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Positives
Writing off expensive inventory: EFICs management has allocated a
c.EGP20mn provision, through which we believe it has indirectly written off its
expensive inventory.
Machinery maintenance & capacity build-up: New management decided to
increase its SSP production capacity by 700k tons per year in Suez during
2012. This should benefit EFICs production capacity (i.e. fewer production
interruptions) and will allow the company to increase its export sales volume.
Rescheduling loan structure: EFIC was able to restructure close to 53% of its
short-term bank loans into medium-term ones, signalling a breather for short
term repayments and interest expense burden.
Ammonium Sulphate agreement: Management is believed to be continuing its
negotiations with the GoE to export its AS directly, without reliance on third
parties.
Cautions
No DPS expected for 2011: We expect that the restructuring activities may
deter any DPS for 2011.
COMPANY SYNOPSIS
Egyptian Financial & Industrial Company (EFIC) is a jointstock company founded in 1929. EFIC's main activities are
producing and trading phosphate fertilizers and chemicals. It
produces the following products:
1.
2.
Sulphuric acid
3.
4.
5.
SHAREHOLDER STRUCTURE
Holding Companies
Banks
Inusrance companies
Others
Free Float
Total
26.6%
10.0%
1.08%
10.3%
52.0%
100.0%
STOCK DATA
Reuters; Bloomberg
Recent price as of 23-Nov-11
No. of O/S shares
Market cap
52-wk high / low
Avg. daily volume / turnover
EFIC.CA; EFIC EY
EGP 9.38
69.3 mn
EGP 650.03
EGP 20.65/ EGP 0
0.14 mn / LE 1.97 mn
25
Volume
EFIC
EGX 30 - rebased
mn shares
EGP
3.5
3.0
20
2.5
15
2.0
1.5
EGP mn
2010 A
2011 P
2012 P
2013 P
2014 P
10
Revenues
Growth rate
650.3
13.0%
899.0
38.2%
1,025.3
14.0%
1,160.1
13.2%
1,307.6
12.7%
89.6
-23.5%
13.8%
214.3
139.2%
23.8%
236.8
10.5%
23.1%
264.3
11.6%
22.8%
301.9
14.2%
23.1%
Net income
Growth rate
Net m argin
(8.1)
NM
-1.2%
44.8
NM
5.0%
85.2
90.2%
8.3%
101.3
19.0%
8.7%
111.4
9.9%
8.5%
PER
P/BV
EV/EBITDA
Net debt/EBITDA
Dividend yield
NM
0.8x
16.3x
4.3x
0.0%
14.5x
0.7x
6.4x
3.6x
0.0%
7.6x
0.7x
7.1x
3.6x
2.1%
6.4x
0.6x
6.1x
3.0x
2.5%
5.8x
0.6x
5.7x
2.6x
3.1%
Please Read Last Page For Contact Details and Important Disclaimer
Oct-11
Nov-11
Jul-11
Aug-11
Jun-11
May-11
Mar-11
May-11
Mar-11
Jan-11
Feb-11
Dec-10
EBITDA
Growth rate
EBITDA m argin
0.5
Nov-10
COMPANY NOTE
1.0
Source: Bloomberg
MUHAMMAD EL EBRASHI
MUHAMMAD.ELEBRASHI@CICAPITAL.COM.EG
EGYPT|FERTILIZERS
November 24, 2011
The company has changed its external auditor from MazarsMostafa Shawki to
KPMG Hazem Hassen, starting with the 2011 fiscal year.
The GAM dated May 5 accepted the resignation of Mr. Esmat Awad Sayyad, the
newly inaugurated chairman and managing director, and the successor of Mr. Yehia
Kotb. The GAM has also approved the election of Mr. Ali Awad Sayyad.
Company management changed its accounting policy for inventory, and wrote off
c.EGP20mn of inventory.
