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Культура Документы
BLOMINVEST
BANK
245
Sector:
Construction/Fertilizers
270
Country:
Egypt
Upside:
10%
Date:
Recommendation:
HOLD
Share Data
OCIC.EY
Reuters Symbol
OCIC.CA
50,695,155,000
Number of Shares
206,919,000
Free Float
38.00%
Price-to-Earnings
13.7
Price-to-Book
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
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
Year
2008
2009
2010
2011e
2012f
2013f
20.3
21.3
27.6
27.2
28.9
32.0
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
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
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%
5,300
4,732
6,746
7,303
7,869
8,381
26.2%
22.2%
24.5%
26.9%
27.2%
27.7%
5,444
2,550
3,652
4,034
4,547
4,848
26.9%
12.0%
13.3%
14.9%
15.7%
16.0%
188%
36.2%
43.2%
10.4%
12.7%
6.6%
25.82
11.74
17.65
19.49
21.98
23.43
9.33
20.53
13.65
12.36
10.97
10.29
30,257
4.6%
8,269
5,925
5,443
5,334
5,494
5,604
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
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
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
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
11,339
54.80
Less: Minorities
1,018
4.92
55,834
269.83
Total Value
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
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
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
CFO
Corporate Treasurer
Corporate Controller
Director of Subsidiaries
Source: OCI
Ownership
Construction
Orascom Construction
100%
BESIX Group
50%
Contrack
100%
Construction Materials
National Steel Fabrication
100%
56.5%
56.5%
Alico Egypt
50%
40%
SCIB Chemical
15%
Fertilizer
Egyptian Fertilizers Company
100%
100%
OCI Nitrogen
100%
Sorfert Algerie
51%
Associate
Notore Chemical Industries
13.5%
Gavilon
16.8%
Source: OCI
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.
Source: OCI
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
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
Source: BlomInvest
11
12
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: BlomInvest
13
Source: Blominvest
14
Source: Blominvest
15
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
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
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
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
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%
20
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.
21
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.
22
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
100%
Fertilizer Group
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
11,339
54.80
Less: Minorities
1,018
4.92
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.
23
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
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
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
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)
494
35
(31)
50
50
50
50
503
(462)
(605)
(615)
(583)
(586)
(547)
99
429
150
150
150
150
4,575
3,042
4,488
4,829
6,163
6,402
6,872
(576)
(491)
(835)
(773)
(924)
(960)
(1,031)
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
18.87
11.74
17.65
19.61
25.32
26.30
28.23
Source: Blominvest
26
2008
2009
2010
2011e
2012f
2013f
2014f
8,269
5,925
Inventories
1,462
1,402
1,834
1,737
1,852
1,936
2,050
8,236
9,750
11,143
10,859
11,283
11,800
12,490
ASSETS
Current Assets
163
211
5,443
5,334
5,494
5,604
5,660
252
250
250
250
250
535
539
449
450
450
450
450
1,194
1,523
2,159
1,900
1,736
1,846
2,050
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
2,785
Intangible Assets
9,910
9,874
10,762
10,547
10,336
10,129
9,927
136
2,105
2,588
2,600
2,600
2,600
2,600
133
253
237
250
250
250
250
LT Receivables
255
247
329
271
289
303
320
36
38
229
251
277
306
338
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
3,671
2,266
4,125
3,765
3,240
2,965
2,690
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
457
361
377
409
409
409
409
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
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
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
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
-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
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
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
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
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
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
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
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
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
28
IMPORTANT DISCLAIMER
This research is based on current public information that we consider reliable, but we do not represent it is accurate or
complete, and it should not be relied on as such. Blom Bank SAL or BlomInvest SAL can have investment banking and other
business relationships with the companies covered by our research. We may seek investment banking or other business from
the covered companies referred to in this research. Our salespeople, traders, and other professionals may provide oral or
written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are
contrary to the opinions expressed in this research. Our asset management area, our trading desks and investing businesses
may make investment decisions that are inconsistent with the recommendations or views expressed in this research. We and
our affiliates, officers, directors, and employees, excluding equity analysts, will from time to time have long or short positions
in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered
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any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take
into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider
whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek
professional advice. The price and value of the investments referred to in this research and the income from them may
fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original
capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to
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Copyright 2010 BlomInvest SAL.
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior
written consent of BlomInvest SAL.
29