• Cleaner and less cyclical business model; reiterate Buy Now that Tri-Ocean Energy (TOE) is deconsolidated, we see minimal impediment or weight imposed on EK’s earnings. Weak oil price environment, along with TOE’s leveraged position, were considerably hampering EK’s true earnings potential, which blossomed in 1Q16 at USD21.8mn despite the weakness in nitrogen fertilisers. EK’s trimmed-down look offers a cleaner and stronger outlook for the operation as a whole as the oil segment’s cyclicality has been carved out. We think this will allow EK to enjoy a much healthier bottom-line, and accordingly, we raise our 2016 earnings estimate by c92% to USD61mn. We maintain our FV at USD0.80/share, and with EK currently trading at a 2016e PE of 6.4x, we reiterate our Buy rating for the stock.
• MSCI outflows unlock opportunity; dividend yield attractive EK’s operations remain fundamentally solid, in our view, especially after the disposal of TOE and its negative-impact-bearing assets on the overall value; hence, we see a healthy opportunity to build a position in EK post the drop in share price that was driven primarily by passive outflows from MSCI rebalancing. Nevertheless, FX shortage in the local market is still driving away liquidity from the stock, as retail investors are still on the side-lines. For investors with access to foreign funds, the stock offers an attractive entry point with depressed multiple levels and lucrative dividend yield of c8% on the US dollar.
• Natenergy & Sprea remain solid; Alexfert comes up from a low base At Sprea, the addition of new supplementary product lines such as SNF, Formica sheets and MDF continued to bode well, given the import substitution nature of the products that allows ease of re-pricing in case of a devaluation hit. At Natenergy, we believe the government’s drive to expand and deregulate the downstream energy distribution business continues to offer a modest but stable growth. As for Alexfert, which remains down on its luck, the improvement in natural gas supplies has been impeded by the bearish cyclical nature of nitrogen fertilisers and prevalent oversupply. But, we think it will continue to grow from a low base as: i) prices rise; and ii) gas supply improves.

Ahmed Hazem Maher