Misr Beni Suef Cement (MBSC) may consider new investment opportunities up to EGP 1bn during the coming period, where the company has a cash balance of more than EGP 1bn, and the board of directors is studying ways to exploit and benefit from it, an official source from the company said. The source added that the company is still suffering from cement oversupply in the market so it reduced its production rate. MBSC reported total revenues of EGP 454m in the second quarter (Q2) of 2019, up 4% quarter-over-quarter (q-o-q) and 1% year-over-year (y-o-y), supported by increased sales despite seasonal factors associated with Ramadan and Eid holidays. Net profit for Q2 of 2019 was EGP 16m, down 45% q-o-q and 82% y-o-y. Naeem Brokerage believes there will be more cost pressures on the company following the lifting of subsidies on energy products, but there are several factors that may contribute to easing these pressures, if the prices of coal continued to decline, which has recorded a 37% decline up to date, averaged $60/tonne in August 2019, as well as the Egyptian pound's appreciation against the US dollar. In the long run, Naeem's research suggests that current market mechanisms may force some companies unable to continue their activities efficiently to withdraw from the market, and may also lead to mergers that will accelerate market rebalancing. Naeem pointed out that the prolonged oversupply in the market could lead to a negative shift in profit margins of MBSC due to intense price competition. Naeem recommends buying MBSC shares with a fair value of EGP 37.3 per share, reflecting a 107% increase in the share price.
