Target Price Market Price Investment Grade EGP9.91 EGP5.50 Speculative Recommendation Strong Buy Upside Potential 80% Source: SVCE & Prime Estimates Prime Research 1 Executive Summary Using the DCF valuation methodology, we value SVCE’s Target Price at EGP9.91/share which reflect a 80% upside potential over the cur- rent market price of 5.50/share with a strong buy recommendation. We utilized a risk free rate after tax of 9.98%, market risk premium of 6% and the company’s adjusted beta of 1.19, all of which translated to a WACC of 15.14%. Our main value drivers are: - In Nov-14, South Valley BOD’s signed a syndicated loan amounting to EGP1,273 million “3-years grace period” to finance the company’s production expansion from 1.5 mmtpa to 3.0 mmtpa alongside energy conver- sion to Coal & alternative fuel which will result in lowering energy costs, the main component in operating costs, alongside double capacity from the expan- sion. - In Nov-14, South Valley’s BOD agreed to raise its equity by EGP602 million within 2015 to finance the company’s new-focus strategy and the possibility of acquiring a majority stake in Building Materials Industry Company - BMIC. - In late 2014, the company announced to exist from its financial in- vestments portfolio within 3–5 years to focus on its industry core of producing cement. Stock Performance Chart (EGP/ Share) Analyst Mohab Yamany Phone +202 33005 725 Email [email protected]South Valley Cement (SVCE.CA) Initiation of Coverage A New Core-Focus Strategy Egypt | Building Materials April 21, 2015 SVCE.CA Sector Building Materials Company Traded Market EGX Stock Currency EGP Exchange Rate EGP7.63 /USD Market Cap (EGP million) 2,673 Outstanding Shares (million) 482.2 Par Value/Share (EGP) 5 Price Low – High (EGP) 5.50 - 9.45 Average Daily Traded Vol- ume (000) 777 Report Reason Initiation of Cover- age Source: Bloomberg Shareholders Stake Blue Nile Limited 37.73% Gazelletd Inc 6.46% Free Float 50.16% Al Nahla Trading Inc 5.65% Financial Highlights 2013a 2014e 2015f 2016f 2017f Revenue (EGP mn) 553 588 735 1,050 2,085 Growth 9% 6% 25% 43% 99% EBITDA margin 36% 36% 25% 34% 44% Net Income (EGP mn) 133 121 80 140 686 Net Attr. Income (EGP mn) 133 121 80 140 686 EPS (EGP) 0.3 0.3 0.2 0.3 1.4 EPS Growth 26% -9% -34% 76% 390% DPS (EGP) 0.2 0.0 0.0 0.0 0.0 BVPS (EGP) 6.8 6.9 7.1 7.3 8.8 P/E x 20.05 22.18 33.66 19.10 3.90 Dividend Yield 4% 0% 0% 0% 0% P/BV x 0.81 0.81 0.79 0.76 0.63 0.0 2.0 4.0 6.0 8.0 10.0 12.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Mn Shares Volume (000) Price (EGP) Target Price: EGP9.91 Discounted Free Cash Flow Model (DCF) 2015f 2016f 2017f 2018f 2019f Free Cash Flow (117) (745) 867 902 588 Present Value of Free Cash Flows (102) (562) 568 513 291 Terminal Value 4,772 Present Value Of Terminal Value 2,358 Adjusted Value for Operation 3,601 Net Debt 456 Long-term investment 1,677 Shareholder Value 4,822 DCF Value Per Share 9.91 Upside potential 80%
Transcript
Target Price Market Price Investment Grade
EGP9.91 EGP5.50 Speculative
Recommendation
Strong Buy
Upside Potential
80%
Source: SVCE & Prime Estimates
Prime Research 1
Executive Summary Using the DCF valuation methodology, we value SVCE’s Target Price at EGP9.91/share which reflect a 80% upside potential over the cur-rent market price of 5.50/share with a strong buy recommendation. We utilized a risk free rate after tax of 9.98%, market risk premium of 6% and the company’s adjusted beta of 1.19, all of which translated to a WACC of 15.14%.
