Hitting the block this week, Alexandria Mineral Oil Company is the second oil sector heavyweight to be floated. Sherine Abdel-Razek takes a closer look at the company It is the profit making, exporting, competent, growing and going private. Alexandria Mineral Oil Company (AMOC) that is the Egyptian stock market star this week. AMOC is offering a 20 per cent stake divided into two equal tranches. The first will be in the form of an IPO with a maximum subscription per individual of 1,000 shares and will be executed at a fixed price of LE45 a share. The other tranche, in the form of a private placement, mandates a minimum 50,000 and a maximum 350,000 of subscribed shares to be sold through a bidding system. The bidding price floor is set at LE45. AMOC shares are expected to be snatched up in no time. These expectations are based on the fact that the flotation comes only two months after that of Sidi Krir for Petrochemicals (SIDPEC), the first oil sector company to tap the market. SIDPEC's offering was more than three times over- subscribed. HC Securities gave the company a "strong buy" recommendation in a report released last week. With HC analysing the company's potential and setting a target price for the near future at LE63, the share price seems to be attractive. Also, at a price of LE45, the shares are trading at a price to earning ratio (P/E) of 7.5 times, a relatively low level compared to the market's average of 15 times. At the time of flotation, SIDPEC was issued at P/E of 10 times and thus AMOC is priced cheaper. AMOC is a refinery that produces several petroleum-based products such as gas fuel and blended fuel as well as lubricants like base oils, transformer oils, automatic transmission fluids and waxes. The main raw material is crude oil which represents 95 per cent of the cost of production as it buys it from the Egyptian Petroleum Company (EGPC) at global prices. However, AMOC offsets this by selling all its products both domestically and internationally at global prices. Moreover, AMOC's product mix in the two complexes it operates could be adjusted to maximise its profit margin according to changes in prices. The company posted a 419 per cent growth in its net profits for 2005, registering LE517.5 million. The healthy performance resulted from the launch of the company's new gas oil complex which began production in April, 2004, raising production volumes by about 172 per cent. HC's report noted that results were further boosted by a surge in oil prices of 42 per cent for fiscal year 2005. The surge in prices and consumption of crude oil drives AMOC's good financial performance. During 2004, consumption of crude oil grew by 3.4 per cent globally. Moreover, tight oil supply due to capacity constraints and instabilities in major oil producers like Nigeria, Venezuela and Iraq, could continue to bolster oil prices to fluctuate above $60.00/barrel in 2006. Also the decline in the US refining capacity by seven per cent due to the aftermath of Hurricane Katrina will tighten supply. "We believe that shortages in refined products will drive prices up in the medium-term. We expect these global developments in the oil market to reflect positively on AMOC's profits in the next two years" noted HC's report. AMOC is state-owned and was established in 1997 with a paid-in capital of LE420 million. Paid-in capital was raised twice to reach the current LE861. AMOC is operating under Investment Law 8/1997 which entitles the company to a tax holiday until June 2007. Belonging to the promising local oil sector is another plus for AMOC's offering. The sector has become very attractive to both Foreign Direct Investments (FDIs) and now portfolio investments. It accounts for approximately nine per cent of Egypt's GDP. Egyptian oil exports constituted 38 per cent of total exports for 2004/2005, registering $4.0 billion. While the sector's growth was modest in FY04 at 2.8 per cent, it picked up in the first quarter of 2005 with a growth rate of 9.8 per cent. Other oil companies are in the pipeline with the Middle East Oil Refinery, Egypt's third largest refinery, expected to be floated by the first half of 2006.
