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Orascom Construction Industries

BLOMINVEST
BANK

BLOM EGYPT SECURITIES

Equity Research Initiation of Coverage

Share Price (EGP):

245

Sector:

Construction/Fertilizers

Fair Value (EGP):

270

Country:

Egypt

Upside:

10%

Date:

May 16, 2011

Recommendation:

HOLD

Share Data

Initiating coverage with a HOLD Recommendation and a Fair Value


of EGP 270 per share based on the channels of analysis below
Fertilizer pricing and market dynamics favorable for growth
Orascoms fertilizer business continues to lead growth with revenues
increasing by two-fold in 2010 and accounting for almost half of the
companys EBITDA. This will be further boosted during 2011 by rising
prices and solid market dynamics. Overall, global demand of Nitrogen
fertilizers is expected to expand by 15% through 2014 on increasing
agricultural needs. Coupled with relatively high oil prices and significant
exposure to stable markets in Europe, we anticipate prices to be on the
rise during 2011-2013 with Orascom perfectly positioned to take
advantage of this trend.

OCIC.EY

Reuters Symbol

OCIC.CA

Market Cap (EGP)

50,695,155,000

Number of Shares

206,919,000

Free Float

38.00%

Price-to-Earnings

13.7

Price-to-Book

Construction backlog estimated to decline in the short term


The market outlook for Orascoms construction business, which
constituted 70% of revenue and 49% of EBITDA during 2010, remains
weak for 2011. The company reported a backlog of USD 5.62 billion
through 2010, 15% lower than the previous year. We expect to see
further declines in 2011 as the potential for new business continues to
weaken in Orascoms major markets - Egypt and Algeria - comprising
almost 40% of backlog. Growth may resume in 2012 provided the
geopolitical situation in the region calms down and Egypts new political
system takes shape.

3.2

Share Performance

Revenues surged during 2010 but a mild decline is expected for 2011
Net income reached EGP 3.65 billion in 2010, a 51% rise over 2009s
reported earnings on a better than expected performance from the
fertilizer sector and an almost unchanged construction contribution. We
estimate OCIs revenues to slightly decline to EGP 27.1 billion in 2011
compared to 27.6 billion in 2010. Fertilizer revenues are expected to
post a hefty 27% Y-O-Y increase vs. constructions 13% revenue
decline. As per management guidance, we can expect to see growth in
capacity for some of its fertilizers effective 2012.

Source: Reuters

Stock trades at discount with potential for appreciation___


We estimate OCIs fair value at EGP 270 per share using a Sum-of-theparts methodology with 38% attributed to the construction segment
versus 62% to the growing fertilizer group. When comparing OCI to an
average composite, we find that it is considerably undervalued with a
P/E of 13.7 as opposed to 19.3 for its peers. The companys earnings are
projected to remain considerably high in 2011, hence providing a
possibility for share price appreciation as geopolitical risks settle and a
new Egyptian president is elected.

Contact Information:

Bloomberg Symbol

1 Month Return

-3.00%

3 Month Return

5.16%

6 Month Return

-9.38%

12 Month Return

-6.99%

52 Week Range

292 - 204

Performance and Forecasts

Equity Analyst: Karim Houri


karim.houry@blominvestbank.com

Year

2008

2009

2010

2011e

2012f

2013f

Revenues (EGP billions)

20.3

21.3

27.6

27.2

28.9

32.0

Senior Equity Analyst: Issa Frangieh


issa.frangieh@blominvestbank.com

Net Income (EGP billions)

5.4

2.6

3.7

4.0

4.5

4.8

EPS (EGP)

25.8

11.7

17.7

19.5

22.0

23.4

BVPS (EGP)

72.9

71.1

76.1

75.6

79.0

88.0

Research Analyst: Nader Ali Khedr


nakhedr@blomsecurities.com
Head of Research: Marwan Mikhael
marwan.mikhael@blominvestbank.com

ROA (%)

7.9

5.7

7.3

7.6

8.6

9.0

ROE (%)

12.1

15.1

21.7

23.4

25.8

25.4

Source: Company Historicals and Blominvest Estimates

Subject to Disclaimer on Last Page

ORASCOM CONSTRUCTION INDUSTRIES

FINANCIALS & VALUATION


2008

2009

2010

2011e

2012f

2013f

Revenue (EGPm)
Revenue Growth (%)

20,253
50.2%

21,313
5.2%

27,560
29.3%

27,148
-1.5%

28,932
6.6%

Gross Profit (EGPm)


Gross Margin (%)

5,300

4,732

6,746

7,303

7,869

8,381

26.2%

22.2%

24.5%

26.9%

27.2%

27.7%

Net Profit (EGPm)


Profit Margin (%)

5,444

2,550

3,652

4,034

4,547

4,848

26.9%

12.0%

13.3%

14.9%

15.7%

16.0%

Net Profit Growth (%)

188%

36.2%

43.2%

10.4%

12.7%

6.6%

Earnings Per Share (EGP)

25.82

11.74

17.65

19.49

21.98

23.43

9.33

20.53

13.65

12.36

10.97

10.29

Profit & Loss Summary

Price-to-Earnings (Forward P/E)

30,257
4.6%

Balance Sheet Summary (EGPm)


Cash & Cash Balances

8,269

5,925

5,443

5,334

5,494

5,604

Trade and Other Receivables


Property, Plant & Equipment

8,236

9,750

11,143

10,859

11,283

11,800

9,912
9,910

14,991
9,874

17,999
10,762

17,642
10,547

18,299
10,336

18,791
10,129

Total Assets

43,026

46,858

53,424

52,093

53,116

54,265

Total Liabilities

25,444

29,715

35,082

33,871

34,063

33,049

Book Value Per Share (EGP)

72.95

71.13

76.11

75.61

79.06

88.03

Intangible Assets

Profitability
ROA (%)
ROE (%)

7.9%
12.1%

5.7%
15.1%

0.56

0.38

1.35
0.26

1.25
0.20

7.3%
21.7%

7.6%
23.4%

8.6%
25.8%

9.0%
25.4%

0.29

0.27

0.28

0.30

1.14
0.12

1.05
0.05

1.09
0.08

1.16
0.14

Liquidity
Cash / Current Liabilities
Current Assets / Current Liabilities
Net Working Capital / Current Assets
Comparables

P/E

Valuation
P/Rev

P/BV

Margin Analysis (%)


Gross Operat.
Net

Profitability (%)
ROE
ROA

Orascom

13.6

1.8

3.2

24.5

18.6

13.3

21.1

7.3

Average of Peers

19.3

2.8

3.0

29.6

16.7

15.7

20.7

10.8

Valuation
Line of Business

Subsidiary

Construction Group

OCI Ownership

Value (in EGPm)

Per Share (in EGP)


