest update regarding the ‘Spine’? Are there more details regarding the type of residential product to be launched?

What’s the recent update on the company’s planned investment portfolio? What is the expected occupancy for the ‘Open Air’ mall in 2019-20?

What is the update on hotel expansions, including Four Seasons Madinaty and Four Seasons Sharm El Sheikh?

35

Mai Attia

[email protected]

Real Estate Management & DevelopmentReal Estate


Last Div. / Ex. Date EGP0.17 / 19 Apr 2018




Bloomberg / Reuters TMGH EY / TMGH.CA


Source:


Income StatementRevenue 8,534 9,843 11,616 13,423Net operating profit (EBIT) 2,531 2,305 3,299 4,021Taxes or zakat (410) (458) (655) (819)Net income 1,327 1,578 2,178 2,736Balance SheetCash and cash equivalents 3,340 3,933 3,899 2,120Account receivables 21,790 32,088 38,305 40,628Development properties 24,410 30,984 35,246 42,382Total assets 73,119 91,373 102,652 111,242Customer advance 24,118 30,711 38,348 43,474Total liabilities 43,967 61,084 70,597 77,276Total equity 29,153 30,289 32,055 33,965Total net debt (cash) 1,893 599 (69) 1,009Cash Flow StatementCash operating profit after taxes 2,116 1,689 2,413 3,032Change in accounts receivables (2,810) (10,298) (6,217) (2,324)Change in customer advances 3,760 9,301 1,302 1,432Change in development properties (4,514) (6,573) (4,263) (7,136)Free cash flow (407) 1,545 1,039 (665)Net financing 559 (952) (1,073) (1,114)Change in cash 152 593 (33) (1,779)Per Share Financial SummaryEPS (EGP) 0.64 0.73 1.06 1.33DPS (EGP) 0.17 0.18 0.20 0.40BVPS (EGP) 14.1 14.7 15.5 16.5Valuation MetricsPrice to earnings 14.2x 12.5x 8.7x 6.9xPrice to book value 0.6x 0.6x 0.6x 0.6xPrice to cash flow 21.3x 7.5x 9.2x 37.9xFCF yield -2.2% 8.2% 5.5% -3.5%Dividend yield 1.9% 2.0% 2.2% 4.4%EV / Invested capital 0.7x 0.7x 0.7x 0.6xROAIC 3.9% 4.6% 6.2% 7.5%ROAE 4.6% 5.3% 7.0% 8.3%KPIsRevenue growth 30.3% 15.3% 18.0% 15.6%Gross profit margin 36.5% 34.2% 39.1% 40.8%Net operating profit (EBIT) margin 29.7% 23.4% 28.4% 30.0%Effective Tax Rate 22.9% 22.5% 22.5% 22.5%Net debt (cash) / Equity 0.1x 0.0x (0.0)x 0.0xNet debt (cash) / EBITDA 0.7x 0.2x (0.0)x 0.2xSource: TMG Holding, EFG Hermes estimates

TMG Holding, EFG Hermes estimates


36


Research Team 38

Disclaimer 42

Sales Contacts 41

Contacts & Disclaimer

38

Research team contacts Contacts

NAME POSITION E-MAIL DIRECT NUMBER

Ahmed Shams El Din Managing Director - Head of Research [email protected] +20 2 35356143

Macro Team

Mohamed Abu Basha Director, Head of Macroeconomic Analysis [email protected] +20 2 36361157

Mohamed El Kholy Associate, Macroeconomic Analysis [email protected] +20 2 35356179

Strategy Team

Simon Kitchen Managing Director, Head of Strategy [email protected] +44 (0)20 7062 2163

Mohamed Al Hajj Vice President, Head of MENA Strategy [email protected] +971 4 364 1903

Vinita Kotedia Associate, Strategy [email protected] 254713713242+

Farah Hamza Analyst, Strategy [email protected] +20 2 35356289

Chemicals & Materials

Yousef Husseini Vice President, Chemicals [email protected] +02 2 35356013

Sameer Kattiparambil Vice President, Materials [email protected] +968 2476 0023

Omar El Gharabawi Associate, Chemicals [email protected] +02 2 35356145

Dina Hicham Analyst, Materials [email protected] +20 2 35356049

Consumer & Retail & Healthcare

Hatem Alaa, CFA Managing Director, Head of Consumer & Healthcare [email protected] +20 2 35356156

