Egyptian Kuwait (EK) holding released the results of the second quarter of 2019 (2Q19), recording operational revenue of $125.2m, grew by 9.7% year-over-year (YoY), while dropping by -5.9% quarter-on-quarter (q-o-q).
The QoQ contraction mainly came with lower sales at Alexandria Fertilizers (Alex Fert) company, despite slightly improved performance at Sprea and Nat Energy, and massive ramp-up at ONS company. On the annual basis however, the major improvement witnessed at the rest of EK Holding’s subsidiaries managed to offset the sales drop at Alex Fert.
Alex Fert reported revenues of $44m, declined by 13.2% QoQ and 5.7% YoY. Both the QoQ and YoY drop in sales were mainly caused by lower volumes following the 18-day overhaul stoppage time at the end of 2Q19. Total volumes sold this quarter decreased by 12.8% QoQ and 10.7% YoY.
While Urea company’s prices only slipped this quarter, Alex Fert’s gross margin dropped significantly to reach 21.5%, declined by -7.7 purchasing power standard (pps) QoQ and -5.6 pps YoY. Beltone analysts presume that QoQ and YoY margin contraction came with high overheads against low utilisation rates. On the bottom-line level, net income came in at $6.3m, translating to a net margin of 14.4% declined by -6pps QoQ and 5.7 pps YoY.
Beltone analysts added it is important to note that while overhauling the production process at Alex Fert has hindered performance for this quarter, the turnaround has ultimately increased the plant’s design capacity by 5%. They have yet to incorporate the effect of this positive development in their valuation model.
Moreover, Sprea reported slightly improved revenues of $32m grew by 2.8% QoQ and 16.7% YoY for 3Q19. Sales remained relatively steady on a QoQ basis on stable volumes and pricing, while YoY growth of 16.7% was mainly the result of higher volumes sold, as 3Q18 witnessed a slowdown in industrial activity.
Global methanol price lows continues to support Sprea’s margins this quarter, as gross margin remained steady at 32.5%, grew by 2 pps QoQ and 3.7 pps YoY. Methanol prices averaged $237.5 per tonne declined by 14.3% QoQ and 40.3% YoY in 3Q19, reassuring that Sprea’s strong performance will continue next quarter, according to Beltone analysts.
EK Holding announced that Sprea is currently examining the possible addition of a non-formaldehyde derivative product to its portfolio, which could provide potential upside, but no further details have been revealed yet, according to Beltone.
With regards to Nat Energy, despite Beltone expectations of major sales growth this quarter on the back of the July energy subsidy cuts, Nat Energy’s sales recorded just $26.9m, growing by 3.9% QoQ for 3Q19. This was primarily driven by a higher number of installations. While electricity generation and distribution volumes at Kahraba company remained steady QoQ, average prices surprisingly fell to $0.06/kWh.
For ONS, it managed to meet Beltone’s expectations this quarter by doubling its 2Q19 revenues to record $14m, amounting to a growth of 105.5% QoQ. The second well drilled in Kamose gas field has linked to production end of August and was therefore partially reflected in this quarter results.
EK Holding’s overall performance came in line with Beltone expectations despite lower than expected growth at Nat Energy, and the drop-in volumes at Alex Fert.
Beltone analysts expects next quarter to be stronger with the newly linked wells to ONS’s production profile, utilisation ramp up at Alex Fert, continued strength at Sprea, and energy subsidy cuts kicking in Nat Energy.
EK Holding has officially announced that the company will not be proceeding with the acquisition of Emisal Salts, as the National Bank of Egypt’s 49.8% stake alone will be sufficient to give EK Holding a controlling stake.
Beltone analysts set EK Holding fair value (FV) at $1.5, but they are currently working for 2020 evaluation update which could upgrade EK Holding’s FV supported by updated FX rate assumptions, 5% capacity increase in Alex Fert, and the revised subsidised installation fees at Nat Energy.
