In a report issued on El Sewedy Electric, EFG-Hermes said it maintained a Buy recommendation due to its operations growth prospects and compelling valuation.
Commenting on the company’s Q2 financial results, EFG said that, excluding one-offs and provisions, earnings came in at EGP200mn (-4% Y-o-Y, -17% Q-o-Q), only 11% short of forecast on higher below-EBIT expenses.
The results signal sustained healthy GCC demand and signs of a gradual recovery in Egypt. Reported net profit at EGP110mn (+34% Y-o-Y, +5% Q-o-Q) was deflated by the net impact of: i) EGP132mn write-off of Yemen cable factory (9,600 tonnes capacity); ii) EGP22mn FX gain; and iii) EGP20 mn provision reversal. Our full-year clean earnings forecast seems conservative (EGP577mn versus EGP441mn for 1H2014a); however, we opt to maintain it for now as: i) the second half is typically weaker than the first one; and ii) the situation in Iraq may have some negative impact on 2H2014, in our view.
According to the report issuer, revenue was broadly stable at EGP4,168mn, 7% below forecast on lower contribution from turnkey projects and, to a lesser extent, lower average cable price and external sales of raw materials. Cable volume remained solid at 42,780 tonnes as expected, easing 4% Q-o-Q. Egypt operation (c58% of cables’ capacity) sustained its positive sales momentum, with its volume up 30% Y-o-Y in 1H2014, on exports to the Gulf and pick-up in local sales from a low comparable base. Electrical products revenue rose 21% Q-o-Q as transformers sustained its uptrend, and electrometers picked up following four quarters in a row of Q-o-Q declines.