134.01

100%

27,729

Fertilizer Group

EFC

100%

11,392

55.06

Fertilizer Group

EBIC

60%

5,500

26.58

Fertilizer Group
Fertilizer Group

OCI Nitro
Sorfert

100%
51%

20,072
1,624

97.00
7.85

Fertilizer Group

Notore

14%

Fertilizer Group

Gavilon

16.8%

96

0.46

1,904

9.20

Less: Net Debt

11,339

54.80

Less: Minorities

1,018

4.92

55,834

269.83

Total Value

ORASCOM CONSTRUCTION INDUSTRIES

TableofContents
INVESTMENT SUMMARY ............................................................................................................................. 4
COMPANY PROFILE ....................................................................................................................................... 6
Share Ownership....................................................................................................................................... 6
Board & Management............................................................................................................................... 6
Subsidiaries and Associates .................................................................................................................... 7
BUSINESS MODEL ......................................................................................................................................... 8
Revenue Mix .............................................................................................................................................. 8
Geographical Diversification.................................................................................................................... 9
Vertical Integration & Synergy ................................................................................................................. 9
Products & Services ................................................................................................................................10
STRATEGY......................................................................................................................................................11
Fertilizer Segment to Lead Growth ......................................................................................................11
Revenue Expansion in Growing Markets ............................................................................................11
Cost Control .............................................................................................................................................11
Brand Associated with Top Quality and Competitive Pricing ..........................................................12
Government Partnerships ......................................................................................................................12
OUTLOOK ......................................................................................................................................................13
Construction Backlog Continues to Decline .......................................................................................13
New Awards Expected to Continue Slump during 2011 ..................................................................13
Reliance on Regional Infrastructure Investments ..............................................................................14
Fertilizer Market Tied to World Demand for Food and Energy ........................................................14
Expectations for Fertilizer Prices & Capacity.......................................................................................15
RISKS ..............................................................................................................................................................16
FINANCIAL ANALYSIS ..................................................................................................................................17
COMPARABLE ANALYSIS ...........................................................................................................................21
Relative Valuation .................................................................................................................................... 21
Profitability Comparison ......................................................................................................................... 22
Management Efficiency ......................................................................................................................... 22
VALUATION ...................................................................................................................................................23
Assumptions in Valuation ...................................................................................................................... 23
Assumptions in Forecasting Construction Revenues ....................................................................... 24
Assumptions in Forecasting Fertilizer Revenue ................................................................................. 24
PROJECTED INCOME STATEMENT ..........................................................................................................26
PROJECTED BALANCE SHEET...................................................................................................................27
APPENDIX ......................................................................................................................................................28
I List of Comparable Peers ................................................................................................................. 28

ORASCOM CONSTRUCTION INDUSTRIES

INVESTMENT SUMMARY
We are initiating a HOLD recommendation on Orascom Construction Industries (OCI) shares after
carefully analyzing the following:
Business Model
OCI is a leading construction contractor and fertilizer producer on a regional and international
scale. The company actively pursues contracts in various sectors but the preponderance of its
contracts consist of infrastructural works; ranging from building transportation projects to raising
power plants as well as a multitude of industrial and commercial ventures. More than 60% of its
backlog consists of infrastructure while the rest is split between industrial and commercial
contracts. The grand majority of its backlog springs from the MENA region with Egypt, Algeria
and GCC countries leading way. In the span of a few years, the group has become a major player
in Nitrogen based fertilizers with a total production capacity of over 4.84 mtpa as of late 2010 with
a target of 7.75 mtpa in 2012. Fertilizer revenues have followed an increasing trend and have
grown in importance in relation to the weight of the total revenue mix.
Profitability
Net income reached EGP 3.65 billion in 2010, a 51% surge over 2009s sharp fall to 2.53 billion
that was weighed down by the slowdown. This recovery in large part is due to the better than
expected performance from the fertilizer sector and an almost unchanged construction
contribution. Despite a lower share in revenue, fertilizers possess the advantage of having higher
gross margins than construction which permits for a higher gross profit contribution. We estimate
gross margin for fertilizer in 2011 to be around 40%, significantly higher than constructions near
20% margin. Construction COGS hover in the 80% range and are somewhat stable. We estimate
ROA to slightly increase to 7.6% in 2011 with ROE nearing 24%. Both ratios are expected to
fluctuate around these levels in the coming years as the fertilizer operations start to turn in more
profits and as the construction sector recovers.
Growth
We expect OCIs revenues to slightly decline in 2011 to reach EGP 27.1 billion compared to 27.6
billion in 2010. Growth is estimated to record a CAGR of 5.7% for the 2011-2014 timeframe. In our
model, fertilizer revenues are expected to post a hefty 27% Y-O-Y increase in 2011 vs.
constructions 13% revenue decline. As per management guidance, we can expect to see growth
in capacity for some of its fertilizers effective 2012.
OCI reported a backlog of USD 5.62 billion through 2010, 15% lower than what was reported in
2009. The stagnating and even diminishing backlog has been attributed to a slowdown in
construction activity and real estate in both the regional and international fronts. This decline
began in the year superseding the credit crunch that interrupted OCIs exceptional performance in
2008 where backlog grew by 46% to around USD 7 billion. We expect this decrease to persist
through 2011 but we anticipate a rebound in construction activity and a return to backlog growth
during 2012.
Financial Position
OCIs liquidity ratios have conjointly followed a feebly-sloped downward trend from 2008 to 2010
as more borrowings and liabilities reached maturity. We see them continuing to decline in 2011
but stabilizing in 2012. Orascoms current ratio is estimated at around 1.05 in 2011 with the quick
ratio also reaching a low of 0.27. OCI has held the reputation of being a cash-rich company as
witnessed by its high cash balances of nearly EGP 5.5 billion in 2010. With ongoing expansion
plans and acquisitions in an otherwise slowing market, OCI maintained its capital expenditures in
order to remain competitive causing reliance on debt to surge from 2008 onwards. We expect a
debt to equity ratio of around 90% in 2011, with a possible gradual decline to start in 2012 as no

ORASCOM CONSTRUCTION INDUSTRIES


new plans for acquisitions or expansions are in sight for the short term. OCIs interest coverage
ratio has fluctuated between 5 and 6 during 2008 - 2010, which is associated with a relatively safe
investment. As earnings improve along with little debt issues, we see the ratio climbing to 8.
Valuation
We estimate OCIs fair value at EGP 270 per share using a Sum-of-the-parts (SOTP) methodology
with 38% attributed to the construction segment versus 62% to the growing fertilizer group. Both
lines of business were valued using a discounted cash flow (DCF) model with a WACC of 11% for
fertilizer and 13% for construction; 2% was added to construction due to its high concentration in
the Middle East. As per management guidance, weighted average selling prices and capacity
were provided for each product from each plant constituting the basis of our analysis.
When comparing OCI to an average composite, we find that it is considerably undervalued with a
P/E of 13.7 as opposed to 19.3 for its peers. This temporary discount that OCI trades at accounts
for the unrest that occurred recently in Egypt and the region, where the companys construction
business mostly operates. However, OCIs revenues and earnings surged during 2010 and are
expected to remain considerably high in 2011, hence providing a possibility for share price
appreciation as the situation settles.
Dividends
Historically, OCI has been consistently distributing dividends bi-annually since 2008. Besides its
large 300 EGP/share offered in march of 2008 which disbursed most of its earnings from the sale
of the cement group, the usual semi-annual dividend offered amounts to around 5 EGP or the
equivalent of 1 USD. The companys dividend payout ratio is around 45% of net earnings.
Risks
While unrest has settled in Egypt, a key market for Orascom, uncertainty continues in several
markets that present a growth opportunity for the company. This may cause a delay in gaining
new awards and have an adverse effect on its backlog since sovereign projects constitute a major
share of Orascoms construction business.
Another key concern is the competitive environment in the construction business. With the sector
going through successive booms in the region, the market is now flooded with strong
competitors on both the local and international levels with whom OCI has to contend in bidding
for new contracts.
The companys reliance on commodity prices is another notable risk since these fluctuate
aggressively as witnessed globally by the large spikes and sharp falls across the board. A drop in
commodities would signify a decrease in fertilizer prices and hence a drop in profitability.
Specifically, oil has a direct impact on its fertilizer business; as oil prices increase, fertilizer prices
follow suite resulting in higher profitability. On the other hand, oil prices have an indirect effect on
its construction business; a considerable portion of Orascoms backlog comes from oil-exporting
countries whose budgets rely on oil prices.
The mounting tensions between the Egyptian and Algerian governments that occurred during the
summer of 2010 present another growth-impeding risk. Sorfert Algerie, an OCI fertilizer
subsidiary, is set to begin operations in 2011 and could face hindrances from the local
government that may hurt its profitability.

