Egyptian Financial & Industrial STRONG BUY LTFV | EGP15.4...

EGYPT|FERTILIZERS November 24, 2011

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Egyptian Financial & Industrial Restructuring renews hope! Strong Buy– High risk EFIC saw two presidents resign during the opening months of 2011; however, current management is eagerly taking steps to renovate and correct past inconsistencies by undertaking several restructuring activities. This includes addressing the company’s expensive 2008 inventory, which appears to be accounted for by a EGP20mn provision in 4Q10. We have thus updated our model and reduced our estimates for company’s LTFV from EGP26.6 per share to EGP15.4 per share on the back of higher discount factor and EGYPHOS elimination. Despite the positive news of restructuring activities from 2011 onwards, we have assigned a new TP of EGP14.3, due to lower LTFV and lower relative valuation. The suggested TP makes EFIC trade at an EV/EBITDA multiple of 8.5x for 2012 compared with peers’ EV/EBITDA multiple of c.10X, down from EGP23.2 per share. Accordingly, the new TP suggests an upside potential of 50%+ from recent market price, prompting us to upgrade EFIC’s rating to Strong Buy, up from Hold.

Positives Writing off expensive inventory: EFIC’s management has allocated a

c.EGP20mn provision, through which we believe it has indirectly written off its expensive inventory.

Machinery maintenance & capacity build-up: New management decided to increase its SSP production capacity by 700k tons per year in Suez during 2012. This should benefit EFIC’s production capacity (i.e. fewer production interruptions) and will allow the company to increase its export sales volume.

Rescheduling loan structure: EFIC was able to restructure close to 53% of its short-term bank loans into medium-term ones, signalling a breather for short term repayments and interest expense burden.

Ammonium Sulphate agreement: Management is believed to be continuing its negotiations with the GoE to export its AS directly, without reliance on third parties.

Cautions No DPS expected for 2011: We expect that the restructuring activities may

deter any DPS for 2011. NI decrease 2011 on possible provision: We revised consolidated NI before

provisions to EGP96mn; however, we have provisioned EGP68mn on possible contingencies, which include a liability of EGP61mn to Al Nasr Mining Co.

Valuation and recommendation: In light of the current restructuring activities, we have decreased the company’s TP to EGP14.3, compared to our previous estimate of EGP23.2. The suggested TP caters an upside potential of 50%+; thus, we have upgraded EFIC’s rating from Hold to Strong Buy.

Source: Company reports and CI Capital Research estimates

EGP mn 2010 A 2011 P 2012 P 2013 P 2014 P

Revenues 650.3 899.0 1,025.3 1,160.1 1,307.6 Growth rate 13.0% 38.2% 14.0% 13.2% 12.7%

EBITDA 89.6 214.3 236.8 264.3 301.9 Growth rate -23.5% 139.2% 10.5% 11.6% 14.2%EBITDA margin 13.8% 23.8% 23.1% 22.8% 23.1%

Net income (8.1) 44.8 85.2 101.3 111.4 Growth rate NM NM 90.2% 19.0% 9.9%Net margin -1.2% 5.0% 8.3% 8.7% 8.5%

PER NM 14.5x 7.6x 6.4x 5.8xP/BV 0.8x 0.7x 0.7x 0.6x 0.6xEV/EBITDA 16.3x 6.4x 7.1x 6.1x 5.7xNet debt/EBITDA 4.3x 3.6x 3.6x 3.0x 2.6xDividend yield 0.0% 0.0% 2.1% 2.5% 3.1%

MUHAMMAD EL [email protected]

STRONG BUY (UPGRADED) LTFV | EGP15.4 (DOWNGRADED)

TP | EGP14.3 (DOWNGRADED) COMPANY SYNOPSIS

Egyptian Financial & Industrial Company (EFIC) is a joint-stock company founded in 1929. EFIC's main activities are producing and trading phosphate fertilizers and chemicals. It produces the following products:

1. Single super phosphate (SSP) in two forms powdered (PSSP) and granulated (GSSP)

2. Sulphuric acid

3. Ammonium Sulphate (AS)

4. Di-Calcium Phosphate (DCP)

5. Mixture fertilizers NPK

EFIC is the largest producer of phosphate fertilizers in Egypt, accounting for around 70% of SSP local market sales in 2007. Such a market share takes into account sales from Suez Co. for Fertilizers Production (SCFP), EFIC's 99.88%-owned subsidiary.

