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Beltone Maintains a Positive Outlook on Eastern Tobacco
Published in Amwal Al Ghad on 23 - 04 - 2014

Beltone Financial research maintained, in a recent study, a positive outlook on Eastern Tobacco (EAST.CA).
Beltone stated that Eastern Tobacco released strong preliminary indicators for 3Q FY2013/14. Revenue came in at EGP 1,659 m, increasing 23.8% y-o-y and 1.3% q-o-q, beating our estimate of EGP 1,566 m by 5.9% and consensus' EGP 1,502 m by 10.5%. Net profit after tax reached EGP 333 m, up 31.2% y-o-y and 21.2% q-o-q, beating the estimate of EGP 290 m and consensus' EGP 312 m. Overall, Beltone maintains a positive outlook on Eastern Tobacco, expecting margins to improve going forward as the company increases its toll-manufacturing agreements, the last of which was signed last week to manufacture cigarettes for Imperial.
Given the environment of absence of competition and high barriers of entry which eastern tobacco operates in, Beltone maintained a positive outlook on the company.
Beltone recently upgraded its fair value to EGP179.59/share to account for the newly signed toll manufacturing agreement with Imperial. The company is currently in negotiations to finalize other toll-manufacturing agreements, including the one with Japan Tobacco International, which is expected to be signed within the course of a week. Should JTI's contract materialize, this would automatically raise the fair value to EGP182.22/share. Other upside triggers to Beltone's valuation include the potential returns on freed-up land plots resulting from the move to the new complex as well as the approved, yet not implemented, EGP 0.75/pack increase in the fixed tax rate. Beltone currently forecast revenues will reach EGP 6.3 bln in FY2013/14 and grow by a CAGR of 6.4% over its forecast horizon until FY2017/18. Meanwhile, Beltone estimate net profit will come in at EGP 993 m in FY2013/14 and to grow by a CAGR of 5.5% over the same period.


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