Beirut (APD) - The Egyptian brokerage firm Prime Securities (PS) issued an accumulate investment recommendation for the shares of the Giza-based Sinai Cement Company (SCC), a PS report said on Tuesday.
"Our DCF [discounted cash flow] valuation model has derived Sinai Cement a fair value of LE 59 per share, reflecting 9% upside potential to the latest market price of LE 54 per share. Therefore we issue an accumulate investment recommendation for SCC," PS said.
Prime Securities used a discount factor of 15.75% and a perpetual growth rate of 4% to calculate the DCF.
The financial firm uses the term accumulative investment to recommend stocks with an upside potential of 5 to 15%.
PS pointed in its report to SCC's following strong points:
Sales revenues increased by 28.3% year-on-year to LE 421 million in 2005, compared with LE 328.3 million in 2004.
According to PS forecasts, SCC sales revenues are expected to reach LE 514 million in 2006 and LE 558.7 million in 2007.
Local sales volume represented around 65% of total sales volume in 2005 while exports sales volume represented 35%.
PS expected local consumption of cement to increase by 25% in 2006 and Egyptian cement exports to decline in the coming years.
"We foresee a 37% drop in the company's export volume to reach 375,000 tons in 2006 and expect it to decrease in the coming 2 years," PS explained.
"Moreover, Sinai is not expected to establish a second production line which indicates that at least in the coming two years the capacity would remain the same," the report said.
However, SCC was able to boost its production capacity by 10% to1.6 million tons in 2005 compared with 1.4 million tons in 2004.
The company achieved this growth by adopting natural gas as fuel instead of gas oil. This measure resulted in an improvement in its utilization rate from 110% in 2004 to 118% in 2005.
The utilization rate is the percentage of a company's production capacity which is actually used, over some period of time it is also called operating rate.
PS affirmed that "Sinai Cement has maintained its continuous improvement in its EBITDA [earnings before interest, taxes, depreciation, and amortization] margin during financial year 2005, through heightening its margin 1200 [basis points] bps over the comparable year translated to 55%."
Net income of SCC more than doubled in 2005 reaching LE 181.9 million compared with LE 83.4 in 2004. PS expects SCC to attain net incomes of LE 285.7 million in 2006 and LE 321.2 million in 2007.
Moreover, "Sinai cement was able to fully repay its short and long term debts bringing its total debts from LE122 million to zero," PS affirmed.
Established in 1997, Sinai Cement Company began operations in 2001 with an annual production capacity of 1.4 million tons.
In 2005, the French cement manufacturer Groupe Vicat boosted its investment in SCC to 36% making it the largest stakeholder in the company.
Shares in SCC rose by LE 0.13 or 0.24% to LE 54.15 in late afternoon trading on Wednesday. [TS]
By Shikrallah Nakhoul, APD Staff Writer in Beirut
© APD (Arab Press Digest) 2006