EFIC’s 2009 AGM/EGM has approved to increase its authorized capital of EGP700mn to EGP1000mn, while maintained its issued capital of EGP693mn, distributed over 69.3mn shares at a par value of EGP10/share.

SHAREHOLDER STRUCTURE

STOCK DATA

STOCK PERFORMANCE | 52 WEEKS

Source: Bloomberg

Holding Companies 26.6%Banks 10.0%Inusrance companies 1.08%Others 10.3%Free Float 52.0%Total 100.0%

Reuters; Bloomberg EFIC.CA; EFIC EYRecent price as of 23-Nov-11 EGP 9.38No. of O/S shares 69.3 mnMarket cap EGP 650.0352-wk high / low EGP 20.65/ EGP 0Avg. daily volume / turnover 0.14 mn / LE 1.97 mn

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Recent news and 3Q11 highlights Recent Developments

The company has changed its external auditor from Mazars–Mostafa Shawki to KPMG Hazem Hassen, starting with the 2011 fiscal year.

The GAM dated May 5 accepted the resignation of Mr. Esmat Awad Sayyad, the newly inaugurated chairman and managing director, and the successor of Mr. Yehia Kotb. The GAM has also approved the election of Mr. Ali Awad Sayyad.

Company management changed its accounting policy for inventory, and wrote off c.EGP20mn of inventory.

Management has confirmed its restructuring activities and the enhancement of production capacities. Its strategies involve addressing lower quantity sold due to two non-operational lines of production: the granulating unit in company’s Kafr El Zayyat plant and the sulphuric acid unit in company’s Assiut plant. Of these, the former halted production in June 2009 on the orders of the El Gharbiyya governor, while the latter's stoppage came in September 2008 when the line was frozen for renovation and repairs.1

3Q11 operational analysis

A healthy sales performance: Consolidated 9M11 sales recorded EGP535mn, a 13% increase YoY (3Q11 sales were EGP199mn). Absent any further details and considering the non-operational facilities of Kafr el Zayyat & Assuit plants, we believe that EFIC’s management is buckling down and hard at work, as indicated by the 9M11 results. For example, EFIC’s standalone revenues contributed with c.55% of consolidated top line. We expect that new management is aiming to benefit from the 4% increase in the international P fertilizer prices.

Higher EBITDA margin on lower discounts and SG&A: 3Q11 consolidated EBITDA margin came in at 30%, which came higher than that of 3Q10 of c.15% and higher than CICRe of 17%. This came on the back of lower-than-expected SG&A, and we expect that the higher food prices may have encouraged management to waive sales discounts in the local market. Also, EFIC’s standalone EBITDA margin came in at 18%. That said, the company’s EGP19.7mn standalone EBITDA contributed less than 35% of the EGP60mn consolidated EBITDA figure. Accordingly, we believe that SCFP operations buoyed consolidated performance during 3Q11.

Higher interest expense to finance WC: A higher interest expense came alongside the company’s higher level of operations during 3Q11; however, management was able to cut down its outstanding debts since the beginning of the year.

Interest expense came in at EGP20mn (vs. CICRe of EGP15.3mn), 10% higher than 2Q11 of EGP18.3mn. We believe that the QoQ increase in interest expense followed the increase in working capital requirements, including the increase in price of sulphur, which is vital in supporting the general increase in company’s

1 Source: Company’s management reply no. 5 to the Central Accounting Agency report in 1Q11 standalone financials



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consolidated sales. The international benchmark price for this raw material increased by 16% QoQ to reach USD175/ton vs. USD150/ton in 2Q11.

In addition, EFIC’s management was able to decrease both of its short term and long term borrowing to EGP197mn and EGP363mn in 3Q11, down from EGP276.6mn and EGP443.9mn, respectively, by year end 2010.

Net income: EFIC’s income from continuing operations totaled EGP18mn, which beat our estimates of c.EGP15mn, of which 35% came from EFIC’s standalone while the residual was generated from SCFP during 3Q11.

