• Solid results as expected in 3Q16; reiterate Buy EK Holding net profit came in at USD12.1mn in 3Q16, broadly in line with our USD12.88mn estimate. It is now well on its path of achieving our full-year estimate of USD63mn in 2016, which means the stock is trading at an undemanding 2016e PE multiple of only c8x vs. our implied multiple of 13x. EK offers a number of attractive features such as: i) cash-rich balance sheet; ii) expansion plans at Natenergy and Sprea that should drive c14% growth in EK earnings through to 2020; and iii) lucrative USD dividend yield of c6.3%. We are also positive on a recovery in the stock’s liquidity from an increase in USD flows on EGX; hence, we reiterate our Buy rating on the stock, especially with it gaining momentum lately.
• Natenergy & Sprea at the forefront; Alexfert breaks even Natenergy and Sprea continued to represent the bulk of earnings and post quarterly growths of 3% and 7%, respectively. Both entities have enjoyed healthy operating environments in their respective fields, given that: i) Natenergy’s utility prices and grid connectivity have been rising; and ii) Sprea enjoys a leading market share (c80%) across its products. At Alexfert, while the company only managed to breakeven, we had expected an even weaker quarter on: i) urea being priced at USD190/tonne (-8% Q-o-Q, -36% Y-o-Y); ii) gas shortage in the summer; and iii) a two-week maintenance shutdown, which typically drives other costs higher. We think cost efficiency was the backbone of the better-than-expected results.
• Arbitration case settled; finally a light at the end of the tunnel After years of disputes, EK finally settled its case with Egypt government on Alexfert’s gas pricing, a decision the market was not relying on its occurrence, given the lengthy settlement process. The final outcome of the settlement should bode well, as: i) it provides visibility on earnings, with full gas allocation now being promised, at the risk of EGAS incurring a USD2/mmbtu penalty for short volumes; as well as ii) setting in stone a fixed gas price of USD4.5/mmbtu (vs. our estimate for a gas price formula that implies cUSD5.5/mmbtu on a terminal basis); hence, while the decision offers only a c1% upside to our 2017 EPS estimate, we see a longer term upside risk materialising.

Ahmed Hazem Maher