Our main value drivers are: - In Nov-14, South Valley BOD’s signed a syndicated loan amounting to EGP1,273 million “3-years grace period” to finance the company’s production expansion from 1.5 mmtpa to 3.0 mmtpa alongside energy conver-sion to Coal & alternative fuel which will result in lowering energy costs, the main component in operating costs, alongside double capacity from the expan-sion. - In Nov-14, South Valley’s BOD agreed to raise its equity by EGP602 million within 2015 to finance the company’s new-focus strategy and the possibility of acquiring a majority stake in Building Materials Industry Company - BMIC. - In late 2014, the company announced to exist from its financial in-vestments portfolio within 3–5 years to focus on its industry core of producing cement. Stock Performance Chart
Discounted Free Cash Flow Model (DCF) 2015f 2016f 2017f 2018f 2019fFree Cash Flow (117) (745) 867 902 588Present Value of Free Cash Flows (102) (562) 568 513 291Terminal Value 4,772Present Value Of Terminal Value 2,358Adjusted Value for Operation 3,601Net Debt 456Long-term investment 1,677Shareholder Value 4,822DCF Value Per Share 9.91Upside potential 80%
Prime Research 2
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Cement Production Process
In reference to the above flow-chart, the manufacturing process starts with the excavation of limestone from quarries, followed by crushing it to fine ground limestone which is mixed alongside clay and then adding other raw materials (i.e. sand, iron ore…etc) to mix in the grinding mill. Then, the drying process starts by entering the mix of the raw materials into the pre-heater and kiln sys-tems to generate Clinker. The generated hot clinker goes into a cooling process to cool from approximately 1400 C to approxi-mately 120 C. Finally, the clinker is mixed with other raw materials (i.e. gypsum, cement slag…) to produces cement.
Prime Research 3
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Major Industry Related Events World Wide:
Global oil prices have dropped dramatically over the past six months hitting its lowest value since 2009. Benchmark Brent crude, was trading at around USD50 per barrel in January 2015, down by more than 56% from last year’s peak in June of above USD115. How did that happen and what will be the effect on Egypt’s cement industry?
How did that happen ? • This crises initially started from the emergence of shale oil in the United States and Canada through the newly discovered
techniques of hydraulic fracturing and horizontal drilling that helped in extracting oil and gas from Shale rock. Adoption of these methods resulted significant production growth during the past two years in the United States and Canada, which are now driving virtually all non-OPEC production growth.
• Slower global growth that resulted in a lower demand for oil, especially in China • Increase in supply especially from Libya and Iraq. • Increase in production from OPEC countries. • The refusal of OPEC countries to cut down production to stabilize prices, which was against expectations.
This sharp decline in oil prices will affect all oil producers negatively. However, OPEC’s view is to maintain their market share taking an advantage of such prices decline with hopes that Shale-oil high cost producing firms will eventually exit the industry. Hoping that in time till the supply and demand will go back to it’s norm. Many of shale oil firms operate at production costs hovering between USD65 to USD70 per BBLT, such firms will suffer the most from price declines and are expected to exit the market as per OPEC’s strategy. In the mean time OPEC countries depend on their reserve till they pass the Oil crises. The price decline will have a posi-tive effect on the importing countries including but not limited to Egypt.
How will the oil crises affect the cement industry? • The oil price decrease had a direct effect on coal prices to decrease as well. Further, the lower/higher coal prices will have
a positive/negative direct effect in Egyptian cement industry in general, and for companies using coal in particular. • Oil and coal are theoretically considered substitutes, however, by looking at historical consumption and price movement
the trends tell a different story. As indicated by the below trend line, there is a positive correlation between oil and coal prices ( r= 0.85, based from Yr 1993 to Yr 2013). Moreover, there is also a positive correlation between oil and coal con-sumption ( r= 0.98, based from Yr 2003 to Yr 2013). Hence, we conclude that oil prices movement will have a direct effect on coal prices which will enhance/lower Egypt Cement Industry’s GPM accordingly.