COMPANY NOTE
Higher interest expense to finance WC: A higher interest expense came alongside the
companys higher level of operations during 3Q11; however, management was able to
cut down its outstanding debts since the beginning of the year.
Source: Companys management reply no. 5 to the Central Accounting Agency report in 1Q11
standalone financials
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EGYPT|FERTILIZERS
November 24, 2011
consolidated sales. The international benchmark price for this raw material
increased by 16% QoQ to reach USD175/ton vs. USD150/ton in 2Q11.
In addition, EFICs management was able to decrease both of its short term and
long term borrowing to EGP197mn and EGP363mn in 3Q11, down from
EGP276.6mn and EGP443.9mn, respectively, by year end 2010.
Net income: EFICs income from continuing operations totaled EGP18mn, which beat
our estimates of c.EGP15mn, of which 35% came from EFICs standalone while the
residual was generated from SCFP during 3Q11.
Figure 1 | EFIC Quarterly Performance Highlights
Consolidated Financials (EGP '000)
1Q11 A
Mar-11
111,887
-21%
-37%
2Q11 A
Jun-11
223,837
53.0%
100.1%
3Q11 A
Sep-11
199,351
8%
-11%
3Q11 E
Sep-11
164,698
-65.2%
-50.9%
Variance
A vs. E
21.0%
9M11 A
Sep-11
535,075
12.9%
9M11 A Variance
Sep-11 A vs. E
500,422
6.9%
5.6%
Gross Profit
Gross Margin
YoY growth
QoQ growth
31,487
28.1%
-45%
-325%
52,016
23.2%
0.5%
65.2%
74,504
37.4%
99%
43%
57,553
34.9%
-60.6%
-31.1%
29.5%
243 bps
158,007
29.5%
8.0%
141,056
12.0%
28.2% 134 bps
-3.5%
EBITDA
EBITDA Margin
YoY growth
QoQ growth
23,272
20.8%
-53%
NM
39,332
17.6%
-4.3%
69.0%
60,166
30.2%
119%
53%
27,675
16.8%
-76.5%
-55.8%
117.4%
1338 bps
122,770
22.9%
4.3%
90,279
36.0%
18.0% 490 bps
-23.3%
EBIT
EBIT Margin
YoY growth
QoQ growth
16,000
14.3%
-65%
NM
32,378
14.5%
-11.0%
102.4%
51,563
25.9%
100%
59%
23,718
14.4%
-77.9%
-51.0%
117.4%
1147 bps
99,941
18.7%
-6.8%
72,096
38.6%
14.4% 427 bps
-32.8%
2,954
2.6%
-87%
NM
22,957
10.3%
-12.7%
677.2%
17,929
9.0%
61%
-22%
14,450
8.8%
-75.8%
-44.2%
24.1%
22 bps
43,840
8.2%
-26.5%
40,360
8.1%
-32.4%
8.6%
13 bps
2,955
2.6%
-88%
NM
12,699
5.7%
-44.7%
329.8%
17,929
9.0%
61.3%
41%
14,450
8.8%
-75.8%
-7.7%
24.1%
22 bps
33,584
6.3%
-43.8%
30,104
6.0%
-49.6%
11.6%
26 bps
Revenue
YoY growth
QoQ growth
COMPANY NOTE
Please Read Last Page For Contact Details and Important Disclaimer
EGYPT|FERTILIZERS
November 24, 2011
Projection Assumptions
1.
We have increased the applied CAPM on EFIC and SCFP to 15.4% and 16% from
13% and 14.2%, respectively. This follows increasing the applied risk premium
following the recent political instability of the MENA countries, and higher adjusted
beta of 0.91.
2.