Figure 1 | EFIC Quarterly Performance Highlights

Source: EFIC reports & CI Capital Research estimates

Consolidated Financials (EGP '000) 1Q11 A 2Q11 A 3Q11 A 3Q11 E Variance 9M11 A 9M11 A VarianceMar-11 Jun-11 Sep-11 Sep-11 A vs. E Sep-11 Sep-11 A vs. E

Revenue 111,887 223,837 199,351 164,698 21.0% 535,075 500,422 6.9%YoY growth -21% 53.0% 8% -65.2% 12.9% 5.6%QoQ growth -37% 100.1% -11% -50.9%

Gross Profit 31,487 52,016 74,504 57,553 29.5% 158,007 141,056 12.0%Gross Margin 28.1% 23.2% 37.4% 34.9% 243 bps 29.5% 28.2% 134 bpsYoY growth -45% 0.5% 99% -60.6% 8.0% -3.5%QoQ growth -325% 65.2% 43% -31.1%

EBITDA 23,272 39,332 60,166 27,675 117.4% 122,770 90,279 36.0%EBITDA Margin 20.8% 17.6% 30.2% 16.8% 1338 bps 22.9% 18.0% 490 bpsYoY growth -53% -4.3% 119% -76.5% 4.3% -23.3%QoQ growth NM 69.0% 53% -55.8%

EBIT 16,000 32,378 51,563 23,718 117.4% 99,941 72,096 38.6%EBIT Margin 14.3% 14.5% 25.9% 14.4% 1147 bps 18.7% 14.4% 427 bpsYoY growth -65% -11.0% 100% -77.9% -6.8% -32.8%QoQ growth NM 102.4% 59% -51.0%

Net Income - Reported 2,954 22,957 17,929 14,450 24.1% 43,840 40,360 8.6%Income - Continuing Operations Margin 2.6% 10.3% 9.0% 8.8% 22 bps 8.2% 8.1% 13 bpsYoY growth -87% -12.7% 61% -75.8% -26.5% -32.4%QoQ growth NM 677.2% -22% -44.2%

Net Profit - Adjusted 2,955 12,699 17,929 14,450 24.1% 33,584 30,104 11.6%Net margin 2.6% 5.7% 9.0% 8.8% 22 bps 6.3% 6.0% 26 bpsYoY growth -88% -44.7% 61.3% -75.8% -43.8% -49.6%QoQ growth NM 329.8% 41% -7.7%



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Projection Assumptions 1. We have increased the applied CAPM on EFIC and SCFP to 15.4% and 16% from

13% and 14.2%, respectively. This follows increasing the applied risk premium following the recent political instability of the MENA countries, and higher adjusted beta of 0.91.

2. Production capacities: The company should accommodate its production capacities to cater to revived demand from Latin America following Egypt’s entrance into a trade agreement with the MERCOSUR countries.

SSP related capacities: EFIC’s 700k SSP production capacity in Suez governorate may be postponed until 2012. We also expect that management could be motivated to replenish machinery in both Kafr el Zayat and Assuit plants, similar to the additional SSP case, in order to upgrade production capacities.

AS related capacities: We continue to account for EFIC’s additional 300k of AS production capacity to 300k per year in SCFP.

Figure 2 | EFIC’s consolidated production capacities

Note: SSP capacities include PSSP & GSSP

Source: EFIC & CICapital Research estimates

3. Utilization rates:

The company’s management stated that Asyut’s SA production line is on hold for restructuring/maintenance, and Kafr el Zayat’s GSSP had been stopped several times by the local governorate. We believe that consolidated utilization rates for 2011 may approach 64%, increasing to c.80% in 2014.

Focus on AS: We have decreased the utilization for SCFP’s ammonium sulphate (AS) for 2011 to 61%, compared with our early assumption of 79%. However, we increased the product’s rates of utilization to 76% in 2014 up from our earlier assumption of 70%. This follows our belief that current management will continue to negotiating, and possibly succeed, with the government of Egypt to export its AS directly without going through third party agreements.

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Launch of 700k/yr of SSPAdditional 150k/yr of AS

Additional SSP production capacity postponed

Management is yet to solve AS exports with GoE...



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Figure 3 | EFIC’s consolidated sales volumes (2006A – 2014P)

Figure 4 | Export sales volumes contribution (2006A – 2014P)

Source: EFIC financials& CICapital Research estimates

4. Inventory: Company management has revalued its inventory (specifically GSSP and rock phosphate) at its market value, which is lower than historical costs, resulting in a write-off of EGP20mn. This move might indicate that the company has indirectly written off part of its expensive sulphur. We also expect that company’s management is likely not to repeat its 2008 sulphur inventory hedge again.

Figure 5 | EFIC’s inventory policy change during 2008 to 2010

*Cost bases: is calculated from raw materials, direct labor costs, and the proportionate indirect

costs. **LoCM: deducts expected manufacturing costs.

