NBK Capital initiated coverage on Sidi Kerir Petrochemicals (Sidpec), with a ‘Hold’ recommendation and a fair value of EGP 16.40/share.
“We like SKPC due to 1) its monopoly in a market that is a net importer of polyethylene ; 2) favorable feedstock pricing (and availability) translating into more than 40% sustainable EBITDA margin according to our estimates; 3) planned expansion that will increase effective sellable capacity by 26% by 2015; and 4) an inherent hedge to currency depreciation. However, we believe that these positives are captured well in the current share price. Additionally, we believe that uncertainty in feedstock and oil prices will keep the share price in check,” said the report issuer. NBK Capital also has a positive opinion of PE margins in the near-to-medium term. According to SKPC’s management, the Egyptian PE market is estimated at around 650k mtpa while current local capacity is only 225k mtpa. Thus, the market relies heavily on imports. Earlier this month, OKAZ Stock Brokers raised the stock’s target price from EGP 14.68 to EGP 20.42, upgrading the stock recommendation to Buy from Hold.
Sidpec had posted EGP 726.4 million net profit for the first nine months of FY14, with a decline by 26% year-over-year from EGP 985.1 million.