• This historical relationship between Oil and Coal is forecasted to continue for a long-term perspective. It is worth mention-ing that International Energy Agency (IEA) forecasts that coal will last for 142 years, compared to 61 years for gas and only 54 years for oil.
Coal Price Vs. Crude Oil Price
Source: World Bank
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Coal Price (USD per Metric Ton) Crude Oil Price (USD per Barrel)
Prime Research 4
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Major Industry Related Events In Egypt: • Early 2014, Egypt became vulnerable to energy shortage and the Egyptian government sought out different strategies to
overcome the energy shortage consequences. In April 2014, the government permitted the use of coal in cement plants with a commitment to environmental controls, standards and obtaining the approval of the environmental impact assessment studies in all related phases. The government also requested to expand the usage of refuse-derived fuel (RDF) to reach utilization rates of 40% in cement production. By November 2014, the environment minister permitted 12 coal usage approvals to cement plants.
• In Jan-2015, The Egyptian Natural Gas Holding Company - EGAS decided to fully cut-off natural gas supply to ce-ment plants and provide them with Heavy Fuel Oil - HFO instead for year 2015. This decision is executed to all cement plants except for Helwan, Katamia and National Cement plants as these plants are directly connected with major natural gas line.
On our view, such a decision will have a negative impact on many cement players, as HFO requires wide range of storage unlike natural gas which is easily accessible and utilized to heat the clinker ovens. Moreover, Mmbtu’s cost from utilizing HFO is higher than natural gas.
With continuous rising demand of natural gas in generating electricity in general, and for residential sector in specific, shortage of natural gas, and governmental approval to utilize coal and Refuse-derived fuel (RDF) in cement industry, all of these events com-bined resulted in EGAS’s decision to cut-off natural gas supply to cement players and direct it to electricity generation instead. This is elaborated as below.
• In mid March-15, Industrial Development Authority - IDA announced its plan to provide 12 cement licenses to pro-duce 21 million tons. There is an expected gap that will reach 30 million tons by 2020, and as cement plants usually con-struct in 2-3 years period hence it is crucial to initiate the licenses process within this period, said Ismail Gaber, IDA president. The licenses proposal include the geographical destination, observance of environmental regulation, and investors commitment to generate their own energy whether through dependence on Natural Gas or Coal, added Gaber.
• In 05-April-15, the Ministry of Industry and Trade is currently working on cement and steel licenses’ proposal to be presented to the ministerial economic committee within the next week, said minister; Monir Fakhary. It will be unlikely to obtain the approval of Steel licenses, however, it is only expected to obtain 12 cement licenses, sources from Indus-trial Development Authority (IDA) stated. No more news regarding this matter have been issued.
• Regarding the proposed licenses, we believe its probability of execution is low mainly due to the industry low utiliza-tion rates which has incurred as a result of energy shortage. With many cement players plans to convert to Coal & RDF for its accessibility and lower costs, it will enhance the industry utilization rates to match the increasing demand, with the need to only issue few extra cement licenses.