ORASCOM CONSTRUCTION INDUSTRIES

COMPANY PROFILE
Orascom Construction Industries (OCI) is a leading construction contractor and fertilizer producer
on a regional and international scale. It was originally founded in 1976 by Onsi Sawiris as a
general contracting and trading company based in Cairo and has grown into one of Egypts
largest corporations employing over 84,000 employees and workers. Throughout the years, the
construction group has positioned itself as one of the most prominent contractors in the MENA
region, scoring multi-million dollar contracts from various locations. The newly acquired and
growing fertilizer segment represents a means of diversification as well as an alternative
independent revenue stream. Since its inception in the mid 2000s, the nitrogen based fertilizer
group has grown to rank amongst the top 5 nitrogen fertilizer producers worldwide in terms of
capacity. This sector shows substantial room for growth through continuous investments as
witnessed by the acquisition of new plants and the erection of others in different countries.
Share Ownership
OCI made its initial public offering (IPO) on March of 1999, offering 14% of its outstanding shares
(8.63 million shares) with a par value of USD 12.50/share. Ordinary shares are listed on the Cairo
and Alexandria Stock Exchange (CASE) whereas its GDR shares are listed on the London Stock
Exchange (LSE) at a 1:1 ratio since 2009. Further issues followed suit bringing the total of shares
issued to 206,918,461. The Sawiris family collectively controls 55% of the outstanding shares of
the company.

Source: OCI

Board & Management


Mr. Nassef Sawiris

Chairman & CEO

Mr. Onsi Sawiris

Chairman & Non-Executive Director

Mr. Salman Butt

CFO

Mr. Osama Bishai

Managing Director for Construction Group

Mr. Karim Camel-Toueg


Mr. Nicolas Estay

Director & Contrack President


Executive Vice-President (Europe)

Mr. Kevin Struve

Strategic Planning Director

Ms. Dalia Khorshid

Corporate Treasurer

Mr. Fady Kiama

Corporate Controller

Mr. Hassan Badrawi


Mr. Hussein Marei

Director Business Development


General Counsel

Ms. Heba Iskander

Corporate Development Director

Mr. Sherif Tantawy

CFO Construction Group

Mr. Johan Beerlandt


Mr. John Baracat

CEO BESIX Group


Managing Director NSF

Mr. Hossam Khattab

Managing Director EFC

Mr. Amr Hassaballah

Managing Director EBIC

Mr. Hesham Abdelsamie

Director of Subsidiaries

Source: OCI

ORASCOM CONSTRUCTION INDUSTRIES


Subsidiaries and Associates
OCI operates through wholly as well as partially owned subsidiaries in both construction and
fertilizer segments.
Subsidiary

Ownership

Construction
Orascom Construction

100%

BESIX Group

50%

Contrack

100%

Construction Materials
National Steel Fabrication

100%

United Paint and Chemicals

56.5%

United Holding Company

56.5%

Alico Egypt

50%

National Pipe Company

40%

SCIB Chemical

15%

Fertilizer
Egyptian Fertilizers Company

100%

Egypt Basic Industries Corporation

100%

OCI Nitrogen

100%

Sorfert Algerie

51%

Associate
Notore Chemical Industries

13.5%

Gavilon

16.8%

Source: OCI

ORASCOM CONSTRUCTION INDUSTRIES

BUSINESS MODEL
Revenue Mix
OCI derives its revenue stream from two distinct business segments: a construction group which
has constituted the core of the companys operations since its establishment and a newly
founded nitrogen fertilizer production group.

Source: BlomInvest

Construction Group: Throughout the years, OCIs brand has become synonymous with a degree
of quality and competency in the MENA region allowing the company to contend in diverse
markets and competitive bids for new contracts. The company actively pursues contracts in
various sectors but the preponderance of its business consist of infrastructural works; ranging
from building transportation projects to raising power plants as well as a multitude of industrial
and commercial ventures. In 2009, 60% of its backlog consisted of infrastructure while the rest
was split between industrial and commercial contracts. In the last few years, the bulk of new
contracts awarded has stemmed from sovereign clients outgrowing those from its private
clientele. OCI operates through three entities, mainly: Orascom Construction, Contrack, and
BESIX. The company has also formed a 50/50 joint venture with Morgan Stanley to develop
infrastructure in the MENA region.

Source: OCI

Fertilizer Group: OCI ventured into the fertilizer business in 2005 by acquiring Middle East
Petrochemical Company (MEPCO) which held a 30% stake in EBIC. OCI later increased that stake
to 60% to control the majority of the company. With the divestment of its cement operations in
2007 by the sale of Orascom Building Materials Holding Co, a global cement producer, to Lafarge
SA, the firm was able to direct its attention to the fertilizer segment and expand its operations
with the acquisition of EFC, DSM Agro & Melamine (now OCI Nitrogen), the erection of a new
plant in Algeria (Sorfert) as well as minority stakes in Notore and Gavilon. In the span of a few
years, the group has become a major player in Nitrogen based fertilizers with a total production
capacity of over 4.84 mtpa as of late 2010 with a target of 7.75 mtpa in 2012.

ORASCOM CONSTRUCTION INDUSTRIES


Geographical Diversification
Through its acquisitions and investments in subsidiaries and associates, OCI benefits from a
global presence in international markets asides its predominance in local markets for both
construction and fertilizer activities. Orascom construction has strong presence in emerging
markets across the Middle East and North Africa. Contrack and Besix, which are based in the
United States and Belgium respectively, provide OCI with exposure to the American and
European market which were otherwise inaccessible. However, the grand majority of the backlog
springs from the MENA region with Egypt, Algeria and GCC countries leading way. During 2010,
both Europe and Asia constituted 15% of total backlog. The group maintains a well-diversified
backlog making it less prone to regional risks.
As for fertilizers, the recent takeover of Dutch-based OCI Nitrogen (formerly DSM Agro &
Melamine) as well as the minority stake attained in Gavilon, the largest distributor of fertilizers in
the US, allowed OCI to obtain this geographical diversification and offered the opportunity to
operate via different distribution channels and the ability to cater to different markets.

