• Cut FV to USD0.80; maintain Buy on unwarranted discount We cut our FV for EK Holding by 12% to USD0.80 as we see a tough year ahead due to low fertiliser and oil prices and raise our cost of equity by c100 bps across all subsidiaries to reflect rising capital costs. However, we maintain our Buy rating as we believe the stock prices in an unwarranted discount; partly due to the FX shortage. Even with the plunge in oil and fertiliser prices, its diversified operational exposure in utilities and diversified chemicals (Natenergy & Sprea) and cash rich position should continue to be supportive in this weak price environment. We believe it offers an attractive valuation as it trades at a 2016e P/E of 14.5x, but net its cash balance its core operations are priced at only 9x and 7x in 2016e and 2017e, respectively.
• 4Q15 earnings deteriorate Q-o-Q, missing EFGe as TOE faces one-offs EK Holding’s 4Q2015 results were disappointing with earnings of only USD3.2 million (-42% Q-o-Q), which missed our estimate by a wide margin. While the decline was partly driven by weaker oil prices, we believe that the main drivers behind the miss were i) one-off provisions at TOE; as well as ii) higher-than-expected SG&A expenses. Overall, while it faces a harsh environment in 2016, we like its solid balance sheet and diversified operational exposure. Nevertheless, we have reduced our estimates to reflect the disappointing set of results and weakened outlook ahead.
• Alexfert is back in the black, but EK's outlook is still mixed While Alexfert was able to return to profitability as gas supplies returned to full rates from November, urea prices were under severe pressure in 4Q2015 and continued to drop in 1Q2016 as global oversupply took its toll. Overall, Alexfert managed to run at 45% utilisation in 4Q2015 versus only 11% in 3Q2015. At TOE, while volumes were up 20% Q-o-Q, earnings were hit heavily by weaker oil prices (-8% Q-o-Q), which continued to be a drag in 1Q2016. The outlook for the other core subsidiaries (Natenergy & Sprea), looks brighter given their operational resilience and growth as both companies are about to add new capacity.

Ahmed Hazem Maher