Electricity consumption
Source: CAPMAS
Local Natural Gas Consumption
Source: EGAS
76.90 78.70 80.50 82.50 84.60
0102030405060708090
FY08/09 FY09/10 FY10/11 FY11/12 FY12/13
Residential Industrial General
Govermnetal Agricultural & others Population (mn)
57%28%
11%
3% 1%
Electricity Industry Petroleum Residential others
Prime Research 5
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Local Cement Industry Overview • Cement consumption in Egypt is spread out into three sectors; residential, infrastructure and non-residential sectors with 85%,
5% and 10% of cement consumption respectively. • Therefore, we initially forecasted the building & construction sector based on its substantially well-built historical relationship
with GDP (correlation is 0.99 for historical figures starting year 2003 till 2014) through a simple statistical regression model. • Following the construction & building forecasted figures, we were able to forecast cement production as almost all cement is
consumed at building and construction industry. The Cement Industry supply/demand model as per below: GDP, Construction & Cement Sector Output
Linear Relationship Between GDP & Construction Sector
Source: CBE & Prime estimates
Source: CBE, CAPMAS & Prime estimates
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140
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500
1,000
1,500
2,000
2,500
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a
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a
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a
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a
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a
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f
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f
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f
GDP ‐ EGP mn Construction & BM ‐ EGP mn
Prime Research 6
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Cement Industry Prices
• Historically, cement consumption grew from 24 mtn in 2004 to 44 mtn in 2009 with a five-year CAGR of 12% as a result of building and construction rapid growth during the same period. Afterwards, consumption was stabilized between 44 mtn to 48 mtn from 2009 to 2011, until the consumption reached approximately 51 mtn in 2014, with a five-year CAGR of 3% between 2009 and 2014. From 2014 to 2019, we expect cement consumption to grow with a CAGR of 8% mainly due to the expected growth in infrastructure and real estate sector.
• Cement prices increased from EGP546/ton in 2013 to EGP675/ton in 2014 reflecting 23.6% increase. This was mainly due to
energy shortage as the Egyptian Natural Gas Holding Company - EGAS started to lower its supply to cement plants and eventu-ally it stopped providing them with natural gas since Jan-15 and instead started providing them with HFO. As a result, the pro-duction process was affected which led to a gap in the demand/supply mechanism and accordingly cement producers decided to increase the prices. With higher demand on cement, we expect the prices to gradually increase to reach EGP802 per ton in 2019 with 5 years CAGR of 4%. The above chart represents the consumption change and price trend from 2009 to 2019.
YTD cement prices YTD average cement price per ton is EGP619. Cement prices sharply decreased from early January then started recovery in March. Prices decreased mainly due to: • The requests to government to put price limits which made
cement main players to reduce the prices as a response. • Sales volumes in January and February slowed down due to
weak demand on bad weather conditions which affected cement transportation.
• Furthermore, the cement distributors halted their orders for
any cement products prior 25th of January due to security concerns. This accumulated higher inventory for cement producers, incurring an ephemeral oversupply causing prices to decrease.
• The production line halted in Suez Cement in Mar-08 till Apr-05 eased the sharp decline of the prices, causing YTD prices to close at EGP627 per ton, a 7% decline
Cement prices and consumption movement
Source: CBE, CAPMAS & Prime estimates
YTD Cement Price Movement As of 18-Apr
Source: Cementegypt
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14%
6%
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15%
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2%
8% 9% 8% 8% 10%
‐15%‐10%‐5%0%5%10%15%20%25%30%
0100200300400500600700800900
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Price/ton % change % Consumption change
Prime Research 7
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
South Valley Cement – Company Brief South Valley Cement was established in 1997 to produce top quality cement and its associated products, as well as a wide range of other premium building materials products such as ready mix, beside owning and managing a huge portfolio of diverse multi sector direct and indirect investments. As of Sep-14, the company has 46% of its total assets bulked under non-core operating assets “financial investments 28%, Invest-ment in affiliates 18% ” while 54% of total assets are core operating assets. The company’s management recently announced its intention to reduce its exposure in financial investment to focus on its core operations - cement production.
Available for sale securities Investment in Affiliates
Others Total Investment portfolio
56 57
2634
32 31
5046
12 1224 19
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100
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Figures a
re in
%
Construction & Building Industrials Others
Prime Research 8
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
A Look On The Company - Operating Cost:
A) Energy • As stated earlier, due to energy shortage, EGAS decided to pro-
vide cement plants with heavy fuel oil - HFO instead of natural gas for 2015. That is the reason, energy cost will rise to 60% of operating costs in 2015.
• In 2016, after partial energy transition to coal & refuse-derived fuel (RDF) energy costs are expected to decrease. In 2017, after full energy conversion, energy cost will further decrease then will increase in line with coal & RDF costs growth.