Nada Amin Vice President, Consumer & Healthcare [email protected] +20 2 35356385

Ahmed Elmoataz Associate, Consumer & Healthcare [email protected] +20 2 35356515

Mirna Maher Associate, Consumer & Healthcare [email protected] +20 2 35356141

Seif Rageh Analyst, Consumer & Healthcare [email protected] +20 2 35356103

Financials

Elena Sanchez-Cabezudo, CFA Managing Director, Head of Financials [email protected] +971 4 363 4007

Shabbir Malik Director, Financials [email protected] +971 4 363 4009

Rajae Aadel Associate VP, Financials [email protected] +971 4 363 4003

Ahmed El Shazly Associate, Financials [email protected] +20 2 35356570

Industrials / Small & Mid-Caps

Ahmed Hazem Maher Vice President, Industrials / Small & Mid-Caps [email protected] +20 2 35356137

Alaa Saleh Aly Analyst, Industrials / Small & Mid-Caps [email protected] +20 2 35356563

Menna Khafaga Analyst, Industrials / Small & Mid-Caps [email protected] +20 2 35356387

Real Estate & Construction

Mai Attia Managing Director, Head of Real Estate & Construction

[email protected] +20 2 35356434

Research team contacts Contacts


Telecommunications

Omar Maher Vice President, Telecommuncations [email protected] +20 2 35356388

Karim Mahmoud Sherif Analyst, Telecommuncations [email protected] +20 2 35356152

Frontier

Kato Mukuru Managing Director, Head of Frontier [email protected] +971 43641904

Murad Ansari Managing Director, Head of Asia [email protected] +971 553436101

Adrian Cundy Director, Vietnam Country analyst [email protected] +65 94570707

Luis Colaco, CFA Director, Sub-Saharan Consumers [email protected] +447500515721

Ronak Gadhia Director, Sub-Saharan Banks [email protected] +44 2075182905

Fahad Shaikh Vice President, South Asian Consumer [email protected] +971 43634005

Jawad Shamim Associate VP, Cement / Bank support [email protected] +92 2135141100-04

Moses Waireri Njuguna Associate VP, Cement / Consumer [email protected] +254 203743038

Muammar Ismaily Associate VP, Financials [email protected] +254 203743036

Muhammad Daniyal Kanani Associate, Power Utilities [email protected] +9221 35141158

Kazi Raquib Associate, Bangladesh Healthcare & Financials [email protected] +88 0173 0727 931

Rebia Qadri Associate, Fertilizers / Conglo. / Consumer [email protected] +9221 35141163

Saleem John Associate, Data Mangement [email protected] +92 2135141118

Silha Rasugu Associate, Utilities / Telcos / Oil & Gas [email protected] +254 203743037

Farah Tasnim Huque Associate, Bangladesh Consumer [email protected] +8801730727913

Haris Imtiaz Associate, Macroeconomic Analysis [email protected] +9221 35141165

Editing Team

Russell Curtis Director, Supervisory Analyst [email protected] +971 43641902

Rehab El Kobtan Associate Director, Editor [email protected] +20 2 35356179

Amr Shehata Associate VP, Editor [email protected] +20 2 35356284

Production & Distribution

Haidy Samir Director, Head of Production & Distribution [email protected] +20 2 35352180

David Nasr Associate, Production & Distribution [email protected] +20 2 35356500

Sandra Azer Analyst, Production & Distribution [email protected] +20 2 35356469

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Quantitative Research

Ahmed Difrawy Director, Head of Quantitative research [email protected] +20 2 35356144

Refaat Mahmoud Vice President, Quantitative research [email protected] +20 2 35356095

Yousef Mourad Associate, Quantitative research [email protected] +20 2 35356572

Ahmed Abdelmeged Analyst, Quantitative research [email protected] +20 2 35356065

Retail

Sandra Raef Vice President, Retail [email protected] +20 2 35356059

Ahmed Nabil Sarhan Retail Strategist [email protected] +20 2 35356442

Boulos Berzy Analyst [email protected] +20 2 35356597

Dina Yehia Analyst [email protected] +20 2 35356338

Admin

Fuyumi Archer Executive Support Manager, Research [email protected] +971 43634008

Nermeen Abdel Khalek Senior Executive Assistant, Research [email protected] +20 235356684

