A recent report issued by Pharos Research has expected turnkey segments to drive the company top-line growth in 2019, with the sector likely to flourish in regional markets namely, Africa, and the GCC.
“We expect the turnkey segment to be the main driver for revenue growth going forward. We expect growth to come mainly from regional markets namely, Africa, and the GCC. Looking ahead, we expect the company to average awards of $959m over our forecast horizon and margins to hover around 17%.”
Noteworthy, Pharos FV does not account for the Tanzania 2,100MW hydroelectric dam award. However, it could add EGP 0.44/share to their FV, assuming that SWDY will get 45% of the project and the total value will be $3.0bn as previously cited by media sources. The company is yet to disclose more details.
As for the cables segment, the report expected cables’ sales volume to grow as a result of the government’s investments in transmission and distribution lines, as part of the government’s plan to connect and upgrade new and existing power plants to the national grid.
“We downgrade our estimates for the segment’s GPM to 13.8% in fiscal year (FY) 2019 versus 15.5% previously, on lower than expected gross profit attained by the company post normalisation in the first nine months of 2018 (9M18),” the report concluded.
The report also cut Pharos’ previous estimates for cable margins from 15.5% to 13.8% in FY19 on 1) softer than expected margins, 2) lower copper prices in 9M18, and lower forecasts for copper prices going forward (-3.3% versus previous estimates).
“We cut our estimates for cable revenues from EGP 33,317m to EGP 25,729m on lower volumes attained by the company in 9M18. We raise our estimates for turnkey revenues to EGP 24.9bn versus EGP 17.0bn by the end of our forecast horizon as a result of higher than expected awards in Africa and the GCC,” it added.
Meanwhile, the report maintained their FV of EGP18.50/share, and upgraded their recommendation to overweight post recent share price slump.
“Our upward revised estimates for turnkey segment revenue are offset by weaker GPM for wires and cables and the 0.25% of revenues healthcare tax. SWDY is currently trading at FY 19 P/E of 6.64x and EV/EBITDA of 5.38x. We expect DPS to remain above the EGP1.0 mark over our forecast horizon, implying a payout ratio of 55%,” the report highlighted.
In other research notes, HC Brokerage Research initiated coverage on Orascom Development Egypt (ODE) with a TP of EGP14.5/share and an overweight rating. The TP puts the company on a 2019e TP/NAV of 0.66x, while trading at a c19% discount to peers.
“With a significant land bank, a strong management team, and a relatively smaller backlog, ODE offers a solid growth story as it transitions into the primary market. With a proportionate undeveloped land bank of 26.4m sqm, strong management, and a relatively smaller backlog of EGP 2.52bn, ODE offers a solid growth story. The launch of O West, slated for the first quarter of 2019 (Q1), can generate consolidated sales of some EGP 71.0bn, over 2019–29, or about EGP 7.10bn annually residential components, and a 10-year sales horizon, which would increase the annual average net contracted sales to EGP9.1bn compared to the company’s 2018e sales target of EGP2.00bn,” the report added.
ODE’s largest Red Sea destination, ElGouna, which offers 22.9m sqm of undeveloped land, also offers significant growth prospects as the company has managed to transform the project into a popular destination via the establishment of schools, medical facilities, and a university, the report highlighted.
The report expects total collections of EGP 13.6bn over Q4 of 2018–2024e, which includes EGP 4.28bn from existing receivables, in addition to the new sales of EGP 9.34m, while the company estimates CAPEX spending of EGP 5.48bn over Q4 of 2018–2024e.
The Q4 of 2018–2024e total revenue forecast of EGP 30.6bn includes EGP 13.8bn in hospitality revenue and EGP 11.9bn in real-estate revenue with town management revenue, and other services to contribute the remaining EGP 4.92bn.
Hospitality is the largest component of the report 2018–24e revenue forecast at c45%, followed by real-estate activity at c39%, with other components including town management services to contribute c16%.
