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In a report issued today on OCI NV, EFG-Hermes cut its FV for OCI NV to EUR30.0/share (from EUR36/share previously), reinstating its Neutral recommendation.
EFG said it i) lowered its 2014-16 EPS by c30% on average, reflecting lower utilisation rates for the Egyptian fertilizers assets (EFC and EBIC) as the impact of gas supply disruptions in 1H2014 was more severe than our previous assumptions, as well as weaker nitrogen fertilizers prices; ii) raise our equity risk premium for the Egyptian assets by 100bps; and iii) account for the recently-imposed 10% capital gain tax and 5% incremental increase in income tax for OCI’s Egyptian assets.
Our FV offers 12% upside to current price, thus we maintain our Neutral rating. We remain positive on OCI’s strategic investments in the US (fertilizers in Iowa and two methanol plants in Texas), but believe short- to medium-term headwinds in Egypt are likely to overhang the stock.
“We expect a lackluster performance from OCI in 1H14, mainly on i) continued gas disruptions at EFC and EBIC; ii) weak performance from Sorfert in 1Q14, as the new export regulations in Algeria impacted sales (the issue was resolved by 2Q14); and iii) weak urea prices in 1H14 (-12% Y-o-Y). However, we still expect improved operational earnings Y-o-Y, driven mainly by Sorfert’s contribution in 2Q. We expect a 22% Y-o-Y surge in revenues to USD2.4bn, 14% Y-o-Y growth in EBITDA to USD420mn , but a 59% Y-o-Y drop in net income to USD23mn due to base effect (1H13 included USD128mn in FX gains),” said EFG. Urea prices have rallied in recent weeks on the back of strong Indian and Latin American demand, as well as tight supply globally. The supply tightness has been caused by a combination of supply disruptions from Egypt, where gas curtailments have severely limited production, and by several plants turnarounds in China, according to the report issuer. “We expect the market will remain tight in the short term, and prices are likely to benefit but longer term, Chinese exports and the global oversupply are likely to cap prices,” EFG stated.
EFG said it i) lowered its 2014-16 EPS by c30% on average, reflecting lower utilisation rates for the Egyptian fertilizers assets (EFC and EBIC) as the impact of gas supply disruptions in 1H2014 was more severe than our previous assumptions, as well as weaker nitrogen fertilizers prices; ii) raise our equity risk premium for the Egyptian assets by 100bps; and iii) account for the recently-imposed 10% capital gain tax and 5% incremental increase in income tax for OCI’s Egyptian assets.
Our FV offers 12% upside to current price, thus we maintain our Neutral rating. We remain positive on OCI’s strategic investments in the US (fertilizers in Iowa and two methanol plants in Texas), but believe short- to medium-term headwinds in Egypt are likely to overhang the stock.
“We expect a lackluster performance from OCI in 1H14, mainly on i) continued gas disruptions at EFC and EBIC; ii) weak performance from Sorfert in 1Q14, as the new export regulations in Algeria impacted sales (the issue was resolved by 2Q14); and iii) weak urea prices in 1H14 (-12% Y-o-Y). However, we still expect improved operational earnings Y-o-Y, driven mainly by Sorfert’s contribution in 2Q. We expect a 22% Y-o-Y surge in revenues to USD2.4bn, 14% Y-o-Y growth in EBITDA to USD420mn , but a 59% Y-o-Y drop in net income to USD23mn due to base effect (1H13 included USD128mn in FX gains),” said EFG. Urea prices have rallied in recent weeks on the back of strong Indian and Latin American demand, as well as tight supply globally. The supply tightness has been caused by a combination of supply disruptions from Egypt, where gas curtailments have severely limited production, and by several plants turnarounds in China, according to the report issuer. “We expect the market will remain tight in the short term, and prices are likely to benefit but longer term, Chinese exports and the global oversupply are likely to cap prices,” EFG stated.
Source:
Mubasher