Research team contacts

Contacts

Sales team contacts

Contacts

NAME E-MAIL DIRECT NUMBER

Institutional Sales

Cairo Office

Mohamed Aly [email protected] +20 2 35356052

Wael El Tahawy [email protected] +20 2 35356359

Ahmed Hashem [email protected] +20 2 35356286

Yasser Waly [email protected] +20 2 35356339

Carol Aziz [email protected] +20 2 35356312

Dubai Office

Ramy El Essawy [email protected] +971 43634093

Ayah Abou Steit [email protected] +971 43634091

London Office

Sruti Patel [email protected] +44 2075182903

Ali Khalpey [email protected] +44 7818444210

Claire te Riele [email protected] +44 207 518 2907

New York Office

Karim Baghdady [email protected] +1 2123151292

Miljana Asanovic [email protected] +1 2123151373

Nairobi Office

Muathi Kilonzo [email protected] +254 2037433032

Karachi Office

Saad Iqbal [email protected] +92 2135141140

GCC High Net Worth Sales

Hatem Adnan [email protected] +20 2 35351083

Hany Ghandour [email protected] +20 2 35356007

Rami Samy [email protected] +971 43634099

Loay Abdel Meneam [email protected] +966 548800544

Individual Sales

Bassam Nour [email protected] +20 2 35356069

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Analyst Certification

We, EFG Hermes Research, hereby certify that the views expressed in this document accurately reflect our personal views about the securities and companies that are the subject of this report. We also certify that neither we nor our spouse(s) or dependents (if relevant) hold a beneficial interest in the securities that are subject of this report. We also certify that no part of our respective compensations, was, is, or will be directly or indirectly related to the specific ratings or view expressed in this research report.

Important Disclosures

EFG Hermes Holding, or any of its subsidiaries or officers (other than the authors of this report) may have a financial interest in one or any of the securities that are the subject of this report. Funds managed by EFG Hermes Holding SAE and its subsidiaries (together and separately, “EFG Hermes”) for third parties may own the securities that are the subject of this report. EFG Hermes may own shares in one or more of the aforementioned funds, or in funds managed by third parties. The author(s) of this report may own shares in funds open to the public that invest in the securities mentioned in this report as part of a diversified portfolio, over which the author(s) has/have no discretion. The Investment Banking division of EFG Hermes may be in the process of soliciting or executing fee-earning mandates for companies (or affiliates of companies) that are either the subject of this report or are mentioned in this report. Research reports issued by EFG Hermes are prepared and issued in accordance with the requirements of the local exchange conduct of business rules, where the stock is primarily listed.

Investment Disclaimers

This research report is prepared for general circulation and has been sent to you as a client of one of the entities in the EFG Hermes Group, and is intended for general information purposes only. It is not intended as an offer or solicitation or advice with respect to the purchase or sale of any security.

It is not tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this report. This research report must not be considered as advice nor be acted upon by you unless you have considered it in conjunction with additional advice from an EFG Hermes entity, with which you have a client agreement. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs.

Our investment recommendations take into account both risk and expected return. We base our long-term target price estimate on fundamental analysis of the company’s future prospects, after having taken perceived risk into consideration. We have conducted extensive research to arrive at our investment recommendation(s) and target price estimate(s) for the company or companies mentioned in this report. Readers should understand that financial projections, target price estimates and statements regarding future prospects may not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without prior notice.

Although the information in this report has been obtained from sources that EFG Hermes believes to be reliable, we have not independently verified such information, and it may not be accurate or complete. EFG Hermes does not represent or warrant, either expressly or implied, the accuracy or completeness of the information or opinions contained within this report, and no liability whatsoever is accepted by EFG Hermes or any other person for any loss, howsoever arising, directly or indirectly, from any use of such information or opinions or otherwise arising in connection therewith.

The decision to subscribe to or purchase securities in any offering should not be based on this report and must be based only on public information on such security and/or information made available in the prospectus or any other document prepared and issued in connection with the offering.

Investment in equities or other securities are subject to various risks, including, among others, market risk, currency risk, default risk and liquidity risk. Income from such securities, and their value or price may, therefore, fluctuate. Basis and levels of taxation may change, which would affect the expected return from such securities. Foreign currency rates of exchange may affect the value or income of any security mentioned in this report. Investors should, therefore, note that, by purchasing such securities, including GDRs, they effectively assume currency risk.

This report may contain a short- or medium-term recommendation or trading idea, which underscores a near-term event that would have a short-term price impact on the equity securities of the company or companies’ subject of this report. Short-term trading ideas and recommendations are different from our fundamental equity rating, which reflects, among other things, both a longer-term total return expectation and relative valuation of equity securities relative to other stocks within their wider peer group. Short-term trading recom-mendations may, therefore, differ from the longer-term stock’s fundamental rating.