Source: OCI

Vertical Integration & Synergy


The construction group owns and operates construction materials companies which consist of a
series of enterprises that specialize in the different phases of the construction process. From its
wholly owned steel fabrication plant (NSF) to partially owned pipe companies amongst others
whose core businesses entail of paint, glass, steel, chemicals and aluminum, OCI benefits largely
from this vertical integration. Their involvement in the process means that OCI secures its building
materials and necessities from inside sources which provide a more maneuverable approach,
prompter service while granting lower margins and minimizing costs.
OCI also benefits from synergies through ventures and acquisitions that extend to the fertilizer
segment. A prime example would be Sorfert Algeria which is set to begin production in 2011. OCI
owns 51% of Sorfert while the remainder is owned by Sonatrach, the largest oil and gas company
in Algeria. Sonatrach signed an agreement to provide gas stock supply at a competitive cost for
the plant over a period of 20 years. This proves to minimize substantial cost for a major input in
the production process. The close proximity of EBIC and EFC permits the plants to benefit from
synergies by facilitating the exchange of inputs and materials.

ORASCOM CONSTRUCTION INDUSTRIES


Products & Services
With 60% of its backlog consisting of infrastructural works, OCI has been associated with this
particular kind of activity capturing both soft and hard infrastructure contracts. Construction
expertise varies from building bridges, highways and railroads to water and energy plants to
telecommunications. With the advance of new technologies, OCI is gradually widening its
operating scope and reducing barriers for capturing new awards.
Fertilizers offered by OCI are mainly nitrogen based that vary by their nitrogen concentration and
their chemical composition. Since each type of fertilizer possesses different physical and
chemical characteristics, their usage varies as each would present advantages and disadvantages
to the soil type and crop being grown.

At the base, anhydrous ammonia is amongst the cheapest and most commonly used
fertilizers. Most other commercial fertilizers are derived from it.
Urea contains 45-46% nitrogen content. On application, the nitrogen present in it gets
converted into ammonia. It readily dissolves in water and is capable of showing quick
results.
UAN consists of a solution of Urea and Ammonium Nitrate. It has become popular
because it is more versatile as a liquid and is widely available.
CAN is Ammonium Nitrate in crystallized from which is quick-acting but highly
hygroscopic.
Ammonium Sulfate (AS) contains only 21% nitrogen and is applied in dry form with no
nitrogen loss. It is a good source of sulfur that is an essential nutrient to plants. However
it is acidifying and requires large quantities of lime to counteract the acidic effects.
Melamine, a derivative of urea, contains 66% nitrogen and is more expensive to produce
than other nitrogen fertilizers. Its nitrogen mineralization process is extremely slow,
making this product both economically and scientifically impractical for use as a fertilizer.

10

ORASCOM CONSTRUCTION INDUSTRIES

STRATEGY
Fertilizer Segment to Lead Growth
The construction group has slowed in terms of growth relatively to that of the fertilizer segment
that has grown exponentially since inception and shows potential for more. Part of OCIs strategy
is to catapult this segment which already ranks among the top 10 producers worldwide for
nitrogen fertilizers into the top 3. With the erection of Sorfert Algerie and the broadening of
distribution channels, this target is highly likely. As for construction, despite the sluggish
performance that has ensued the global financial crisis, OCI remains strongly competitive in its
core markets but is recently weighed down by the regional upheaval.

Source: BlomInvest

Revenue Expansion in Growing Markets


The Construction group recently conducted endeavors to solidify its presence in already
established markets such as the MENA region while penetrating new ones, mainly emerging
markets with strong construction opportunities such as India. OCI has been granted various
awards across the MENA such as a USD 675 million contract as part of the billion dollar Qatar
development plan as well as a prior USD 750 million contract to expand the international airport.
The firm has also created a joint venture with Indian company HCC Infrastructure Limited (HIL) to
tender to projects issued by the National Highways Authority of India and have already begun to
grab part of the 11,854 km of roads and highway works that will be built.
Cost Control
Through vertical integration, OCI benefits from having the necessary capabilities of keeping its
margins in check despite volatile price environments. Since 2007, operating margin has averaged
at 17% as a result of stable COGS (around 78% of total revenue) and constant SG&A.

Source: BlomInvest

11

ORASCOM CONSTRUCTION INDUSTRIES


Brand Associated with Top Quality and Competitive Pricing
The OCI name and brand has been linked with top grade quality and efficiency in services and
products offered at competitive prices. Through extensive years of experience in the field, the
contractor has gained a level of knowhow by overseeing various types of projects. Benefitting
from low cost margins has given OCI the ability to provide their service at favorable prices thus
giving an edge in the bidding process. A low cost player providing higher quality services are
attributes that are favored thus giving OCI an advantage in gaining new awards. Customer
satisfaction is essential since the majority of their clientele consist of governments undergoing
infrastructural works; this gives rise to recurring businesses and the awarding of vast projects
which is more favorable and larger in size than those undertaken by private ones.
Government Partnerships
With almost 65% of its backlog stemming from sovereign clients, OCI has formed ties and
partnerships with many governments across the MENA region. In the GCC countries where it
conducts most of its business, OCIs service is looked favorably upon in Qatar and UAE where no
favoritism is exhibited towards local competitors. However, that is not the case in Saudi Arabia
where OCIs exposure is weak due to the high barriers of entry and the availability of strong local
competitors which capture most of the new infrastructure projects.

12

ORASCOM CONSTRUCTION INDUSTRIES

OUTLOOK
Construction Backlog Continues to Decline
OCI reported a backlog of USD 5.62 billion through 2010, 15% lower than 2009. The diminishing
backlog is attributed to a slowdown in construction activity on both the regional and international
fronts. This started in 2008 as countries in the GCC and the entire MENA region felt the effect of
the worldwide economic slowdown.
We expect to see further declines in 2011 as the potential for new business continues to weaken
in Orascoms major markets, such as Egypt and Algeria which constitute almost 40% of backlog.
Growth may resume in 2012 as the geopolitical situation in the region calms down and Egypts
new political system takes shape. Both infrastructure and real estate investment are key demands
of revolutions in the region with their respective governments indicating strong support by
declaring massive spending plans. On a positive note, projects in Qatar, which constitute 20% of
Orascoms backlog, are anticipated to continue growing as massive infrastructure projects take
place in preparation for the World Cup.

Source: OCI, BlomInvest

New Awards Expected to Continue Slump during 2011


New awards have experienced a phase of decline since 2008 where they reached a record USD
5.48 billion, almost 80% of total backlog for the year. In 2009, new awards slumped to USD 3.17
billion as a result of the slowdown in construction activity where the fourth Quarter of 2009
proved to be the worst in 4 years with a meager USD 360 million. New awards in 2010 showed no
improvements as OCI reported weaker numbers than last year with USD 2.62 billion vs. 3.17
billion in 2009. We expect New Awards to continue declining throughout 2011 due to geopolitical
pressure that may slow demand for new construction. However, governments all over the MENA
have declared spending plans to update their infrastructure and increase housing supply which
would improve the companys construction line-of-business. We expect this to begin appearing in
Orascoms operational and financial results in 2012.