Source: EFIC’s financials

5. EBITDA performance: Although we have increased our expectations for the consolidated SG&A, following the recent increase in salaries as directed by the government of Egypt (GoE), we have increased our expectations for consolidated EBITDA margin compared with our old estimates and compared with 2010 performance. This comes on the back of company decision at the beginning of 2011 to write-off inventory, which might enhance the consolidated gross profit margin.

6. Loan restructuring: The company’s management was able to restructure EGP420mn in short- to medium-term loans between EFIC standalone and SCFP, EGP220mn for the former and EGP200mn for the latter. This might trigger the following:

Consolidated interest expense: We have decreased the interest burden on the consolidated front in light of the short term loans allocated to SCFP and EFIC standalone on a medium-term basis (eight semi-annual installments over three years). This should give EFIC standalone some breathing room while paying its dues and focusing on its restructuring activities, as well as the newly initiated production line in Suez.

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EFIC: Cost basis*. EFIC: Weighted average. EFIC: Weighted average.SCFP: Same as EFIC. SCFP: cost basis. SCFP: Same as EFIC.

EFIC: Lower of cost or market(LoCM)**.

EFIC: Lower of cost or market(LoCM)**.

EFIC: Weighted average.

SCFP: Same as EFIC. SCFP: Same as EFIC. SCFP: Same as EFIC.

Finished/WIP goodsRaw material

Writing off expensive inventory



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SCFP interest capitalization: EFIC’s management announced that it will stop to include major part of SCFP’s assets (i.e. unfinished machinery) as “construction in progress,” as opposed to its accounting policies of previous years. We have altered our forecast for SCFP assets to reflect the change.

7. Depreciation: Following management’s announcement of including SCFP’s unfinished machinery as assets, we have increased EFIC’s annual consolidated depreciation expense. In addition, we continue to account for the newly-leased operations in Suez. Also, we believe that current management shows commitment to replenish/maintain current production capacities to increase utilization rates. We note that according to company’s management reply no. 5 to the Central Accounting Agency report in 1Q11 standalone financials due to non-operational lines of (1) the granulating unit in company’s Kafr El Zayyat plant and (2) the sulphuric acid unit in company’s Asyut plant. Of these, the former halted production in June 2009 on the orders of the El Gharbiyya governor, while the latter's stoppage came in September 2008 when the line was frozen for renovation and repairs.

8. Taxes: We have increased the tax rate to 12.5%, up from an average of 7% starting 2011 onward. The increase follows the recent increase in the GoE tax rate by 5% to reach 25%. We expect that SCFP’s tax shelter is rewarding consolidated performance.

9. Cash conversion cycle (CCC): We have increased company’s cash conversion cycle from 209 to north of 290 days, based on our belief that management might increase the credit sales and its credit terms for its receivables to stimulate sales activity.

10. EGPHOS: A major partner in the EGPHOS project has announced that the project might be delayed for a two year period; thus we expect that the project is unlikely to be launched any time soon. Accordingly, we are ruling out its inclusion in our valuation, as well as EFIC’s investment income, until receiving clear guidance from the company or about the project.

11. Provisioning: We expect the company’s management to provision an amount of EGP68mn, representing the repayment of EGP61mn to Al Nasr Mining Company as well as a contingent EGP7mn. The latter amount might satisfy the Central Accounting Agency requirement in footnote no. 1, which had been mentioned in EFIC’s standalone financial statements for 1Q11.

12. Cash dividends: We believe that the new management may hold off on distributing cash dividends for the third year in a row. This follows our view that management might want to retain some liquidity to undertake the restructuring process during 2011 onwards.



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Figure 6 | EFIC’s Debt Maturity Profile (2011 – 2014)

Source: EFIC’s financials Figure 7 | EFIC’s consolidated financial highlights

Source: EFIC consolidated financial statements and CI Capital Research estimates

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EGP mn EFIC SCFP

Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14Actual Actual Actual Actual Projected Projected Projected Projected