Our forecasted coal costs are based on Bloomberg commodity fore-casts accompanied with our estimates of related port fees, customs, transportation, taxes and other costs. As coal is a global commodity allowing prices to fluctuate periodically. Egypt as an importing coun-try will follow global prices. B) Raw materials The company do not disclose raw materials in a separate item. Hence, raw materials forecast is based on our model assumption. • Limestone cost will slightly rise as a result of explosives cost
increase and transportation costs growth. • With rising demand on cement, there is an expected rise in
Clay’s demand from cement producers which will put upside pressure on clay prices.
• Iron ore is a global price which, like other commodities, corre-lated with oil prices. Hence, we expect a slight increase in costs.
• Gypsum contribute in a low percentage in cement production. Therefore, we expect a stable gypsum cost per ton.
• With rising demand on cement, and low cement slag supply we believe that cement producers may turn to imported cement slag which characterized by higher quality but yet higher prices.
Historical & Forecasted Operating Cost Per Ton
Energy, raw materials, clinker electricity & depreciation costs are bulked under Raw Materials in SVCE’s financials— These costs are based on our model
Energy Raw materials Electricity Packing other costs
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Prime Research 9
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
C) Electricity Electricity costs assumptions are based on the governmental feed-in-tariffs for electricity-intensive industries as per the below table. In early July-2014, the Ministry of Electricity announced the annual increase for the next five years separated per each industry’s utiliza-tion. Cement industry is categorized as an Electricity heavy consum-ing industry and the prices would increase as per the below table. The firm’s electricity charts for both clinker and cement reflect the cost increase due to higher electricity prices and higher cement pro-duction.
D) Packing and Other Costs:
• Historical average packing cost was EGP26/ton. In 2013, packing cost per ton decreased to EGP23/ton versus EGP28/ton in 2012. However, 9M 2014 financial statements showed that packing costs are back to normal “estimated cost for 2014 EGP27/ton”. As a result of an increasing demand on packing, we expect high steady growth for packing costs.
• Other costs are expected to increase proportionally with sales growth. Other costs include management fees, operating quarry costs, salaries, development fees and fees for army land usage.
Electricity costs for Heavy Industry users 2014e 2015f 2016f 2017f 2018f 2019f Electricity - KW/Piasters 37 38.4 39 41 43 45
Growth rate 9% 4% 2% 4% 6% 4%
Forecasted Packing Cost Assumptions
Source: Prime estimates
Forecasted Other Cost Assumptions
Source: Prime estimates
Forecasted Electricity Assumptions
Source: Prime estimates
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Prime Research 10
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
A Look On The Company - Asset Efficiency & Profitability
• During 2012, the company increased its production by 105%, from 526 thousand tons in 2011 to 1.08 million ton which en-hanced rapidly its sales growth.
• In 2015 and 2016, we expect the company will boost its revenue as a result of growing production which came from gradual shift to coal and RDF and higher cement prices due to rising demand, thus it would also contribute in increasing total assets turnover.
• In 2015-2016, the company is expected to utilize the syndicated loan through the production expansion and energy transition which will boost the assets growth.
• In 2017, after the capital expenditure period, the revenue is estimated to double as a result of double production. Further more, total assets will grow with a slower trend.
• In 2018 & 2019, the assets growth will fall due to the expiration of the syndicated loan’s 3-years grace period, and the payment of debt installments alongside higher accumulated depreciation.
• In 2014, EBITDA margin is expected to stay the same due to the net effect of higher cement prices and soaring energy costs.
On a separate point, net margin is expected to slow-down as the 9M 2014 company financials incurred a non-recurring expense (Electricity and gas price differences) alongside which derived the net margin to decrease.
• In 2015, EBITDA margin is affected by full energy utilization of HFO as a result of earlier-stated EGAS decision. Net margin is also projected to be lower due to the syndicated loan’s interest expense.
• In 2016, EBITDA and net margins are estimated to be enhanced by partial conversion of coal and RDF. • In 2017, EBITDA and net margins are predicted to rocket-up after full energy conversion and higher production. • In 2018 and 2019 the EBITDA margin is projected to stabilize while net margin is expected to slow-down in 2019 and recover
after full payment of the syndicated debt.