Source: BlomInvest

13

ORASCOM CONSTRUCTION INDUSTRIES


Reliance on Regional Infrastructure Investments
While the outlook for 2011 remains grim, we see new awards increasing in 2012 through
augmented exposure to new markets and increased investment in key markets. Looking forward,
this sector shows promise, and with the advent of new development plans in various countries
throughout the GCC and MENA region, OCIs strong competitive edge and competencies in its
field are guaranteed to make it capture an extensive portion of bids. Chief among these
structuring plans are listed here below:
o On the domestic level, Egypt is planning development and infrastructural projects for USD
24 billion. The Algerian government has allotted USD 150 billion to spend on infrastructure
by 2013.
o In the Gulf, Qatar has consorted significant restructuring and development plans that will
shape and direct the countrys future. The government is implementing new plans to erect
stadiums and to rearrange and renew infrastructure in preparation for the World Cup.
o In the UAE, Abu Dhabi announced that a major USD 300 billion package is underway for
construction and infrastructure.
o As for Dubai, workload has slowed noticeably this past year upon suffering from the
effects of the debt crisis contrarily to Abu Dhabi. However, upon the restructuring of its
debt and improvements in its economy, activity is likely to resume.
o Saudi Arabia, a market in which OCI does not possess strong presence due to strong local
competition, might see increased exposure as new plans are being implemented to
secure the long-term development of the country.
Fertilizer Market Tied to World Demand for Food and Energy
Fertilizer markets overall whether potash, nitrogen or phosphate based took a downturn in 2009
but has firmly rebounded in 2010 and is expected to maintain sustained growth trends for the
coming four years. At the start of 2010, supply stagnated due to slower than anticipated growth in
capacity. However, we expect a surplus to run for nitrogenous fertilizers in the long run due to
capacity growth overtaking that of demand. Fertilizer production and consumption remain tied to
the health of the global economy. As the economic recovery progresses, the agricultural market
fundamentals are stabilizing and thus increasing agricultural needs to meet world demand for
food and energy. Overall, global trade of Nitrogen fertilizers is expected to expand by 15%
through 2014. In the short-run however, OCI has benefitted from favorable market dynamics in
2011: Competitors from Ukraine and China are experiencing rising cash costs in production while
exports from Russia, China and Ukraine are constrained due to the surge in domestic
consumption.

Source: Blominvest

14

ORASCOM CONSTRUCTION INDUSTRIES


Expectations for Fertilizer Prices & Capacity
As prices bottomed in 2009, they did not gain as much momentum as was expected in 2010.
However, we are witnessing a gradual recovery and we expect prices to be on the rise during
2011-2013. As stated above, capacities arent experiencing much growth. Worldwide
expectations remain positive over a four year time scale. For OCI, as per management guidance,
we can expect to see growth in capacity for some of its fertilizers effective 2012. Year by year, the
fertilizer segment grows in importance. The acquisition of DSM Agro & Melamine now known as
OCI Nitrogen which outperformed in the first half of the year plays a pivotal role in the expansion
plans of the group as it has gained the capability to access new markets such as Europe and
China. The erection of Sorfert in Algeria will also increase their foothold in the continent as well
secure their domination in the nitrogenous fertilizer world.

Source: Blominvest

15

ORASCOM CONSTRUCTION INDUSTRIES

RISKS
Outlined here are some of the main hurdles that could threaten to slow OCIs growth and affect
revenue hence shrinking profitability:
Delay in Demand for Construction
While unrest has settled in Egypt, a key market for Orascom, uncertainty continues in several
markets that present a growth opportunity for the company. This may cause a delay in gaining
new awards and have an adverse effect on its backlog since sovereign projects constitute a major
share of Orascoms construction business. Plans to update infrastructure and increase housing
supply are already being proposed by several Middle Eastern governments in response to
protester demands. However, actual construction and contract signing may lag until political risks
in the region decline.
Increased Competition in an Already Saturated Market
OCIs construction division benefited from large margins early on due to the unavailability of
equally experienced construction companies. However, with the advances made to the sector
ensuing successive construction booms in the region, the market is now flooded with strong
competitors on both the local and international level with whom OCI has to contend in the bidding
for new contracts.
Algerian Government Squabbles
With mounting tensions between the Egyptian and Algerian governments that occurred during
the summer of 2010, the outlook in Algeria remains uncertain for Egyptian companies. Orascom
Telecom already faced some backlash with Djezzy, its Algerian operations as the government
imposed high taxes and pushed for a hostile takeover. Sorfert which is set to begin operations in
the first half of 2011 could face hindrances from the local government, thus affecting its
profitability.
Fluctuating Commodity Price Cycles
Most commodity prices move concomitantly as witnessed globally by the large spikes and sharp
falls across the board. OCIs reliance on commodity prices is apparent in both business
segments. Specifically, oil has a direct impact on its fertilizer business; as oil prices increase,
fertilizer prices follow suite resulting in higher profitability. On the other hand, oil prices have an
indirect effect on its construction business; a considerable portion of Orascoms backlog comes
from oil-exporting countries whose budgets rely on oil prices. As oil prices increase, thicker
budget surpluses encourage them to invest in new construction projects.
Another key commodity that affects Orascoms fertilizer business is natural gas, as it constitutes
a large part of the costs. Despite having contractual agreements to have gas supplied at fixed
prices, some contracts are about to expire such as OCI Nitrogen in 2012 (paying $5/MMBTU)
which may push the company to pay spot prices that are expected to average $7/MMBTU in 2012
based on futures.

16

ORASCOM CONSTRUCTION INDUSTRIES

FINANCIAL ANALYSIS
Revenues
We expect OCIs overall revenues to stagnate in 2011 due to the regional turmoil that may cause
a temporary slowdown in new orders for construction. However, the companys strategy to
propel the fertilizer group coupled with a recovery in fertilizer prices will help spark an increase in
revenues. We expect fertilizer revenues to post a hefty 27% Y-O-Y increase vs. constructions
languorous 4% in 2011. Fertilizers are gradually capturing a larger part of total revenues,
estimating growth to record a CAGR of 16.1% for the 2010-2014 timeframe.

Source: BlomInvest

Gross Margins
Despite lower revenue contributions, fertilizers possess the advantage of having higher gross
margins than construction which permits for a higher gross profit contribution. We estimate gross
margin for fertilizer in 2011 to reach 44%, significantly higher than constructions near 20%
margin. Construction COGS hover in the 80% range and are somewhat stable while fertilizer costs
are more variable and are forecasted to near 60% in the future. In 2011, we estimate around EGP
4.2 billion of gross profit from fertilizer compared to EGP 3.2 billion from construction.

Source: BlomInvest

17

ORASCOM CONSTRUCTION INDUSTRIES


Earnings
Net income is estimated to reach EGP 4 billion in 2011, an 11% rise over 2010s reported earnings
of EGP 3.65 billion. This increase in large part would be due to the favorable environment for
fertilizer sellers as demand continues to expand and high oil prices allow gross margin
enhancements. OCI nitrogen has been consistently beating estimates with better than expected
results, and Sorfert Algeria which is on track to begin operations in 2011 will give an important
boost to fertilizer revenues. Despite an expected sloppy performance in the construction sector
for 2011, we anticipate an expansion for 2012 with higher awards granted and a return to backlog
growth by year end.