Additional SSP
production capacity
postponed
'000 ton/year
4,500
SA - Kafr El Zayat
SSP - Assiut
AS - SCFP
SA - Asyut
SSP - SCFP
DCP - SCFP
Additional 150k/yr of AS
SA - SCFP
SSP - Suez
4,000
3,500
20
300
50
20
300
50
10
225
50
450
20
300
50
450
20
300
50
450
700
700
2,500
150
50
450
450
450
2,000
750
750
750
750
750
750
750
750
750
750
750
750
500
425
425
425
425
425
425
210
170
210
170
210
170
210
170
210
170
210
170
2008
2009
2010
2011
2012
2013
3,000
1,500
1,000
COMPANY NOTE
3.
Utilization rates:
Please Read Last Page For Contact Details and Important Disclaimer
Management is yet to
solve AS exports with
GoE...
EGYPT|FERTILIZERS
November 24, 2011
'000 ton
2,000
PSSP
GSSP
45%
AS
41%
40%
1,800
35%
227
1,600
30%
200
1,400
70
29%
25%
22%
25%
627
1,200
1,000
308
359
800
160
798
191
153
269
550
2006A
2007A
2008A
15%
5%
671
0%
213
236
77
9%
835
307
200
-
17%
501
222
388
98
23%
10%
10%
380
404
638
15%
163
320
600
400
20%
562
37
87
123
95
134
131
124
2009A
2010A
2011P
2012P
2013P
2014P
4.
2009
2010
Finished/WIP
goods
Raw material
*Cost bases: is calculated from raw materials, direct labor costs, and the proportionate indirect
costs.
**LoCM: deducts expected manufacturing costs.
COMPANY NOTE
5.
6.
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EGYPT|FERTILIZERS
November 24, 2011
7.
8.
Taxes: We have increased the tax rate to 12.5%, up from an average of 7% starting
2011 onward. The increase follows the recent increase in the GoE tax rate by 5% to
reach 25%. We expect that SCFPs tax shelter is rewarding consolidated
performance.
9.
10. EGPHOS: A major partner in the EGPHOS project has announced that the project
might be delayed for a two year period; thus we expect that the project is unlikely to
be launched any time soon. Accordingly, we are ruling out its inclusion in our
valuation, as well as EFICs investment income, until receiving clear guidance from
the company or about the project.
11. Provisioning: We expect the companys management to provision an amount of
EGP68mn, representing the repayment of EGP61mn to Al Nasr Mining Company as
well as a contingent EGP7mn. The latter amount might satisfy the Central
Accounting Agency requirement in footnote no. 1, which had been mentioned in
EFICs standalone financial statements for 1Q11.
COMPANY NOTE
12. Cash dividends: We believe that the new management may hold off on distributing
cash dividends for the third year in a row. This follows our view that management
might want to retain some liquidity to undertake the restructuring process during
2011 onwards.
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EGYPT|FERTILIZERS
November 24, 2011
EGP mn
160
SCFP
140
120
67.5
100
62.5
80
50
60
40
20
77.5
62.5
20
50
30
0
2011
2012
2013
2014
Dec-07
Actual
Dec-08
Actual
Dec-09
Actual
524,997
931,325
575,599
650,308
899,024
1,025,279
1,160,103
1,307,568
77.4%
-38.2%
13.0%
38.2%
14.0%
13.2%
12.7%
798,633
1,013,292
1,079,609
1,143,649
13%
1%
7%
14%
214,258
236,808
264,280
301,878
13.78%
23.83%
23.10%
22.78%
23.09%
-23.52%
139.18%
10.52%
11.60%
14.23%
Old
163,433
214,448
236,447
266,856
EBITDA margin
18.18%
20.92%
20.38%
20.41%
Growth rate
82.44%
31.21%
10.26%
12.86%
31%
10%
12%
13%
-64,372
-97,164
-92,219
-109,601
-91,635
-106,623
-89,833
-120,029
-30%
-9%
3%
-9%
Sales
New
Growth rate
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Actual Projected Projected Projected Projected
Old
EBITDA
% Chg.
New
164,364
296,329
117,134
EBITDA margin
31.31%
31.82%
20.35%
Growth rate
89,581
New
-31,459
-50,440
-82,048
-68,589
Old
% Chg.
