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Investment Note EGYTRANS  November 2017


EGYTRANS – Snap Valuation - BUY

Investment view - Our target price of EGP19.6/share on EGYTRANS, Egyptian Transport and Commercial Services Co.
is based on the average relative P/E and EV/EBITDA multiples for
Recommendation BUY
peers, net of a 30% discount for limited backlog visibility. With a
2017e P/E of 4.9x, the stock trades at a big discount to peers as well Current price (EGP) 14.4
as conventional valuation multiples – the available cash and working Target Price EGP) 19.6
capital in the B/S represents EGP7.14/share or 50% of the company’s Upside potential 36.3%
current market capitalization. Our EPS estimate for 2017 applies
Total O’s shares (m) 31
normal earnings run rates starting 2H17, given that existing/ongoing
projects might not get rolled-over/repeated. Nevertheless, earnings P/E 2016 (x) 7.6
should be healthy going forward, given the government’s emphasis P/E 2017e (x) 4.9
on certain large infrastructure projects to continue for the next two P/B 2016 (x) 1.7
years (including the new power projects, wherein EGYTRANS is P/B 2017e (x) 1.3
DPS 2016 (EGP) 0.7
About EGYTRANS – Set up in 1973. However, its activities and
Div. Yield Trailing 4.9%
experience goes back to 1939 as a continuation to GAMAL EL DIN
LEHETA & CO. The company provides various services in the EV/EBITDA 2016 (x) 9.9
integrated transport field, mainly sea freight, air freight, customs EV/EBITDA 2017e (x) 6.4
clearance, warehousing, land transport, and project logistics. The Main shareholders
company generates a notable stream of income through its
National Investment Bank 25.5%
subsidiaries and affiliates including: 1) Barwil Egytrans which
represents the legal entity for WSS one of the leading ship agents in Mustafa Sayed Essa Mustafa 6.75%
the world. 2) Scan Arabia shipping which services the regular Mohamed Ashraf Omar 5.07%
navigation lines with unique demand. 3) ETAL (99% owned by Hassan Ibrahim Mekky 4.72%
EGYTRANS) which owns a fleet of equipment to transport shipments.
Abir Wael Siddiq 4.14%
Growth potential: The company in recent times (starting 2016/2017)
Heba Wael Siddiq 4.09%
has seen some segments grow rapidly, thanks to its specialization in
logistical solutions for large projects including transport of sensitive Stock ticker ETRS.CA
equipment and packages of exceptional weight or dimensions, which Country of operation Egypt
harmonizes with the government’s increased infrastructure spending
Financial Indicators
in power and water stations. We believe that the coming years will
witness a recovery for the sea/air freight segments as the EGP EGPm 2014 2015 2016 2017e
flotation should positively affect Egyptian exports as they are now Revenue 125 131 215 330
more competitive in foreign markets; nevertheless, this would also
Gross profit 27 29 66.5 155
depend on the government’s success rate in encouraging export
Gross margin (%) 22% 22% 31% 47.0%
EBITDA 7 9 41 63
Financial snapshot. The company has been profitable throughout
the last five years (gross margins in excess of 20%); in spite of the FX gains (loss) (1.2) 0.8 44.5 NA
significant decline in the volume of new investments in Egypt post Net profit 10 10 59 92
2011, which affected trade volumes. We take note of the company’s
Equity 186 181 262 353
current balance sheet which is highly under-leveraged with EGP86m
available in net cash, which paves the way for dividends and future Total debt 0.6 0.7 0 0
expansions. Net debt (cash) 47.4 49 65 NA
EGYTRANS has real risks – EGYTRANS has a wide geographical Debt/Equity
0.3% 0.4% 0.4% NA
footprint. The company operates in five Egyptian governorates
making it hard for the management to supervise all the activities. P/E (x) 43.2 45.0 7.6 4.9

Also, its ability to receive payments for mega projects which was the ROE 5.6% 5.5% 22.4% 25.9%
main driver behind the exceptional growth in 2016 and 2017 is of EV/EBITDA (x)
55.0 47.0 9.9 6.4
particular concern – receivables have grown to EGP244m as of 1H17
compared to EGP57m in 2015. Moreover, the government’s plan to
remove energy subsidies should result in increased costs of land transportation – which might hurt demand for EGYTRANS services
in the longer run.

Amir Badran Allen Sandeep 1

+202 3535 5019 +202 3535 5010
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Rating Upside/Downside potential Rating distribution as of 12 November 2017

BUY >20% 46%
ACCUMULATE >10% to 20% 11%
HOLD +10% to -10% 35%
REDUCE <-10% to -20% 4%
SELL < -20% 4%

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