Disclaimer

For Entities and Clients in the United States

Hermes Securities Brokerage is not registered as a broker-dealer with the US Securities and Exchange Commission, and it and its analysts are not subject to SEC rules on securities analysts’ certification as to the currency of their views reflected in the research report. Hermes Securities Brokerage is not a member of the Financial Industry Regulatory Authority (FINRA), and its securities analysts are not subject to FINRA’s rules on Communications with the Public and Research Analysts and Research Reports and the attendant requirements for fairness, balance and disclosure of potential conflicts of interest.

This research report is only being offered to Major US Institutional Investors and is not available to, and should not be used by, any US person or entity that is not a Major US Institu-tional Investor. Hermes Securities Brokerage cannot and will not accept orders for the securities covered in this research report placed by any person or entity in the United States. Her-mes Securities Brokerage is an affiliate company of Financial Brokerage Group (FBG), located at B129, Phase 3, Smart Village – KM28 Cairo, Alexandria road 6 of October 12577 – Egypt. FBG has a 15a-6 chaperoning agreement with EFG-Hermes USA, Inc., a FINRA member firm, located at 3 Columbus Circle, 15th Floor, Suite 1617, New York, NY 10019 | USA. . Orders should be placed with our correspondent, EFG-Hermes USA Inc. 212-315-1372.

A Major US Institutional Investor who may receive and use this report must have assets under management of more than USD100,000,000 and is either an investment company reg-istered with the SEC under the US Investment Company Act of 1940, a US bank or savings and loan association, business development company, small business investment company, employee benefit plan as defined in SEC Regulation D, a private business development company as defined in SEC Regulation D, an organization described in US Internal Revenue Code Section 501(c)(3) and SEC Regulation D, a trust as defined in SEC Regulation D, or an SEC registered investment adviser or any other manager of a pooled investment vehicle.

Investment Banking Business

EFG Hermes, or any of its subsidiaries, does and seeks to do business with companies mentioned in its research reports or any of their affiliates. As a result, investors should be aware that the firm, or any of its subsidiaries, may have a material conflict of interest that could affect the objectivity of this report..

Disclaimer

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Guide to Analysis

EFG Hermes investment research is based on fundamental analysis of companies and stocks, the sectors that they are exposed to, as well as the country and regional economic envi-ronment.

In special situations, EFG Hermes may assign a rating for a stock that is different from the one indicated by the 12-month expected return relative to the corresponding target price. For the 12-month long-term ratings for any investment covered in our research, the ratings are defined by the following ranges in percentage terms:

Rating Potential Upside (Downside) %Buy Above 15%Neutral (10%) and 15%Sell Below (10%)

EFG Hermes policy is to update research reports when appropriate based on material changes in a company’s financial performance, the sector outlook, the general economic outlook, or any other changes which could impact the analyst’s outlook or rating for the company. Share price volatility may cause a stock to move outside of the longer-term rating range to which the original rating was applied. In such cases, the analyst will not necessarily need to adjust the rating for the stock immediately. However, if a stock has been outside of its lon-ger-term investment rating range consistently for 30 days or more, the analyst will be encouraged to review the rating.

Copyright and Confidentiality

No part of this document may be reproduced without the written permission of EFG Hermes. The information within this research report must not be disclosed to any other person if and until EFG Hermes has made the information publicly available.

Contacts and Statements

Report prepared by Hermes Securities Brokerage (main office), Building No. B129, Phase 3, Smart Village, KM 28, Cairo-Alexandria Desert Road, Egypt 12577, Tel +20 2 35 35 6140 | Fax +20 2 35 37 0939 which has an issued capital of EGP3,843,091,115.

Reviewed and approved by EFG Hermes KSA (closed Joint Stock Company), which is commercially registered in Riyadh with Commercial Registration number 1010226534,

Reviewed and approved by EFG Hermes UAE Limited, which is regulated by the DFSA and has its address at Level 6, The Gate, DIFC, Dubai, and UAE. The material is distributed in the UAE or the Dubai Financial Centre (DIFC) (as applicable) by EFG Hermes UAE Limited. The financial products or services described in this document are only available to persons who qualify as “Professional Clients” or “Market Counterparty” as defined in the DFSA Rulebook. No other person should act upon it.

Reviewed and approved by EFG Hermes Pakistan Limited. (Research Entity Notification No. REP-192), incorporated in Pakistan with registered number 0040559, and has its address at Office No. 904, 9th Floor, Emerald Tower, Plot No. G19, Block-5, Clifton, Karachi, Pakistan.

Distributed in Kenya by EFG Hermes Kenya Limited, an entity licensed under the Capital Markets Act and regulated by the Capital Markets Authority.

The information in this document is directed only at Institutional investors If you are not an institutional investor you must not act on it.

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