New
Attrib. Income
COMPANY NOTE
Interest Exp.
% Chg.
135,567
239,694
25,762
-8,096
44,784
85,178
101,342
111,414
76.8%
-89.3%
-131.4%
NM
90.2%
19.0%
9.9%
25.74%
4.48%
-1.24%
4.98%
8.31%
8.74%
8.52%
41,602
86,859
180,335
174,037
Growth rate
NM
108.8%
107.6%
-3.5%
Net margin
5.2%
8.6%
16.7%
15.2%
8%
-2%
-44%
-36%
Growth rate
Net margin
25.82%
Old
% Chg.
Please Read Last Page For Contact Details and Important Disclaimer
EGYPT|FERTILIZERS
November 24, 2011
Valuation Summary
We have used DCF and multiples to value EFICs fundamental and relative value,
respectively. The following are summaries for our approaches:
DCF valuation Downgraded: We have reduced our estimate for the companys
intrinsic value by 42% based on higher discounting factors, i.e. risk premiums and beta
and removal of EGYPHOS. This was although we have increased companys utilization
rates and increased profit margins.
Technical valuation Removed: Although the technical analysis view of the stock
suggests EGP10-11/share as a support, we chose not to incorporate the technical
pricedue to the recent political changes.
TP Downgraded: We blended the two approaches (DCF and multiple valuations), as
opposed to our previous method, which had included the technical analysis. This
resulted in EGP14.3/share.
We have summarized our findings below.
Figure 8 | EFICs valuation summary
Valuation methodology
LTFV
Weights Change
Value Change
Multiple
Overall effect
TP
DCF
5
Technical
6
Relative
5
11.0
13.2
Value - EGP
15.4
14.3
Valuation Methodology
For the second time, we have revised downward our estimates for EFICs 12M
LTFV and TP.
DCF
COMPANY NOTE
We have also decreased our estimate for the companys shareholders value from
EGP1,824mn to EGP1,070mn a c.45% slash due to the following:
1.
2.
Increasing the applied risk premium following the recent political instability of the
MENA countries.
3.
4.
We have increased our discount rates applied on EFIC and SCFP to 15.4% and
16% from 13% and 14.2%, respectively.
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EGYPT|FERTILIZERS
November 24, 2011
Enterprise
Value (EV)
EFIC
SUEZ
Valuation
Liquidity Discount
SUEZ
EGYPHOS (1st phase)
Valuation
Liquidity Discount
EGYPHOS (1st phase)
Sum
New Valuation
Equity EFIC's share
share
422.1
100.0%
422.1
1,527.5
99.9%
1,525.7
10%
1,373.1
0%
1,949.6
0%
-
Subsidiary
23.5%
EFIC
SUEZ
Valuation
Liquidity Discount
SUEZ
EGYPHOS (1st phase)
Valuation
Liquidity Discount
EGYPHOS (1st phase)
76.5%
0.0%
1,795.3 100.0%
Net Cash/(Debt)
(725.5)
Shareholders' value
1,069.8
No. of Shares
69.3
LTFV
15.4
OLD Valuation
Enterprise Equity EFIC's
Value (EV) share share
% of
total
value
Sum
731.0 100.0%
1,851.6
99.9%
1,696.7
15%
4,279.3
Net Cash/(Debt)
No. of Shares
EV (EGP mn)
Ownership %
Prop. Ent
Value (EGP
mn)
EFIC
61.9
>
2013
4.5
278.4
100.0%
278.4
SCFP
336.8
>
2013
4.5
1,515.8
99.9%
1,362.6
-
EGYPHOS
Total prop EV.