New 524,997 931,325 575,599 650,308 899,024 1,025,279 1,160,103 1,307,568

Growth rate 77.4% -38.2% 13.0% 38.2% 14.0% 13.2% 12.7%

Old 798,633 1,013,292 1,079,609 1,143,649

% Chg. 13% 1% 7% 14%

New 164,364 296,329 117,134 89,581 214,258 236,808 264,280 301,878

EBITDA margin 31.31% 31.82% 20.35% 13.78% 23.83% 23.10% 22.78% 23.09%

Growth rate -23.52% 139.18% 10.52% 11.60% 14.23%

Old 163,433 214,448 236,447 266,856

EBITDA margin 18.18% 20.92% 20.38% 20.41%

Growth rate 82.44% 31.21% 10.26% 12.86%

% Chg. 31% 10% 12% 13%

New -31,459 -50,440 -82,048 -68,589 -64,372 -97,164 -92,219 -109,601

Old -91,635 -106,623 -89,833 -120,029

% Chg. -30% -9% 3% -9%

New 135,567 239,694 25,762 -8,096 44,784 85,178 101,342 111,414

Growth rate 76.8% -89.3% -131.4% NM 90.2% 19.0% 9.9%

Net margin 25.82% 25.74% 4.48% -1.24% 4.98% 8.31% 8.74% 8.52%

Old 41,602 86,859 180,335 174,037

Growth rate NM 108.8% 107.6% -3.5%

Net margin 5.2% 8.6% 16.7% 15.2%

% Chg. 8% -2% -44% -36%

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Valuation Summary We have used DCF and multiples to value EFIC’s fundamental and relative value, respectively. The following are summaries for our approaches:

DCF valuation – Downgraded: We have reduced our estimate for the company’s intrinsic value by 42% based on higher discounting factors, i.e. risk premiums and beta and removal of EGYPHOS. This was although we have increased company’s utilization rates and increased profit margins.

Multiple valuation – Downgraded: We have downgraded company’s relative valuation by a similar 42% based on the EV/EBITDA multiple for 2013.

Technical valuation – Removed: Although the technical analysis view of the stock suggests EGP10-11/share as a support, we chose not to incorporate the technical pricedue to the recent political changes.

TP – Downgraded: We blended the two approaches (DCF and multiple valuations), as opposed to our previous method, which had included the technical analysis. This resulted in EGP14.3/share.

We have summarized our findings below.

Figure 8 | EFIC’s valuation summary

Source: CI Capital Research estimates Valuation Methodology

For the second time, we have revised downward our estimates for EFIC’s 12M LTFV and TP.

According to our expectations, we estimate EFIC’s LTFV and TP to record EGP15.4/share and EGP14.3/share, down from our old estimates of EGP26.6/share and EGP23.2/share, respectively.

DCF

We have also decreased our estimate for the company’s shareholders’ value from EGP1,824mn to EGP1,070mn – a c.45% slash due to the following:

1. We have removed the EGYPHOS project from our valuation.

2. Increasing the applied risk premium following the recent political instability of the MENA countries.

3. Applying an adjusted beta of 0.91 (instead of 0.85) as per Bloomberg.

4. We have increased our discount rates applied on EFIC and SCFP to 15.4% and 16% from 13% and 14.2%, respectively.

LTFV Multiple Overall effect

DCF Technical Relative TP

Weights Change 5 6 5

Value Change 6 6 6

Value - EGP 15.4 11.0 13.2 14.3

Valuation methodology

6

EGP15.4 vs. old EGP26.6per share

EGP13.2 vs. old EGP22.6



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Figure 9 | EFIC’s New &Old Valuation (‘000)

Source: CI Capital Research estimates

Relative Valuation

EFIC’s local share is currently trading at a 2013E PER of 6.5x and a 2013E EV/EBITDA of 6.1x. We believe investors would be more concerned withthe company’s multiples for 2013 one year from now; thus we used 2013 multiples to reach a multiple-based valuation vis-à-vis peers.

Figure 10 | EFIC’s Relative Value

Source: CICapital Research estimates

Subsidiary Enterprise Value (EV)

Equity share

EFIC's share % of total

value

Subsidiary Enterprise Value (EV)

Equity share

EFIC's share

% of total

value

% Change

(New vs. old)

EFIC 422.1 100.0% 422.1 23.5% EFIC 731.0 100.0% 731.0 27.6% -42%SUEZ SUEZ

Valuation 1,527.5 99.9% 1,525.7 Valuation 1,851.6 99.9% 1,849.4 -18%Liquidity Discount 10% Liquidity Discount 10%

SUEZ 1,373.1 76.5% SUEZ 1,664.5 62.8% -18%EGYPHOS (1st phase) EGYPHOS (1st phase)

Valuation - 0% - Valuation 1,696.7 15% 254.5 -100%Liquidity Discount 0% Liquidity Discount 0%

