• Strong 2Q16 results; reiterate Buy on attractive valuation EK Holding reported net profit of USD13.2mn (+6% Y-o-Y, -40% Q-o-Q); broadly in-line with our USD12.3mn estimate. Earnings fell Q-o-Q mainly due to dividend income which is typically received in 1Q. With 1H16 earnings of USD35mn, we believe it is well on its way to achieving our 2016 earnings estimate of USD61mn. Its cash rich balance sheet should support upcoming expansions as well as good dividends (2016e yield of c6.4%). Adding to that, EK is trading at an attractive 2016e P/E of 7.9x, while offering a healthy growth profile in the coming years (net income CAGR of 14% in 2016-20e). Hence, we reiterate our Buy rating.
• Sprea & Natenergy remain key as Alexfert suffers from weak pricing EK’s key assets (Sprea & Natenergy) continued to achieve positive returns, beating our estimates, with earnings up 7% and 13% Q-o-Q to USD7.6mn and USD6.4mn, respectively. At Natenergy, the beat was mainly driven by its lower minority interest post acquiring an additional 10% stake in Natgas. At Sprea, volume growth was the key driver for the beat as the import substitution nature of its products continues to be supportive. For Alexfert, we were quite surprised by operating rates coming in nearly flat Q-o-Q at c69% (vs. EFGe of 40%). Despite the better-than-expected operating rates, Alexfert posted only a USD0.9mn profit as weak urea prices continue (at 12-13 year lows of cUSD185/tonne).
• Strategic initiatives in place; arbitration case could offer upside EK remains on target with its growth strategy at Sprea and Natenergy as they continue to add: i) downstream chemical capacity; ii) electricity capacity; as well as iii) new connections to the national gas grid. On the arbitration case related to Alexfert’s gas pricing, while we do not account for any upside from this, several reports have indicated that the Egyptian government is nearing a favourable settlement, which may be in the form of: i) lower gas prices; ii) improved gas utilisation; or iii) a possible cash settlement.

Ahmed Hazem Maher