Source: SVCE, Prime estimates
Assets Efficiency
Profitability
Source: SVCE, Prime estimates
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Prime Research 11
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Valuation • Utilizing the DCF model to value SVCE’s core operations. We utilized an after tax risk-free rate of 9.98% - 5-year T-bond
yield-, adjusted beta of 1.19 and a market risk premium of 6% which translated to a WACC of 15.14%. • The investment in affiliates have been valued at book value due to the uncertainty of the deal’s execution. This amount repre-
sents the company’s stake in BMIC. As per SVCE’s management guidance, they are still undergoing negotiations with EK holding (EKHO.CA) about the purchase of a part or whole stake “at least 30% of shares”. Currently, BMIC is being valued through an independent financial advisor who will submit its results to EK holding. There are talks that upon the independent valuation, EK holding may either partially exist the investment or keep its stake and control over BMIC. Worth mentioning, SVCE’s equity in-crease announced earlier in Nov-14 in a bourse statement to raise EGP602 million to finance the acquisition of BMIC and the expansion plan. As of early-April, there is no actual steps towards the equity increase. And as per SVCE’s management guid-ance, the deal’s acquisition is expected to be either through this capital increase or through partial disposal of the company’s investment portfolio. Therefore, we valued BMIC’s investment per its book value.
• The company’s investment portfolio (excluding BMIC) is valued at 20% discount of the book value. Accordingly, we have arrived to a target price of EGP/9.91 share with an upside potential of 80% over the current mar-ket price of EGP5.50. Hence, we issue a Strong Buy recommendation on SVCE stock.
Discounted Free Cash Flow Model (DCF) 2015f 2016f 2017f 2018f 2019fNOPLAT 126 283 835 821 571Non-cash Items 61 76 93 152 165Gross Cash Flow 187 358 929 972 736Change in Operating Working Capital 16 (20) 16 11 20Capital Expenditure (319) (1,083) (78) (81) (168)Free Cash Flow (117) (745) 867 902 588Present Value of Free Cash Flows (102) (562) 568 513 291Terminal Value 4,772Present Value Of Terminal Value 2,358Adjusted Value for Operation 3,601Net Debt 456Long-term investment 1,677Shareholder Value 4,822DCF Value Per Share 9.91Upside potential 80%
Prime Research 12
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Scenario Analysis The firm’s strategy is based on production expansion and energy transition to coal and alternative fuel, and as per the normal pro-ject-finance strategies, the project delivery date may be extended. Our base case is based on partial conversion of coal & RDF in 2016 and plant. Hence, the following represents several scenarios per-taining to this matter and its impact on the company’s target price. Scenario 1, 1-Year Delay In Energy Conversion “ all other assumptions are constant”: Upon one year delay in coal & RDF implementation as shown, same assumptions otherwise, the stock’s TP is esti-mated at EGP9.28/share which is EGP0.63/share below the base scenario. Scenario 2, 1-Year Delay In Production Expansion “ all other assumptions are constant”: Upon one year delay in production expansion as shown, same assumptions otherwise, the stock’s TP is estimated at EGP9.15/share which is EGP0.76/share below the base scenario. Scenario 3, 1-Year Delay In Production Expansion & Energy Transition “ all other assumptions are constant”: Upon one year delay in energy partial transition in 2016 and one year delay in production expansion in 2017, the stock’s TP is projected at EGP8.71/share which is EGP1.20/share below the base scenario.
Sensitivity Analysis On Target Price The following represents a sensitivity analysis for the company’s target price with different variables, allowing more flexibility and insights for investors in the decision making process depending on their risk appetite. 1. Cost of Equity & Perpetual Growth 2. Financial investments
• Our base case assumes 20% discount of the in-vestment portfolio. As shown, different scenarios for the sale of the financial investments “on discount/premium”.
3. Cement Prices • With the cement prices increasing in 2014,
there were several requests to the govern-ment to put a price cap for cement. A sensitivity chart shows a 5% and 10% lower/higher prices and its effect on the Target Price.