EGYPHOS (1st phase) - 0.0% EGYPHOS (1st phase) 254.5 9.6% -100%

Sum 1,949.6 1,795.3 100.0% Sum 4,279.3 2,650.0 100.0% -32%

Net Cash/(Debt) (725.5) Net Cash/(Debt) (807.6) -10%

Shareholders' value 1,069.8 Shareholders' value 1,842.4 -42%

No. of Shares 69.3 No. of Shares 69.3

LTFV 15.4 LTFV 26.6 -42%

New Valuation OLD Valuation

Subsidiary EBITDA (EGP mn)

Year Peers' EV/EBITDA*

EV (EGP mn) Ownership % Prop. Ent Value (EGP

mn)

EFIC 61.9 > 2013 4.5 278.4 100.0% 278.4

SCFP 336.8 > 2013 4.5 1,515.8 99.9% 1,362.6

EGYPHOS -

1,641.0

Net Cash/(Debt) (725.5)

Equity Value 915.5

Shares 69.3

Relative Value 13.2

Total prop EV.



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Target Price & Recommendation Target price

We have altered the process through which we calculate EFIC’s target price. According to our new methodology, we have ceased to incorporate the market sentiment reflected in our technical analysis for the stock price movement.

Though we continue to blend fair values, we did so according to a different weight scheme (50%-50% for LTFV and relative valuation, respectively).

Our old method had been weighted 50%-10%-40% for LTFV, technical and relative valuation, respectively. We think this might be a short term target and we chose to stick to a longer-term target. Hence, we have assigned a new target price of EGP14.3/share, which lower than our old estimate of EGP23.2/share. Recommendation Following our belief that the current management is committed to restructuring and the enhancement of current production capacities, we have a positive sentiment and our suggested TP of EGP14.3/share leaves EFIC with north of 50% as upside potential from current market price, to trade at a 2012e EV/EBITDA multiple of 8.5x. The stock currently holds a 50%+ upside potential, prompting us to upgrade EFIC’s rating two notches up from Hold to Strong Buy.

Figure 11 | EFIC’s TP calculation

* Using the LTFV ** Based on the comparable valuation *** Based on the high end technical price Source: CI Capital Research estimates

Investment rationale

1. Company’s new management has written off expensive inventory.

2. Capacities enhancement initiatives:

New production capacities are being added.

Environmental approvals are being resolved.

3. Loan restructuring to control cash outlays and quarterly interest expense.

Target Price Calculation

Method Weights Share price Weights Share price

DCF* 50% 15.4 25% 26.6

Multiple** 50% 13.2 40% 22.6

Technical price*** 0% 11.0 35% 21.5

Weighted average 14.3 23.2

12-month Target price 14.3 23.2

Current price as of 9.4 20.3

Upside potential 52.8% 14.3%

23-Nov-11 5-Oct-10



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Risks to Recommendation

Downside Risks 1. A liquidity squeeze or increasing debt levels might deter the company’s

management from distributing enough cash to pay dividends to shareholders or serve the loan repayment and restructuring activities.

2. Inventory piling up for AS in the local distribution system might reduce the amount of AS sold. It is worth mentioning that AS is considered an N fertilizer product that falls under the trade regulation of the N fertilizers in Egypt. According to the regulation, a newly-established trading company should procure all N fertilizers from local companies to be sold to the market or exported.

3. Kafr el Zayat and Asyut plants have obsolete machines, which might subject EFIC’s production to stoppages. However, management’s decision to launch its new Suez plant and replenish them may reduce this operational risk.

4. EFIC’s EBITDA margin might be at risk, as new local companies have established their own phosphate mining companies for fear of escalating price competition.

5. Additional capacities, either local or regional, could increase competition and jeopardize EFIC’s current market share.

6. Global demand for P fertilizers in 2012 might be negatively affected if the present trend of unfavorable weather conditions continues.