Source: BlomInvest

Liquidity
OCIs liquidity ratios have conjointly followed a feebly-sloped downward trend since 2008 as more
borrowings and liabilities reach maturity. However, we see them stabilizing near our 2012
estimates. The companys current assets have always been greater than its current liabilities while
the cash ratio, a measure of cash availability, will remain around 0.30. OCI has held the reputation
of being a cash-rich company as witnessed by its high cash balances of nearly EGP 5.4 billion in
2010.
Current Ratio = Current Assets / Current Liabilities
Cash Ratio = Cash / Current Liabilities
Net Working Capital (NWC) Ratio = (Current Assets Current Liabilities) / Current Assets

Source: BlomInvest

18

ORASCOM CONSTRUCTION INDUSTRIES


Leverage
With ongoing expansion plans and acquisitions in an otherwise slowing market, OCI continued
the same level of capital expenditures in order to remain competitive. Reliance on debt
experienced a surge from 2009 and its capital structure mix was varied with more leverage
factored in. For example 70% of the Sorfert plants investment cost was debt-financed as the
company tapped a EUR 1.064 billion loan facility. Consequently, this had for effect of pushing up
the debt equity ratio by 25% in 2009. We expect the ratio to start a gradual decrease during 2011
as no new plans for acquisitions or expansions are in sight for the short term. OCIs interest
coverage ratio was around 7 in 2010, which is considered a relatively safe investment. As
earnings improve along with little debt issues, we see the ratio climbing to the 8-10 range.

Source: BlomInvest

Profitability
We estimate a slight increase in ROA to reach 7.7% in 2011 along with ROE rising to 23%. Both
ratios are expected to improve further in 2012 as the fertilizer operations start to turn in more
profits and construction recovers from a slowdown in orders. In 2010, OCIs ROA experienced a
boost to reach 7.3% from 5.7% in 2009. This in large part is due to a recovery in earnings from
the prior year where both business segments were under pressure.
.

Source: BlomInvest

19

ORASCOM CONSTRUCTION INDUSTRIES


Dividends
Historically, OCI has been consistently distributing dividends bi-annually since 2008. Besides its
large 300 EGP/share offered in march of 2008 which disbursed most of its earnings from the sale
of the cement group, the usual dividend offered amounts to around 5 EGP or the equivalent of 1
USD. The companys dividend payout ratio is around 45% of net earnings.
Date

Price/Share (EGP)

Div./Share (EGP)

Div.Yield

30-Jun-08

367.00

5.00

1.36%

21-Sep-08

326.11

5.48

1.68%

25-Mar-09

144.86

5.63

3.89%

27-Sep-09

245.30

4.40

1.79%

29-Mar-10

267.22

5.50

2.06%

13-Sep-10

257.74

5.71

2.21%

07-Apr-11

248.50

5.70

2.29%

Source: OCI, BlomInvest

20

ORASCOM CONSTRUCTION INDUSTRIES

COMPARABLE ANALYSIS
When studying a company, we find it necessary to see how it compares to its peers from three
standpoints:
1. Profitability Comparison: Indicative of how efficiently the company is managing its
expenses through different margin analysis (Gross Margin, Operating Margin, Net
Income)
2. Relative Valuation: Shows how the market perceives the company as opposed to its
peers (overvalued, undervalued, or fairly valued)
3. Management Efficiency: Shows how well management is utilizing its assets and equity
to generate earnings.
Comparable Firms
We stratify our selection to companies that operate in the region and/or the fertilizer and
construction industries which will provide insights into the strengths and weaknesses of our
target company. Since OCI operates in two industries that possess dissimilar margins and
different dynamics, comparison of the consolidated business to other firms can be distorted.
Hence we proceeded by compiling a list that consists of 8 fertilizer producers and 8 contracting
companies. To account for the differences, we computed a weighted average for these
companies with the weights based on the gross profit contribution by both business segments in
OCI. Thus a weight of 50% was accorded to both the construction and fertilizer businesses based
on their gross profit contribution in 2010.
The average market cap was of USD 6.6 billion with values ranging between 650 million and 16.9
billion. The average was significantly lower than OCIs 8.8 billion market cap due to the inclusion
of smaller cap competitors from the MENA region.
The complete list of companies is available in the appendix.
Relative Valuation
We compared Price against earnings, revenues, book value and cash flow in order to alleviate
differences in accounting standards that can arise from operating in different countries. Through
price to earnings and revenues, we can see that OCI is significantly undervalued compared to the
peer composite due to an excellent performance in 2010 where both earnings and revenues
registered around 30% growth. Instead of a rise in its share price, the stock fell considerably
caused by the recent upheaval in the region. Performance during 2011 is expected to be close to
its 2010 performance indicating an undervalued share price. On the other hand, its price to book
value and cash flow are on par with the peer composite.

Source: BlomInvest, Reuters

21

ORASCOM CONSTRUCTION INDUSTRIES


Profitability Comparison
OCIs gross margin is of 24% when compared to the significantly higher average of 29%. The
individual companies that compose the list exhibit various discrepancies. Mainly, construction
firms from Europe have unusually high gross profit margins which tend to skew our data.
However, OCIs gross margin seems to be the most competitive relative to its Middle Eastern
peers. On another note, OCIs operating margin is slightly higher than that of the average
composite. This indicates that OCI is more cost effective in running its day-to-day activities. OCI
has leveraged its know-how through extensive years of experience in the field to achieve better
quality at lower costs. This is further validated through its SG&A margin which is almost half that
of its peer. Net income margin is slightly lower than the peer average. Its higher debt results in
higher interest expense which reduces its net income margin compared to its peers.

Source: BlomInvest, Reuters

Management Efficiency
OCIs Return-on-Equity (ROE) at 21% is on par with its peer average whereas its Return-on-Assets
(ROA) is lower. This lagging performance can be attributed to OCIs overleveraging with a Debt-toEquity (D/E) ratio of 91%, resulting in considerably higher interest expenses. In addition, its
Revenue/Assets ratio is half that of its peers which further contributes to a lower ROA.

Source: Blominvest, Reuters

22

ORASCOM CONSTRUCTION INDUSTRIES

VALUATION
We estimate OCIs fair value at EGP 270 per share using a Sum-of-the-parts (SOTP) methodology.
Both lines of business were valued using a discounted cash flow (DCF) model; however the
construction segment was valued as a whole while the fertilizer subsidiaries were segregated and
valued individually.
Line of Business

OCI Ownership

Construction Group

Value (in EGPm)

100%

Fertilizer Group

Per Share (in EGP)

27,729

134.01

40,462

195.54

11,392

55.06

Subsidiaries
EFC

100%

EBIC

60%

5,500

26.58

OCI Nitro

100%

20,072

97.00

Sorfert

51%

1,624

7.85

Notore

13.5%

96

0.46

Gavilon

16.8%

1,777

8.59

Total

68,191

329.55

Less: Net Debt

11,339

54.80

Less: Minorities

1,018

4.92

Net Equity Value

55,834

269.83

Source: BlomInvest

Assumptions in Valuation
Discount Rate
We used a WACC of 11% in valuing the fertilizer business group and a WACC of 13% for
construction derived as follows:
Fertilizer WACC = (Weight of Debt * Cost of Debt)*(1-Tc) + (Weight of Equity * Cost of Equity)
= (50% * 5.98%)*(1-15%) + (50%*17.16%) = 11.09%
OCI Cost of Debt = Interest Expense for 2010 / Debt for 2010
= EGPm 678 / 11.34 = 5.98%
OCI Cost of Equity = Risk-Free Rate + (Beta * Market Risk Premium)
= 10.4% + (1.06 * 6.4%) = 17.16%

We used a Risk-Free Rate of 10.4% represented by the yield on the one year Treasury bill
issued by the Egyptian Government. This captures the additional risk of investing in a
relatively undeveloped country such as Egypt when comparing it to the U.S. Treasury.
OCIs weekly Beta over the past 3 years is estimated at 1.06. This is a measure of OCIs
share volatility against the EGX-30 Index that represents the 30 largest shares on the
Egyptian Stock Exchange.
A Market Risk Premium of 6.4% is the result of the difference between the average 5
year return of the EGX-30 estimated at 16.8% and the Risk-Free Rate of 10.4%. This
represents the premium investors expect to gain for realizing the additional risk of
investing in securities.

