A recent report issued by Pharos Research said that the new healthcare act will positively impact Eastern Company’s revenues in the current fiscal year 2017/2018.
The research company raised their target fair value (FV) for Eastern Company to EGP 500, maintaining the Equal Weight recommendation.
The report has adjusted their model based on Eastern’s new pricing scheme, in addition to the sin tax, which is set to be implemented by the end of 2018 in accordance with Egypt’s new healthcare law.
Increased tax will positively impact the tobacco company’s profits, Pharos said, forecasting revenues to surge 13% in fiscal year 2017/2018, with a compound annual growth rate (CAGR) of 12% over the period from FY 2017/18 to FY 2021/22.
Eastern Company earnings before interest, taxes, depreciation, and amortisation (EBITDA) are expected to settle between 31% and 33% in FY17/18, the report said.
“Egypt’s 61bn local brand cigarettes volume, all produced by Eastern Company, highly covers market needs. We expect volumes to grow in line with population rise. Tobacco consumption is highly resilient, despite inflation and purchasing power pressure,” the report added.
In November, Eastern Company announced the new prices of its products after applying the value-added tax.
Last month, the company revealed that the increase in prices in most of its cigarette lines will raise revenues of its value-added tax (VAT) by around EGP 500m a month.
In addition, the price hikes will increase the company’s revenues by around EGP 50m per month, according to a statement to the Egyptian Exchange (EGX).
Accordingly, revenues from the VAT will increase by as much as EGP 6bn annually, while Eastern’s revenues will reach around EGP 600m per annum.
VAT implementation across Egypt began on 10 September 2016, after President Abdel Fattah Al-Sisi approved it.
Eastern Company last reported a profit of EGP 1.04bn in the three months ending in September 2017, a rise from EGP 427.3m in the same period of 2016.
Sales surged by 65.67% year-over-year to EGP 3.17bn in the period from July to September, compared to EGP 1.9bn.
Egypt’s finance minister previously said that applying VAT on tobacco will boost total tax allocation for fiscal year 2017/2018 by EGP 4bn.