7. Cancellation of the MERCOSUR agreement might negatively consolidated export sales volume.



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OTE

Company Financials (2010A-2014P)

Note: A= Actual; P Projected

Source: Company Reports & CI Capital Research estimates

Balance Sheet (EGP mn) Dec-10A Dec-11P Dec-12P Dec-13P Dec-14P

Assets Cash & Cash Equivalent 59.6 44.0 50.2 73.3 70.2Net Receivables 125.7 221.7 280.1 349.6 429.9Total Inventory 257.0 329.2 542.0 498.7 606.3Other Current Assets 151.6 0.0 0.0 0.0 0.0Total Current Assets 594.0 594.9 872.3 921.6 1,130.9Net Plant 1,236.2 1,227.1 1,397.2 1,379.8 1,368.8Long-Term Investments 0.3 0.0 0.0 0.0 0.0Total Assets 1,838.2 1,822.0 2,269.4 2,301.4 2,499.7

Liabilities & Shareholders' Equity STD and CPLTD 423.6 351.2 788.2 878.4 1,136.0Accounts Payable 38.8 47.5 113.8 102.9 96.8Accrued Expenses 0.0 0.0 0.0 0.0 0.0Down Payments 0.0 0.0 0.0 0.0 0.0Dividends Payable 1.6 0.0 0.0 0.0 0.0Total Current Liabilities 507.3 398.6 902.0 981.3 1,232.8Total Long-Term Debt 445.8 416.4 288.2 155.0 10.0Other Non-Current Liab. 0.0 0.0 0.0 0.0 0.0Total liabilities 953.1 815.0 1,190.3 1,136.3 1,242.8Minority Interest 0.4 0.7 1.2 1.8 2.4Shareholders' Equity 844.0 897.5 969.3 1,054.6 1,145.8Total Liabilities & Equity1,838.2 1,822.0 2,269.4 2,301.4 2,499.7

Income Statement (EGP mn) Dec-10A Dec-11P Dec-12P Dec-13P Dec-14PRevenues 650.3 899.0 1,025.3 1,160.1 1,307.6COGS (518.1) (634.3) (726.6) (813.6) (893.9)Gross Profits 132.2 264.7 298.7 346.5 413.7SG&A (42.6) (50.4) (61.9) (82.2) (111.8)EBITDA 89.6 214.3 236.8 264.3 301.9Dep. & Amort. (17.6) (30.6) (41.8) (55.7) (64.4)EBIT 72.0 183.7 195.0 208.6 237.5Interest Expense (68.6) (64.4) (97.2) (92.2) (109.6)Provisions (12.8) (68.0) 0.0 0.0 0.0Interest Income 0.2 0.0 0.0 0.0 0.0Investment Income 0.6 0.2 0.2 0.2 0.3Other Non-Operating Inc. 0.4 0.0 0.0 0.0 0.0EBT (8.2) 51.5 98.0 116.6 128.2Taxes 0.0 (6.4) (12.3) (14.6) (16.0)Attributable Profits (8.1) 44.8 85.2 101.3 111.4

Cash Flow (EGP mn) Dec-10A Dec-11P Dec-12P Dec-13P Dec-14PNOPAT 72.0 176.9 182.2 193.3 220.7Dep. & Amor. 17.6 30.6 41.8 55.7 64.4COPAT 89.6 207.5 224.0 249.0 285.1WI Change 202.1 (159.4) (204.8) (37.1) (218.5)Other Current Items (2.0) 115.9 0.0 0.0 0.0CF After Current Oper. 289.7 164.0 19.1 211.9 66.6Financing Payments (134.4) (211.3) (210.4) (220.4) (242.8)Cash Before LT. Use 155.3 (47.4) (191.3) (8.5) (176.2)Net Plant Change (45.3) (21.5) (211.9) (38.4) (53.4)FCFF 246.4 26.6 (192.7) 173.6 13.2Others (10.7) (67.5) 0.2 0.2 0.3CF Before Financing 99.4 (136.3) (403.0) (46.6) (229.3)Short-Term Debt (530.9) (38.7) 422.1 85.2 245.9Long-Term Debt 492.3 83.9 0.1 0.0 0.0Change in Cash 36.1 (15.6) 6.2 23.1 (3.1)

(0.0) (0.0) (0.0) 0.0Fact Sheet Dec-10A Dec-11P Dec-12P Dec-13P Dec-14PROE -1.0% 5.0% 8.8% 9.6% 9.7%ROS -1.2% 5.0% 8.3% 8.7% 8.5%ROA -0.4% 2.5% 3.8% 4.4% 4.5%ROIC 4.1% 10.0% 8.5% 8.8% 9.2%Gross Margin 20.3% 29.4% 29.1% 29.9% 31.6%EBITDA Margin 13.8% 23.8% 23.1% 22.8% 23.1%ATO 0.4x 0.5x 0.5x 0.5x 0.5xWI/ Sales 54.1% 56.0% 69.1% 64.2% 73.7%Net Debt/EBITDA 9.0x 3.4x 4.3x 3.6x 3.6xDebt/ Tangible Equity 1.1x 0.9x 1.2x 1.1x 1.1xCurrent Ratio 1.2x 1.5x 1.0x 0.9x 0.9x

