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Pharos Research sets EBE fair value at EGP 24.54 with ‘Overweight' recommendation Mubasher Trade maintains "Buy" rating for Emaar Misr with price target of EGP4.04/shr
Pharos Research has initiated its coverage of Export Development Bank of Egypt (EBE) with an "Overweight" recommendation and assigned the stock a fair value (FV) evaluation of EGP 24.52 per share. The research firm said in a report that it has based its valuation on a set of key assumptions that underpin the growth potential for the bank. Pharos stated that the first reason behind the valuation is "the forecasted revival in corporate lending momentum starting fiscal year 2018, to boost lending growth to a compound annual growth rate (CAGR) of 27% between FY 2018 and FY 2022." "Strengthening retail lending to constitute around 15% to 20% of the bank's loan portfolio, from the current 2%, over the forecast horizon to compensate for the projected net interest margin (NIM) compression," the firm indicated as the second reason. "Third, faster pickup in non-interest income fueled by the potential pickup in lending activity," Pharos explained. The report also highlighted the key upside triggers to the valuation as the amendment of the bank's regulation that restricts foreign investors from owning the stock, leading to a boost in the stock's liquidity. This comes in addition to the stronger pickup in exports, which accelerates the growth potential for the bank's key client segment, as well as the faster than forecasted pickup in non-interest income and capital expenditure lending, and the higher exposure to retail financing to maintain resilient margins. On the other hand, the main downside risks are the higher-than-forecasted nonperforming loans (NPLs) that are leading to higher provisions, and the slower-than-expected pickup in foreign direct investment (FDI) and capital expenditure financing. The bank mainly focuses on exporters, as around 74% of the bank's loan portfolio is assigned to exporters with minimal exposure to the retail sector. The extraordinary general meeting (EGM) of the bank recently approved raising the authorised capital to EGP 5 billion from EGP 2 billion. The bank's profits amounted to EGP 381.3 million from July 2016 to March 2017, compared to EGP 302.13 million in the same period in the previous year. The bank approved the planning budget for fiscal year 2017/2018 and aims to achieve EGP 654 million in net profits in the estimated budget of FY 2017/2018, compared to EGP 438.8 million expected the year before. Meanwhile, Mubasher Trade Research has maintained its "Buy/Moderate" risk rating for Emaar Misr for Development at a price target (PT) of EGP 4.04 per share, implying a 52% upside potential. Emaar Misr reported a 23% year-on-year increase in profits to EGP 539 million for the second quarter of 2017 from EGP 436.8 million in Q2 2016. These results were "in line with consensus estimates at EGP 494 million (variance: +9%)," the note by Mubasher Trade Research showed, attributing the surge in bottom-line profits to the growth in interest income by "more than two-fold" of 163% year-on-year to EGP 319 million in Q2 2017 from EGP 121.4 million in Q2 2016. "Revenues declined 8% year-on-year to EGP 1.09 billion in Q2 2017, versus EGP 1.18 billion, missing consensus estimates at EGP 1.21 billion (variance: -10%) on the back of lower revenues from Marassi," the report said. Revenues from Marassi dropped 9% year-on-year to EGP 537.2 million in Q2 2017, from EGP 587.7 million, representing 49% of revenues in Q2 2017. Moreover, revenues from Emaar Misr's Uptown Cairo project retreated 52% year-on-year to EGP 142.8 million in Q2 2017, compared to EGP 295.4 million, representing 13% of total revenues in Q2 2017. Despite these declines, the research firm said it had "no concern" on the lower revenues in Q2 2017, owing to Emaar Misr's "large backlog on the company's books as of December 2016, amounting to EGP 19.5 billion, which would support the performance in the coming period." "Emaar Misr for Development has a treasury bills balance on its books worth of EGP 4.32 billion as of June 2017," Mubasher Trade Research noted. Gross profit fell 20% year-on-year to EGP 347.2 million, with gross processing margin (GPM) retreating to 32% in Q2 2017 from 36% in Q2 2016. "Investigating projects' margins, Marassi, the largest contributor to gross profit, reported lower GPM at 27% in Q2 2017, versus 37% in Q2 2016," the report said, noting that Mivida's GPM retreated to 31% in Q2 2017, versus 38% in Q2 2016, "offsetting higher GPM recorded by Uptown Cairo at 50% versus 34% in Q2 2016." Selling, general, and administrative expenses soared 46% year-on-year to EGP 111.1 million from EGP 76.3 million in Q2 2016, representing 10% of total revenues in Q2 2017 compared to 6% in Q1 2017. "This resulted in lower EBITDA that stood at EGP 292.6 million in Q2 2017, compared to EGP 363.9 million in Q2 2016 (-20% year-on-year), translating into an EBITDA margin of 27% in Q2 2017, versus 31% in Q2 2016."