4. Coal Prices • As mentioned earlier, coal price movement is
highly correlated with oil prices. Hence, higher oil price would result in a higher coal price, which will have a negative impact on SVCE and vice versa as well.
5. Coal Carbon Taxes
• Our base case assumes 0% of landed coal
costs. Occurrence of carbon tax on coal would have negative effect on the Targeted Price as shown.
14.97% 15.97% 16.97% 17.97% 18.97%
0.5% 10.10 9.54 9.03 8.59 8.19
1.5% 10.65 10.00 9.44 8.94 8.50
2.5% 11.29 10.55 9.91 9.35 8.85
3.5% 12.07 11.20 10.46 9.82 9.26
4.5% 13.02 11.98 11.11 10.37 9.73
Cost of Equity
Perp
etua
l Gro
wth
9.91
10.16
10.41
10.66
9.00 10.00 11.00
Base Case ‐20 %
10% Discount
Book Value
10% Premium
Impact on Sale of the Financial Investment Portofilo Excluding BMIC
Pre Tax Income 133 121 80 140 686 Income Tax 0 0 0 0 0 Effective Tax Rate 0% 0% 0% 0% 0% Minority Interest 0.000 0.000 0.000 0.000 0.000 Net Income 133 121 80 140 686 Growth 25% -10% -34% 76% 390% Profit Share to Employees & Board 0 0 0 0 0 Net Attributable Income - NAI 133.474 121 80 140 686 Growth 25% -10% -34% 76% 390% NPM 24% 21% 11% 13% 33% Balance Sheet 2013a 2014e 2015f 2016f 2017f Cash & Marketable Securities 88 95 74 103 833 Trade Receivables-Net 4 4 5 7 14 Inventory 55 49 63 88 170 Other Current Asset 4 5 6 8 16 Total Current Asset 151 152 148 206 1,034 Net Fixed Assets 1,683 1,680 1,684 1,928 2,931
Projects Under Implementation 29 0 255 1,018 0
Subsidiaries & Other Long Term Investments 1,884 1,884 1,884 1,884 1,884
Other Assets 254 254 254 254 254
Total Assets 4,000 3,971 4,224 5,290 6,103
Short Term Bank Debt 230 251 242 113 760 Accounts Payable 75 94 137 173 288 Other Current Liabilities 139 185 185 185 186 Total Current Liabilities 444 530 564 471 1,234 Long-Term Debt 250 115 255 1,273 637 Provisions 0 0 0 0 0 Other Non Current Liabilities 1 2 3 3 3 Total Shareholders' Equity 3,305 3,324 3,403 3,543 4,230 Total Liab.& Shareholders' Equity 4,000 3,971 4,224 5,290 6,103 Free Cash Flow Statement 2013a 2014e 2015f 2016f 2017f NOPLAT 151 149 126 283 835 Non-Cash Items 50 60 61 76 93 Gross Cash Flow 201 209 187 358 929 Change in Operating Working Capital 11 81 16 -20 16 Capital Expenditure -70 -29 -319 -1,083 -78 Free Cash Flow Excluding Goodwill 142 262 -117 -745 867
Investment in Goodwill, Intangibles & and Adjustment 0 0 0 0 0
Free Cash Flow Including Goodwill 142 262 -117 -745 867
Prime Research 15
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Recommendation Target-to-Market Price (x)
Strong Buy x > 25%
Buy 15% < x <25%
Accumulate 5%< x <15%
Hold -5% < x < 5%
Reduce -15% < x < -5%
Strong Sell x < -25%
Stock Recommendation Guidelines
Sell -25% < x < -15%
Investment Grade Explanation
Growth 3 Yr. Earnings CAGR > 20%
Value Equity Positioned Within Maturity Stage of Cycle
Income Upcoming Dividend Yield > Average LCY IBOR
Speculative Quality Earnings Reflect Above Normal Risk Factor
Prime Research 16
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
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