Per-Share Ratios Dec-10A Dec-11P Dec-12P Dec-13P Dec-14PShare Price 9.38 9.38 9.38 9.38 9.38 No. of Shares (000) 69,302 69,302 69,302 69,302 69,302 EPS -0.12 0.65 1.23 1.46 1.61DPS -0.00 0.00 0.19 0.23 0.29Revenues/Share 9.38 12.97 14.79 16.74 18.87Gross Cash Flow/Share 1.29 2.99 3.23 3.59 4.11FCFF/Share 3.56 0.38 -2.78 2.50 0.19EBITDA/Share 1.29 3.09 3.42 3.81 4.36EV/Share 21.06 19.82 24.19 23.23 24.90

Multiples Dec-10A Dec-11P Dec-12P Dec-13P Dec-14PP/E (80.3x) 14.5x 7.6x 6.4x 5.8xDiv Yield % 0.0% 0.0% 2.1% 2.5% 3.1%P/ Revenue 1.0x 0.7x 0.6x 0.6x 0.5xEV/ Revenues 2.2x 1.5x 1.6x 1.4x 1.3xP/ COPAT 7.3x 3.1x 2.9x 2.6x 2.3xEV/ COPAT 16.3x 6.6x 7.5x 6.5x 6.1xP/ FCFF 2.6x 24.4x (3.4x) 3.7x 49.4xEV/ FCFF 5.9x 51.6x (8.7x) 9.3x 131.0xP/ EBITDA 7.3x 3.0x 2.7x 2.5x 2.2xEV/ EBITDA 16.3x 6.4x 7.1x 6.1x 5.7xP/ BV 0.8x 0.7x 0.7x 0.6x 0.6x

Disclaimer The information used to produce this market commentary is based on sources that CI Capital Research (CICR) believes to be reliable and accurate. This information has not been independently verified and may be condensed or incomplete. CICR does not make any guarantee, representation or warranty and accepts no responsibility or liability to the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and with the use of specific financial techniques that reflect the personal opinions of the authors of the commentary and is subject to change without notice. It is acknowledged that different assumptions can always be made and that there is a wide choice of techniques that can be adopted each of which can lead to a different conclusion. Therefore, all that is stated herein is of an indicative and informative nature as forward-looking statements, projections and fair values quoted may not be realized. Accordingly, CICR does not take any responsibility for decisions made on the basis of the content of this commentary. This commentary is made for the sole use of CICR’s customers and no part or excerpt of its content may be redistributed, reproduced or conveyed in any form, written or oral, to any third party without the prior written consent of CICR.

Rating Potential Upside/Downside Strong Buy >30% Buy >20%<30% Hold >10%<20% Underweight >0% <10% Sell <0%

In February 2008, CI Capital Research (CICR) launched a new rating system to give analysts more freedom to be market responsive. This is to make one element of our research more dynamic, namely the advertising of target prices and recommendations. What we did not change is our assessment of the Long Term Fair Value (LTFV), nor have we stopped our detailed industry and company research. What we did is change the target price to trade in the balance of where a share should trade and where we think it will trade. LTFV: As before we continue to estimate a fundamental valuation, largely DCF and/or NAV based. Target Price: The price, which is not necessarily the LTFV, is where the analyst, given all (qualitative as well as financial) information available, thinks the share price can get to within the next 3-12 months. This can be changed at any time on changing facts and perceptions. Recommendations: Our new rating system falls out from the total return relating to the share price performance to the target price, and including any distributions may not be included in the target price calculation. This is shown in the table below, and to be BUY must return over 19%, an arbitrary hurdle rate we think reasonable given prevailing interest rates and risks (Please see table below.)

CI Capital Holding 8 Nadi El-Seid Street, Third Floor Dokki Giza, Egypt Tel: +2(02) 33 38 62 59 [email protected] www.cicapital.com.eg

Research Amr Hussein Elalfy, CFA | Co-Head of Research [email protected] Mona Mansour | Co-Head of Research [email protected]

CI Capital Securities Brokerage (Egypt & UAE) Khaled Abdel Rahman Managing Director & Global Head of Securities Brokerage [email protected]

Dynamic Securities Ahmed Roushdy Managing Director [email protected]

Egyptian Financial & Industrial STRONG BUY LTFV | EGP15.4...

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