NBK Capital issued a report on El Sewedy Electric, fixing the stock's 12-month fair value at EGP 23.0 with 'Hold' recommendation. The cable producer reported Q2-12 financial results, which appeared to be a mixed batch with some outperformance at the EBITDA level, while net profit came in significantly weak mainly driven by unpredictable forex losses. Revenue declined 7% Y-o-Y to EGP 3.67 billion. It was 10% lower than NBK Capital's forecasts. The Y-o-Y decrease in total revenue was driven by lower price realizations as well as lower volumes (keeping JVs on proportionate basis) in the cable segment and timing issues on the recently awarded contracts for the turnkey business. However, gross profit was in line with estimates at EGP 505 million (-5% Y-o-Y) due to a significantly higher gross profit per ton for cables (EGP 7,072 in 2Q2012 compared to EGP 4,000 in 1Q2012 and our forecast of EGP 4,900). The improvement in cable gross profit per ton in Q2-12 seems to be a compensating recovery from a very low level recorded in Q1-12 and therefore, looks difficult to be sustained. Moreover, management reiterated its earlier gross profit per ton guidance of around EGP 5,000-5,500 for FY12. The turnkey segment is expected to gradually pick up as new awards start to be executed. EBITDA (excluding other income) stood at 8% ahead of the report issuer's forecast at EGP 371 million (-6% Y-o-Y) due to lower than expected SG&A expenses. EBITDA margin remained flat Y-o-Y at 10.1%. However, net profit was significantly impacted by forex losses and relatively higher interest expenses. El Sewedy is a play on the regional infrastructure spending in the long-term. However, the current operating environment in some key markets including Egypt, Syria and Libya remains volatile. Therefore, NBK Capital continued to be cautious in the near-term and wait for signs of an improving business environment before revisiting our long-term assumptions. Mubasher
