Canal Shipping Agencies released its 2Q18/19 financial highlights, showing a significant Y-o-Y increase in earnings to EGP64.2mn from EGP44mn in 2Q17/18 and coming in-line our EGP66.5mn estimate. While full financial results have not yet been released, the company’s earnings mainly stem from dividends generated from its 20%-owned investments in: i) Dammietta Container Handling (DCHC); and ii) Port Said Container Handling (PSCHC). On the core operational level for CSAG, revenues came at EGP15.5mn (-23% Y-o-Y, -52% Q-o-Q), while GP margin saw a noticeable improvement to reach c26.8% (vs. 22.1% in 1Q18/19) with gross profits reaching cEGP4.2mn. Overall, we note that core operations of CSAG offer negligible contribution to the bottom-line and to our valuation.

Valuations look attractive today; reiterate Buy
At 2Q18/19's run rate, we think CSAG would be trading at a 2018/19e P/E multiple of only c9.8x. However, CSAG has typically seen spikes in its earnings towards its 4th quarter of every year, which would drive the multiple even lower (we estimate CSAG is trading at c8x in 2018/19). Looking ahead, we think CSAG’s investments in DCHC and PSCHC offer: i) potential for expanding container handling capacity, which might lead to upside vs our estimates; and ii) potentially list on EGX as part of the government’s IPO programme, which may offer better visibility on earnings. Accordingly, we reiterate our Buy rating on CSAG. 

Canal Shipping: EGP12.13 as of 30 Jan. 2019, Rating: Buy, TP: EGP19.00/share, MCap: USD138mn, CSAG EY/CSAG.CA

Ahmed Hazem Maher

Alaa Saleh