To calculate constructions WACC, we added a 2% premium to the WACC of the fertilizer


business segment in account for geopolitical risks in the MENA region where most of Orascoms
construction projects are.

23

ORASCOM CONSTRUCTION INDUSTRIES


Terminal Growth Rate
With the construction and fertilizer business segments being in different stages, we took different
terminal growth rates beyond our forecasts to account for this. A 3% growth rate was used for
construction compared to 4% for fertilizers.
Corporate Tax Rate
A 15% effective tax rate was applied on our forecasts based on previous taxes paid and due.
Assumptions in Forecasting Construction Revenues
1. Existing Projects in Backlog
Revenues were recognized over a four year time frame using an accelerated method with
revenues heavily recognized in the first two years and then moderately over the remaining
two. This assumption was based on historical observations of project completion time as
well as the payment compatibility from clients. The top ten biggest contributors to backlog
with values exceeding USD 140 million each had their revenues recognized independently.
The remainder of backlog was then recognized as a whole with an average template of 30%
in year 1, 40% in year 2, 20% and 10% in year 3 and 4 respectively.
2. New Awards
Based on our estimates of the construction outlook in the region, as well as OCIs positioning
in the markets, we see new awards gaining momentum as early as 2011. New awards are
expected to bounce back to the USD 4 billion range in 2011 from its scanty USD 3.12 billion
end-of-year estimate in 2010. Thereafter, we anticipate bids won to maintain an upward trend
for the coming three years. Note that once awards are won, they are captured in the backlog
and therefore follow the same principles for revenue recognition as existing projects.
Our assumptions hence yielded the following forecasts:
(in millions USD)

New Awards

2010

2011e

2012f

2013f

2014f

2,620

2,490

2,700

2,860

3,030

Backlog

5,620

5,355

5,683

5,921

6,152

Revenue

3,398

2,941

3,063

2,939

3,004

-13.0%

4.1%

-4%

2,2%

Revenue growth
Source: BlomInvest

Costs of Goods Sold were assumed stable and hovering around 80% of total revenues.
Assumptions in Forecasting Fertilizer Revenue
Fertilizer Price Forecasts
Since OCI owns and operates different fertilizer plants, revenues and profits were recognized by
subsidiary. As per management guidance, weighted average selling prices and capacity were
provided for each product from each plant constituting the basis of our analysis.
Our forecast for average selling prices over the next three years is as follows:
Prices are in USD per ton
Fertilizer

2010

2011e

2012f

2013f

2014f

Urea

238

249

261

275

289

Ammonia

321

336

352

372

390

UAN

204

213

224

236

247

CAN

227

238

249

263

276

AS

200

210

219

231

243

1,512

1,584

1,659

1,750

1,837

Melamine
Source: BlomInvest

24

ORASCOM CONSTRUCTION INDUSTRIES


Among the factors we considered to model our fertilizer pricing forecasts are:
Production Inputs & Natural Gas Costs
The production of nitrogenous fertilizers requires natural gas as a primary input. Although most
plants have contracts for natural gas to be provided at fixed costs, OCI Nitrogens contract will
expire forcing the company to pay spot prices in 2012 and resulting in a hike in costs. Other
production input prices were assumed to increase marginally every year.
Global Supply & Demand
Overall, we estimated that global supply of nitrogenous fertilizer will increase on average causing
surplus to rise accordingly. These dynamics are correlated to many factors that interplay resulting
in an upward or downward pressure on prices. Chief amongst these factors considered were
world agricultural needs, granular prices, restraints and oversupply from other producers,
inventory carryover, cheaper alternatives, seasonality
Transportation Costs
Transportation costs were based on shipping charges (as per the Harpex and the Baltic Dry Index)
and raw material costs that are tied to other commodity futures since they tend to move together.
Production Capacity
OCIs management guidance was taken for any planned changes in capacity. We assumed 100%
capacity utilization:
Plant

Fertilizer

Capacity (mtpa)

Capacity Change

Timescale

Urea

1.3

1.60

in 2012

EFC

UAN

0.325

No Change

as of 2011

AS

0.3

No Change

as of 2012

EBIC

Ammonia

0.7

No Change

Ammonia

0.45

No Change

CAN

1.2

1.45

UAN

0.2

No Change

OCI Nitrogen

Sorfert

in 2012

AS

0.75

No Change

Melamine

0.24

No Change

Ammonia

0.8

No Change

as of 2012

Urea

1.2

No Change

as of 2012

Source: BlomInvest, OCI

Fertilizer COGS consisted of cash costs of production which varied for each fertilizer. These were
provided by OCI and projections were made in accordance with changes in future costs.

25

ORASCOM CONSTRUCTION INDUSTRIES

PROJECTED INCOME STATEMENT


(in millions of EGP)

2008

2009

2010

2011e

2012f

2013f

2014f

Continuing Operations
Revenues
COGS
Gross Profit
Other Operating Income

20,253

21,313

27,560

27,148

28,932

30,257

32,025

(14,952)

(16,581)

(20,814)

(19,818)

(20,252)

(21,180)

(22,418)

2,309

5,300

4,732

6,273

7,051

7,826

8,480

64

168

17

217

231

242

256

(1,093)

(1,284)

(1,626)

(1,710)

(1,736)

(1,876)

(1,954)

(201)

(212)

(473)

(543)

(579)

(605)

(641)

Operating Profit

4,070

3,404

4,664

5,294

6,596

6,838

7,270

Interest Income

677

134

104

92

126

97

132

Interest Expense

SG&A
Provisions for Claims & Doubtful Debts

(668)

(632)

(678)

(757)

(759)

(734)

(729)

Gain on Foreign Currency Exchange

494

35

(31)

50

50

50

50

Net Finance Cost

503

(462)

(605)

(615)

(583)

(586)

(547)

99

429

150

150

150

150

Income Before Taxes

4,575

3,042

4,488

4,829

6,163

6,402

6,872

Income Tax Expense

(576)

(491)

(835)

(773)

(924)

(960)

(1,031)

Net Profit From Continuing Operations

3,999

2,550

3,652

4,057

5,239

5,441

5,841

11

1,434

Investments Income

Discontinued Operations
Results from Discontinued Operations
Gain on Sale of Investment
Net Profit From Discontinued Operations

1,445

Net Income

5,444

2,550

3,652

4,057

5,239

5,441

5,841

EPS

25.82

11.74

17.65

19.61

25.32

26.30

28.23

EPS from Continuing Operations

18.87

11.74

17.65

19.61

25.32

26.30

28.23

Source: Blominvest

26

ORASCOM CONSTRUCTION INDUSTRIES

PROJECTED BALANCE SHEET


(in millions of EGP)

