General Company for Silos and Storage (GSSC) reported its 1Q18/19 financial highlights showing earnings of EGP13mn (+71% Y-o-Y, -32% Q-o-Q) and coming in below our EGP16mn estimate by 18%. Full financial results have yet to be released but, we believe that the earnings miss may have been driven by i) lower-than-expected interest income; and ii) higher-than-expected taxes as effective tax rate came in at 28.5%. Excluding the impact of the higher tax rate, the earnings miss would have come down to c11%. Operationally, while revenues were below expectations (c20% vs EFGe) at EGP150mn, GSSC still managed to book a gross profit of cEGP22mn (-55% Q-o-Q, +31% Y-o-Y, +15% EFGe). This implies an improvement in GPM to 14.6% vs our 10.2% GPM estimate, which was likely driven by: i) increase in private business operations, which typically come at a higher margin; as well as ii) cost efficiency and ability to pass on higher expenses. 

Despite the miss, we think that the company is still likely to achieve our earnings expectations of cEGP81mn for the year as operational metrics seem to be better-than-expected, which should compensate for the slow-down in 1Q18/19. We estimate that GSSC’s cash position represents c90% of the current market cap, while the stock trades at a 2018/19e PE multiple of only c5.3x. We reiterate our Buy rating on the stock as we estimate that GSSC’s cash position represents c90% of the current market cap, while the stock trades at a 2018/19e PE multiple of only c5.3x. We reiterate our Buy rating on the stock

General Silos: EGP42.56 as of 31 Oct. 2018, Rating: Buy, TP: EGP65.00/share, MCap: USD24mn, GSSC EY/GSSC.CA

Ahmed Hazem Maher 
Alaa Saleh