Net Cash/(Debt)
1,641.0
(725.5)
915.5
Equity Value
COMPANY NOTE
-18%
62.8%
-18%
-100%
9.6%
-100%
2,650.0 100.0%
-32%
26.6
27.6%
%
Change
(New
vs. old)
-42%
-10%
-42%
69.3
LTFV
EFICs local share is currently trading at a 2013E PER of 6.5x and a 2013E EV/EBITDA
of 6.1x. We believe investors would be more concerned withthe companys multiples for
2013 one year from now; thus we used 2013 multiples to reach a multiple-based
valuation vis--vis peers.
Year
254.5
0%
254.5
1,842.4
Relative Valuation
EBITDA (EGP
mn)
1,849.4
10%
1,664.5
(807.6)
Shareholders' value
Subsidiary
731.0
% of
total
value
Shares
69.3
Relative Value
13.2
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-42%
EGYPT|FERTILIZERS
November 24, 2011
Recommendation
Following our belief that the current management is committed to restructuring and the
enhancement of current production capacities, we have a positive sentiment and our
suggested TP of EGP14.3/share leaves EFIC with north of 50% as upside potential from
current market price, to trade at a 2012e EV/EBITDA multiple of 8.5x. The stock currently
holds a 50%+ upside potential, prompting us to upgrade EFICs rating two notches up
from Hold to Strong Buy.
Figure 11 | EFICs TP calculation
Target Price Calculation
Method
23-Nov-11
5-Oct-10
Weights
Share price
Weights
Share price
DCF*
50%
15.4
25%
26.6
Multiple**
50%
13.2
40%
22.6
0%
11.0
35%
21.5
Technical price***
Weighted average
14.3
23.2
14.3
23.2
Current price as of
Upside potential
9.4
20.3
52.8%
14.3%
COMPANY NOTE
Investment rationale
1.
2.
3.
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10
EGYPT|FERTILIZERS
November 24, 2011
Risks to Recommendation
COMPANY NOTE
Downside Risks
1.
2.
Inventory piling up for AS in the local distribution system might reduce the amount of
AS sold. It is worth mentioning that AS is considered an N fertilizer product that falls
under the trade regulation of the N fertilizers in Egypt. According to the regulation, a
newly-established trading company should procure all N fertilizers from local
companies to be sold to the market or exported.
3.
Kafr el Zayat and Asyut plants have obsolete machines, which might subject EFICs
production to stoppages. However, managements decision to launch its new Suez
plant and replenish them may reduce this operational risk.
4.
EFICs EBITDA margin might be at risk, as new local companies have established
their own phosphate mining companies for fear of escalating price competition.
5.
6.
Global demand for P fertilizers in 2012 might be negatively affected if the present
trend of unfavorable weather conditions continues.
7.
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11
EGYPT|FERTILIZERS
November 24, 2011
Dec-11P
Dec-12P
Dec-13P
Dec-14P
Assets
Cash & Cash Equivalent
59.6
Net Receivables
125.7
Total Inventory
257.0
Other Current Assets
151.6
Total Current Assets
594.0
Net Plant
1,236.2
Long-Term Investments
0.3
Total Assets
1,838.2
44.0
221.7
329.2
0.0
594.9
1,227.1
0.0
1,822.0
50.2
280.1
542.0
0.0
872.3
1,397.2
0.0
2,269.4
73.3
349.6
498.7
0.0
921.6
1,379.8
0.0
2,301.4
70.2
429.9
606.3
0.0
1,130.9
1,368.8
0.0
2,499.7
Liabilities &
Shareholders'
Equity
STD and CPLTD
423.6
Accounts Payable
38.8
Accrued Expenses
0.0
Down Payments
0.0
Dividends Payable
1.6
Total Current Liabilities 507.3
Total Long-Term Debt
445.8
Other Non-Current Liab.