2008

2009

2010

2011e

2012f

2013f

2014f

Cash and Equivalents

8,269

5,925

Inventories

1,462

1,402

1,834

1,737

1,852

1,936

2,050

Trade and Other Receivables

8,236

9,750

11,143

10,859

11,283

11,800

12,490

ASSETS
Current Assets

Receivable on Sale of Discontinued


Cement Operations
Marketable Securities
Assets Held for Sale

163

211

5,443

5,334

5,494

5,604

5,660

252

250

250

250

250

535

539

449

450

450

450

450

Dues from Clients

1,194

1,523

2,159

1,900

1,736

1,846

2,050

Total Current Assets

19,859

19,350

21,280

20,531

21,065

21,886

22,949

PP&E

9,912

14,991

17,999

17,642

18,299

18,791

18,886

Payments for Purchase of Investments

2,785

Intangible Assets

9,910

9,874

10,762

10,547

10,336

10,129

9,927

Investments in Associated Companies

136

2,105

2,588

2,600

2,600

2,600

2,600

Investments Available for Sale

133

253

237

250

250

250

250

LT Receivables

255

247

329

271

289

303

320

Deferred Income Taxes

36

38

229

251

277

306

338

Total Non-Current Assets

23,167

27,508

32,144

31,562

32,051

32,379

32,321

TOTAL ASSETS

43,026

46,858

53,424

52,093

53,116

54,265

55,270

Bank Overdraft for ST Loans

3,671

2,266

4,125

3,765

3,240

2,965

2,690

Trade and Other Payables

8,318

8,494

10,358

10,407

10,615

10,199

9,991

Due to Clients

Non-Current Assets

LIABILITIES
Current Liabilities

1,600

3,659

2,884

4,344

4,340

4,539

4,644

Provisions

634

650

877

650

650

650

650

Income Taxes Payable

457

361

377

409

409

409

409

Liabilities Related to Assets Held for Sale

14,679

15,429

18,621

19,575

19,254

18,762

18,384

LT Loans

7,754

11,219

12,656

10,994

11,454

10,990

11,237

Provisions

Total Current Liabilities


Non-Current Liabilities

1,891

1,913

2,096

1,947

1,925

1,950

1,922

Other LT Liabilities

613

571

739

750

700

650

600

Deferred Taxes

507

582

970

600

600

600

600

Total Non-Current Liabilities

10,766

14,285

16,461

14,291

14,679

14,190

14,359

TOTAL LIABILITIES

25,444

29,715

35,082

33,866

33,933

32,951

32,743

Share Capital

1,074

1,035

1,069

1,035

1,035

1,035

1,035

Reserves

6,183

4,320

4,523

4,706

4,909

5,171

5,443

Retained Earnings

6,484

8,836

8,738

7,785

7,381

9,068

9,619

Net Profit for the Year

5,367

2,417

3,531

3,883

5,040

5,221

5,612

Own Shares

-1,668

-200

-205

-200

-200

-200

-200

EQUITY CAPITAL

Adjustment on Translation of Foreign


Companies
TOTAL SHAREHOLDERS' EQUITY
Minority Interest in Subsidiaries
TOTAL EQUITY CAPITAL

-86

-15

17,355

16,393

-320

17,336

17,209

18,164

20,295

21,509

227

750

1,018

1,018

1,018

1,018

1,018

17,581

17,143

18,354

18,227

19,182

21,313

22,527

43,026

46,858

53,436

52,093

53,116

54,265

55,270

TOTAL LIABILITIES
& SHAREHOLDERS' EQUITY
Source: BlomInvest

27

APPENDIX
I List of Comparable Peers
Informational
Company

Valuation
Mkt Cap

Ticker

Exchange

Country

Construction Contractors
Combined Group
Arabtec Holding PJSC

CGC
ARTC

KUW
DFM

Kuwait
UAE

650
582

Aveng Limited

USD (m)

Profitability Analysis

Management Efficacy

Gross

Oper

Profit

SG&A /

Margin (%)

Margin (%)

Margin (%)

Rev

13.75
2.93

12.82
15.14

8.69
7.81

7.34
7.91

P/E

P/Rev

P/BV

P/CF

20.07
6.96

1.61
0.39

5.62
0.79

ROE

ROA

D/E

3.27
7.62

27.97
12.07

6.69
4.85

62.09
27.32

Rev /
Assets
0.91
0.61

AEG

JNB

S. Africa

2,085

8.86

0.42

1.11

4.65

16.24

6.12

5.51

16.23

7.99

3.11

1.45

Colas SA

RE

EPA

France

7,670

23.46

0.44

2.21

8.29

52.63

2.68

1.32

47.71

9.69

2.01

19.57

1.52

Leighton Holdings Limited


Fluor Corporation (NEW)

LEI
FLR

ASX
NYSE

AUS
USA

8,677
12,035

13.8
34.51

0.54
0.58

2.85
3.43

5.51
19.05

38.96
3.38

5.79
2.68

4.22
2.12

28.51
0.75

24.96
10.51

7.48
5.96

65.13
3.27

1.77
2.82

ACS Activ. de Construc.

ACS

MCE

Spain

15,942

8.06

0.68

2.42

6.93

44.32

6.84

8.33

25.65

30.23

4.10

334.04

0.48

China State Const. Corp

601668

SHA

China

3,502

23.19

2.27

5.06

22.64

10.76

8.42

9.35

3.93

25.49

6.59

115.83

0.71

6,393

17.36

0.86

2.94

10.47

24.28

6.13

5.76

16.78

19.64

5.70

78.78

1.28

Construction Average
Fertilizer Producers
Abu Qir Fertilizers and
Jordan Phosphate Mines

ABUK
JOPH

CAI
AFM

Egypt
Jordan

1,727
1,629

7.57
12.52

4.15
2.04

3.55
2.14

12.37

42.12
25.71

41.6
10.49

47.26
13.18

10.82
5.24

41.77
15.89

29.96
12.05

0
7.19

0.63
0.91

China BlueChemical Ltd.


Taiwan Fertilizer Co., Ltd.

3983
1722

HKG
TPE

China
Taiwan

3,751
3,302

20.72
55.26

3.55
6.56

2.31
1.9

11.52
48.42

27.92
13.02

24.55
5.87

19.94
11.94

7.75
7.58

11.61
3.45

10.08
2.73

3.18
0.01

0.51
0.23

Arab Potash Company

APOT

AFM

Jordan

5,008

21.77

6.33

4.32

17.28

46.55

32.9

29.09

6.14

21.19

17.18

3.87

0.59

CF Industries Holdings

CF

NYSE

USA

9,956

28.43

2.51

2.45

12.31

29.75

22.16

10.44

2.68

12.08

7.36

48.37

0.7

Saudi Arabia Fertilizers

2020

SAU

Saudi

11,933

14.59

11.81

6.27

14.07

70.99

69.19

60

0.31

41.45

34.13

4.95

0.44

Yara International ASA

YAR

OSL

Norway

16,945

8.8

1.36

2.52

7.97

23.22

11.42

13.45

7.00

27.32

13.83

37.76

1.03

Fertilizer Average

6,781

21.21

4.79

3.18

17.70

34.91

27.27

25.66

5.94

21.85

15.92

13.17

0.63

Average Composite (50% Construction, 50% Fertilizer)

6,587

19.29

2.83

3.06

14.08

29.60

16.70

15.71

11.36

20.74

10.81

45.97

0.96

8,759

13.65

1.81

3.17

15.43

24.48

18.58

13.25

6.30

21.07

7.28

91.44

0.52

Orascom Construction Industries


Source: Blominvest, Reuters

28

Orascom Construction Industries


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29

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