• Recurring earnings in line; attractive yield for 2015 and sustainable Elsewedy reported another strong quarter backed by turnkey projects deliveries in Egypt and higher cables and electrical products volumes that led to EBITDA of EGP678 mn, up 14% Q-o-Q. Reported earnings of EGP283 mn were flat Q-o-Q, while recurring earnings of EGP380 mn fell 17% due to tax adjustments. The company will pay out 54% of its 2015 reported earnings of EGP1,245 mn (EGP3.0 DPS: EGP1 paid, EGP2.0 proposed), implying a 7% yield. We continue to favour Elsewedy as it trades at a single-digit P/E and sustained additions to its turnkey projects backlog should continue to support earnings and lucrative dividends in 2016. We will revisit our forecasts to reflect recent additions to backlog and trends.
• Additions to turnkey projects backlog continue in 4Q15-1Q16 Turnkey projects revenue reached EGP6.4 bn in 2015 (vs. EGP2.7 bn in 2014) and GP margin widened c3pp Y-o-Y to 18.8%, driven mostly by Egypt’s fast track project. The backlog increased to EGP15.2 bn (75% in Egypt) in Dec 2015, backed by new projects in Kuwait and Qatar. Also, it signed a USD484.5 mn fast track project in Angola, to be delivered during 2016, and signed MOUs (early stage, contracts not signed) for new projects in Egypt. Turnkey projects should continue to drive earnings growth in 2016: i) the remainder of Egypt’s fast track project; ii) Egypt’s Beni Suef project (to be completed in 2018); and iii) Angola’s fast track project.
• Cables and electrical products volume accelerate; receivables a risk Cables volume grew 9% in 2015 (+27% Q-o-Q in 4Q2015) on higher sales in Egypt and exceptional surge in Qatar, while GP/tonne fell (from a high comparable) due to a change in market mix (no sales to Libya, negligible to Iraq) and decline in profitability in some markets. Electrical products volume also rose Q-o-Q in 4Q2015 (+42% in meters, +21% in transformers) but segment GP margin retreated. Elsewedy reported a large receivables provision in 2015 (not related to turnkey projects) post adopting a conservative provisioning policy; a risk we expect to stay in 2016, given the economic challenges in several MENA markets (including Saudi Arabia).

Wafaa Baddour, CFA