0.0
Total liabilities
953.1
Minority Interest
0.4
Shareholders' Equity
844.0
Total Liabilities & Equity1,838.2
351.2
47.5
0.0
0.0
0.0
398.6
416.4
0.0
815.0
0.7
897.5
1,822.0
788.2
113.8
0.0
0.0
0.0
902.0
288.2
0.0
1,190.3
1.2
969.3
2,269.4
878.4
102.9
0.0
0.0
0.0
981.3
155.0
0.0
1,136.3
1.8
1,054.6
2,301.4
1,136.0
96.8
0.0
0.0
0.0
1,232.8
10.0
0.0
1,242.8
2.4
1,145.8
2,499.7
Fact Sheet
ROE
ROS
ROA
ROIC
Gross Margin
EBITDA Margin
ATO
WI/ Sales
Net Debt/EBITDA
Debt/ Tangible Equity
Current Ratio
Income Statement
(EGP mn)
Dec-10A
Revenues
650.3
COGS
(518.1)
Gross Profits
132.2
SG&A
(42.6)
EBITDA
89.6
Dep. & Amort.
(17.6)
EBIT
72.0
Interest Expense
(68.6)
Provisions
(12.8)
Interest Income
0.2
Investment Income
0.6
Other Non-Operating Inc.
0.4
EBT
(8.2)
Taxes
0.0
Attributable Profits
(8.1)
Dec-11P
899.0
(634.3)
264.7
(50.4)
214.3
(30.6)
183.7
(64.4)
(68.0)
0.0
0.2
0.0
51.5
(6.4)
44.8
Dec-12P
1,025.3
(726.6)
298.7
(61.9)
236.8
(41.8)
195.0
(97.2)
0.0
0.0
0.2
0.0
98.0
(12.3)
85.2
Dec-13P
1,160.1
(813.6)
346.5
(82.2)
264.3
(55.7)
208.6
(92.2)
0.0
0.0
0.2
0.0
116.6
(14.6)
101.3
Dec-14P
1,307.6
(893.9)
413.7
(111.8)
301.9
(64.4)
237.5
(109.6)
0.0
0.0
0.3
0.0
128.2
(16.0)
111.4
Dec-10A
Dec-10A
-1.0%
-1.2%
-0.4%
4.1%
20.3%
13.8%
0.4x
54.1%
9.0x
1.1x
1.2x
Dec-11P
176.9
30.6
207.5
(159.4)
115.9
164.0
(211.3)
(47.4)
(21.5)
26.6
(67.5)
(136.3)
(38.7)
83.9
(15.6)
(0.0)
Dec-11P
5.0%
5.0%
2.5%
10.0%
29.4%
23.8%
0.5x
56.0%
3.4x
0.9x
1.5x
Dec-12P
182.2
41.8
224.0
(204.8)
0.0
19.1
(210.4)
(191.3)
(211.9)
(192.7)
0.2
(403.0)
422.1
0.1
6.2
(0.0)
Dec-12P
8.8%
8.3%
3.8%
8.5%
29.1%
23.1%
0.5x
69.1%
4.3x
1.2x
1.0x
Dec-13P
193.3
55.7
249.0
(37.1)
0.0
211.9
(220.4)
(8.5)
(38.4)
173.6
0.2
(46.6)
85.2
0.0
23.1
(0.0)
Dec-13P
9.6%
8.7%
4.4%
8.8%
29.9%
22.8%
0.5x
64.2%
3.6x
1.1x
0.9x
Dec-14P
220.7
64.4
285.1
(218.5)
0.0
66.6
(242.8)
(176.2)
(53.4)
13.2
0.3
(229.3)
245.9
0.0
(3.1)
0.0
Dec-14P
9.7%
8.5%
4.5%
9.2%
31.6%
23.1%
0.5x
73.7%
3.6x
1.1x
0.9x
Per-Share Ratios
Dec-10A
Share Price
9.38
No. of Shares (000)
69,302
EPS
-0.12
DPS
-0.00
Revenues/Share
9.38
Gross Cash Flow/Share
1.29
FCFF/Share
3.56
EBITDA/Share
1.29
EV/Share
21.06
Dec-11P
9.38
69,302
0.65
0.00
12.97
2.99
0.38
3.09
19.82
Dec-12P
9.38
69,302
1.23
0.19
14.79
3.23
-2.78
3.42
24.19
Dec-13P
9.38
69,302
1.46
0.23
16.74
3.59
2.50
3.81
23.23
Dec-14P
9.38
69,302
1.61
0.29
18.87
4.11
0.19
4.36
24.90
Multiples
P/E
Div Yield %
P/ Revenue
EV/ Revenues
P/ COPAT
EV/ COPAT
P/ FCFF
EV/ FCFF
P/ EBITDA
EV/ EBITDA
P/ BV
Dec-11P
14.5x
0.0%
0.7x
1.5x
3.1x
6.6x
24.4x
51.6x
3.0x
6.4x
0.7x
Dec-12P
7.6x
2.1%
0.6x
1.6x
2.9x
7.5x
(3.4x)
(8.7x)
2.7x
7.1x
0.7x
Dec-13P
6.4x
2.5%
0.6x
1.4x
2.6x
6.5x
3.7x
9.3x
2.5x
6.1x
0.6x
Dec-14P
5.8x
3.1%
0.5x
1.3x
2.3x
6.1x
49.4x
131.0x
2.2x
5.7x
0.6x
Dec-10A
(80.3x)
0.0%
1.0x
2.2x
7.3x
16.3x
2.6x
5.9x
7.3x
16.3x
0.8x
COMPANY NOTE
Please Read Last Page For Contact Details and Important Disclaimer
12
Dynamic Securities
Ahmed Roushdy
