• Deconsolidation of TOE drives spike in 1Q16 earnings; beat EFGe EK Holding’s 1Q16 results surprised positively with a bottom-line of USD21.8mn (+45% Y-o-Y, +579% Q-o-Q, and +234% above EFGe). The earnings spike was driven by management’s strategic initiative to offload risky exposure to oil and gas operations, which we believe would have reported a loss and thus weighed on 1Q16 earnings. The full financials have yet to be released and we will review our estimates once it reports them. However, we reiterate our BUY rating on EK Holding as it is trading at only 5.3x P/E (based on annualised 1Q16 earnings).
• Natenergy & Sprea enjoy the limelight, as Alexfert recovers Again in 1Q16, Sprea and Natenergy continued to show operational excellence and bottom-line growth. At Sprea, the import-substitution nature of its products allowed it to enjoy higher volumes and prices, while the introduction of SNF into the production mix had a better-than-expected impact. This fed through to Sprea’s bottom line of USD7.2mn (+108% Q-o-Q, +45% above EFGe). At Natenergy, earnings grew 11% Q-o-Q, in line with EFGe, as higher electricity prices and gas connection additions continued. At Alexfert, a recovery in gas supplies led to 38% Q-o-Q earnings growth, as operating rates came in at 70% (based on rated capacity) and beat our estimate on lower-than-expected costs.
• No more headaches from oil exposure as TOE is off the table Given the highly volatile nature of oil and its impact on EK Holding’s results, management took a strategic initiative to offload its equity stake in TOE and deconsolidate the entity. We are positive on this move, as the asset was causing an overhang on the stock, and as oil assets were detrimental to value. We had assumed a negative equity contribution to our valuation for the Egyptian oil assets (North Shedwan and Gabal Al Zeit), with South Sudan only contributing USD1.2mn to the value. Final equity stakes in North Sinai concession (the only value-accretive asset at TOE) have yet to be cleared, given the direct and indirect stakes held by EK.

Ahmed Hazem Maher