Orascom Construction Industries
OCIC
OCIC
EFG-Hermes issued a report on Orascom Construction Industries NV (OCI NV), raising its fair value (FV) to EUR36.0/share (from EUR28.4/share previously) as it incorporated OCI’s new 1.75mtpa methanol plant into its model and increase our valuation for OCI Beaumont on higher methanol prices and expected increase in volumes following the debottlenecking project (due in 2H2014).
“OCI’s strategic expansion in the US should largely offset a weaker operating outlook in Egypt and Algeria, in our view, but this is largely in the price. Our new FV is in line with the current market price, thus we maintain our Neutral rating,” EFG said.
OCI N.V. announced yesterday that the Egyptian Public Prosecutor has fully exonerated its 99.4% owned subsidiary, OCI S.A.E., of any wrongdoing and all tax evasion claims. EFG-
Hermes thinks the main impact from the decision will be more leverage in its negotiations with the Egyptian Tax Authority (ETA) regarding the tax settlement, as the prosecutor’s decision appears to give OCI more legal credence in their stance that they did not commit any tax evasion. However, we note that the settlement remains ongoing, according to OCI. We highlight that removing the tax payments from our OCI valuation would add c8% upside to our fair value (FV), though this includes the EGP2.5 billion that the company has already paid, which would likely take time to recover assuming OCI tries to recover it. EFG cut its EBITDA forecast by 6% in 2013 and12% in 2014 as it lowered its fertiliser volumes assumptions further; in Egypt on continued natural gas supply disruptions, and in Algeria as the new export permit law has slowed down export cargoes. “We also reduce our construction margin forecasts due to the relatively large weight of lower-margin US contracts in the current backlog mix. However, we still expect margins to recover gradually in 2014-16e as the backlog quality improves, especially given the strong infrastructure opportunities in the MENA region, in our view,” EFG said.
“OCI’s strategic expansion in the US should largely offset a weaker operating outlook in Egypt and Algeria, in our view, but this is largely in the price. Our new FV is in line with the current market price, thus we maintain our Neutral rating,” EFG said.
OCI N.V. announced yesterday that the Egyptian Public Prosecutor has fully exonerated its 99.4% owned subsidiary, OCI S.A.E., of any wrongdoing and all tax evasion claims. EFG-
Hermes thinks the main impact from the decision will be more leverage in its negotiations with the Egyptian Tax Authority (ETA) regarding the tax settlement, as the prosecutor’s decision appears to give OCI more legal credence in their stance that they did not commit any tax evasion. However, we note that the settlement remains ongoing, according to OCI. We highlight that removing the tax payments from our OCI valuation would add c8% upside to our fair value (FV), though this includes the EGP2.5 billion that the company has already paid, which would likely take time to recover assuming OCI tries to recover it. EFG cut its EBITDA forecast by 6% in 2013 and12% in 2014 as it lowered its fertiliser volumes assumptions further; in Egypt on continued natural gas supply disruptions, and in Algeria as the new export permit law has slowed down export cargoes. “We also reduce our construction margin forecasts due to the relatively large weight of lower-margin US contracts in the current backlog mix. However, we still expect margins to recover gradually in 2014-16e as the backlog quality improves, especially given the strong infrastructure opportunities in the MENA region, in our view,” EFG said.
Source:
Mubasher
