New Taxes along with likely Gas Prices increase to Lower Aracemco's Target Price
 |
| Aracemco - Egyptian Stock Exchange |
New Taxes along with likely
Gas Prices increase to Lower Aracemco's Target Price
New income tax of 5% on
companies and individuals earning above EGP1.0 million annually to be applied
on Aracemco for 3 years effective 2014, driving its effective tax rate to 30%
in the period FY14-FY16. Meanwhile, the GoE is considering fuel products subsidy
reforms including Natural Gas. Accordingly, we examined these two factors’
effect on Aracemco’s target price as follows:
Base Case Scenario
·
The
GoE considers increasing natural gas prices for energy intensive industries to
reach US$6/mmBtu, except for cement industry to pay US$8/mmBtu while increase
it to US$4/mmBtu up from US$3/mmBtu for non-energy intensive industries,
including the ceramics industry.
·
Given
the fact that we already factored the increase to US$4/mmBtu in our last update
on Aracemco dated April 30, 2014 effective second half FY14;
·
our
new Base Case Scenario, which was affected only by the change in the effective
tax rate results a 2.6% drop in the target price to EGP36.23/share, still
offering 7.1% upside potential over the current market price of EGP33.83/share.
Accordingly, we downgrade our recommendation to “Hold” based on this scenario.
Financial Summary- Base
Case Scenario
FY
ending Dec.
|
2013a
|
2014f
|
2015f
|
2016f
|
2017f
|
2018f
|
Revenues (EGP mn)
|
453
|
527
|
658
|
693
|
720
|
747
|
EBITDA Margin
|
34.6%
|
35.4%
|
42.9%
|
43.1%
|
43.1%
|
43.1%
|
EPS (EGP)
|
2.45
|
3.19
|
5.23
|
5.70
|
6.41
|
6.72
|
DPS (EGP)
|
2.00
|
3.09
|
5.23
|
5.70
|
6.41
|
6.72
|
PER
|
12.9x
|
9.9x
|
6.0x
|
5.5x
|
4.9x
|
4.7x
|
DY
|
6.3%
|
9.8%
|
16.6%
|
18.1%
|
20.3%
|
21.3%
|
EV/EBITDA
|
5.8x
|
4.8x
|
2.9x
|
2.7x
|
2.5x
|
2.4x
|
Net Debt (EGP mn)
|
-
|
13
|
10
|
7
|
5
|
-
|
Net Income (EGP mn)
|
119
|
195
|
212
|
238
|
250
|
261
|
Worst Case Scenario
·
In
this we scenario we conservatively assumed that the GoE will apply a unified
natural gas price of USD6/mmBtu via a one-time adjustment for all industries
except for cement industry at US$8/mmBtu; effective second half FY14.
·
Although
a natural gas price of USD6/mmBtu doubles the energy price to Aracemco, the
company already in place plan towards shifting the ceramic tiles production
process to Dry Milling Technology is expected to significantly absorb a large
portion of the expected increase in energy cost, leading to 58% increase and
-4% drop in energy cost during FY14 and FY15, respectively compared to 23%
increase and -18% drop in energy cost during FY14 and FY15, respectively in our
latest update.
·
Accordingly,
our target price drops to EGP31.75/share, a 6.1% lower than the current market
price. Accordingly, we downgrade our recommendation to “Reduce” based on this
scenario.
Financial Summary- Worst Case
Scenario
FY
ending Dec.
|
2013a
|
2014f
|
2015f
|
2016f
|
2017f
|
2018f
|
Revenues (EGP mn)
|
453
|
527
|
658
|
693
|
720
|
747
|
EBITDA Margin
|
34.6%
|
31.0%
|
37.8%
|
38.0%
|
38.0%
|
38.0%
|
EPS (EGP)
|
2.45
|
2.73
|
4.55
|
4.96
|
5.59
|
5.87
|
DPS (EGP)
|
2.00
|
2.65
|
4.55
|
4.96
|
5.59
|
5.87
|
PER
|
13.3x
|
12.0x
|
7.2x
|
6.6x
|
5.9x
|
5.6x
|
DY
|
6.1%
|
8.1%
|
13.9%
|
15.2%
|
17.1%
|
17.9%
|
EV/EBITDA
|
6.1x
|
5.8x
|
3.6x
|
3.3x
|
3.1x
|
2.9x
|
Net Debt (EGP mn)
|
-
|
13
|
10
|
7
|
5
|
-
|
Net Income (EGP mn)
|
102
|
169
|
185
|
208
|
218
|
228
|
الجزيرة لتداول الاوراق المالية
البورصة المصرية ، شركات تداول ، شركات الوساطة ، بورصة الاسهم
Securities Brokerage ,Egyptian Stock Exchange
Mahmoud Mardishy
Financial Analyst
Mobile: (+202)
012-2068-7056
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