ESRS | The top beneficiary within EGX of weaker local currency

Despite the recent rally in the stock price, we still believe ESRS (FV: EGP97.03, OW) has untapped value. We included ESRS in our Top Picks for 2024 given not only its solid operational performance in the past few quarters, which was supported mainly by the recovering global steel cycle and currency fluctuations, but also confirmed by its low multiples when compared to latest steel transactions executed as well as emerging markets peers group multiples. Using an equal-weighted relative valuation method for median P/S, P/E and EV/EBITDA multiples for FY24e and applying a 50% discount for Egypt’s macro challenges, ESRS’s implied FV is estimated at EGP224.12/share implying a significant upside potential of 150% to the current market price of EGP89.58/share and 131% to our DCF valuation FV of EGP97.02/share . The stock is currently trading at FY24e P/E of 2.0x and EV/EBITDA of 2.3x,

We published this morning Commodity and Material Prices presentation, in which we present the average material prices for 4Q23 and depict the impact of such changes on the financial performance of the relevant listed equities in Egypt. 

Egypt is seeking the US guarantee to issue bonds in the international debt markets.

Egypt will receive a USD250 million sharia-compliant trade loan facility from the Africa Finance Corporation (AFC) and International Islamic Trade Finance Corporation (IFTC) to support Egypt’s food and oil security.

Shell has suspended shipments through the Red Sea indefinitely amid fears of further escalations in the waterway. Japanese shipping giant Mitsui OSK Lines also paused transit through the waterway. On the other hand, Four Qatari vessels carrying liquified natural gas have resumed their course along the Red Sea after several days’ pause.

Suez Canal Authority (SCA) head dismissed rumors about securitizing the canal revenues as mere media speculation. He estimated that the current 30% drop in traffic will last until the end of the month.

According to the Tax authority, the income tax draft law will keep the maximum limit for tax rate at 22.5% for corporates and 27.5% for individuals. The draft law will not amend tax brackets.

The Egyptian Mercantile Exchange (EMX) plans to list 13 new commodities spanning agricultural, oil derivatives, and food categories.

EGAL (FV: EGP77.75, OW) extended the deadline for submitting technical and financial offers for the rehabilitation of the company’s facilities until March 31, 2024, originally scheduled for January 15. 

 Egypt’s exports of cement increased by 18% YoY in 11M23 to reach USD721 million, up from USD611 million in 11M22.

German cement manufacturer Heidelberg Materials has set up a waste heat recovery system at its factory in Helwan with a USD30 million investment. The new system will supply 30% of the factory’s electricity needs.

ORAS (FV: EGP233.65, OW) signed a EGP4.2 billion cooperation agreement with Arab Bank to help fund the fourth phase of Cairo Metro Line 4 

TALM released strong 1Q23/24 results showing: Net profit climbed to reach EGP221 mn from a previous EGP108 mn (+104% YoY). Enhanced profitability came trickling down from higher revenues and enhanced gross profitability. TALM is currently trading at an annualized FY23/24 P/E of 4.8x.

New Motors are planning to locally assemble Kaiyi cars, with the first production line to be operational before 2024 end. The project is expected to be 50% financed by a Kuwaiti investor.

Valu, HRHO’s consumer finance arm is targeting 1.5x growth in its financing portfolio in 2024 while shifting towards larger ticket sizes, such as financing cars or furnishings to minimize risks.

US private equity firm General Atlantic has agreed to acquire London-based, emerging markets-focused infrastructure fund manager Actis.