Managing Director
Khaled.Abdelrahman@cicapital.com.eg
Ahmed.Roushdy@cicapital.com.eg
Mona.Mansour@cicapital.com.eg
CI Capital Holding
8 Nadi El-Seid Street, Third Floor
Dokki
Giza, Egypt
Tel: +2(02) 33 38 62 59
Research@cicapital.com.eg
www.cicapital.com.eg
Disclaimer
The information used to produce this market commentary is based on sources that CI Capital Research (CICR) believes to be reliable and accurate. This information has
not been independently verified and may be condensed or incomplete. CICR does not make any guarantee, representation or warranty and accepts no responsibility or
liability to the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and with the use of specific
financial techniques that reflect the personal opinions of the authors of the commentary and is subject to change without notice. It is acknowledged that different
assumptions can always be made and that there is a wide choice of techniques that can be adopted each of which can lead to a different conclusion. Therefore, all that
is stated herein is of an indicative and informative nature as forward-looking statements, projections and fair values quoted may not be realized. Accordingly, CICR
does not take any responsibility for decisions made on the basis of the content of this commentary. This commentary is made for the sole use of CICRs customers and
no part or excerpt of its content may be redistributed, reproduced or conveyed in any form, written or oral, to any third party without the prior written consent of CICR.
In February 2008, CI Capital Research (CICR) launched a new rating system to give analysts more freedom to be market responsive. This is to make one element of our
research more dynamic, namely the advertising of target prices and recommendations. What we did not change is our assessment of the Long Term Fair Value (LTFV),
nor have we stopped our detailed industry and company research. What we did is change the target price to trade in the balance of where a share should trade and
where we think it will trade.
LTFV: As before we continue to estimate a fundamental valuation, largely DCF and/or NAV based.
Target Price: The price, which is not necessarily the LTFV, is where the analyst, given all (qualitative as well as financial) information available, thinks the share price can
get to within the next 3-12 months. This can be changed at any time on changing facts and perceptions.
Recommendations: Our new rating system falls out from the total return relating to the share price performance to the target price, and including any distributions may
not be included in the target price calculation. This is shown in the table below, and to be BUY must return over 19%, an arbitrary hurdle rate we think reasonable given
prevailing interest rates and risks (Please see table below.)
Rating
Strong Buy
Potential Upside/Downside
>30%
Buy
>20%<30%
Hold
>10%<20%
Underweight
>0% <10%
Sell
<0%