• Top pick: beneficiary of Egypt power expansions, attractive valuation The turnkey projects backlog continues to secure robust earnings (EGP1.6bn avg. earnings in 2015-17e vs EGP403mn in 2014), despite concerns on cables demand and receivable collection risk in some markets (incl. GCC). Our new FV of EGP57.30 (8% cut, 33% upside) reflects the net impact of higher backlog, abovementioned concerns, and higher risk free rates in main markets. Despite the share price rally (+20% YTD, +7% HFI), it trades at single-digit multiples, well below its historical forward multiple and peers.
• Turnkey to contribute c40% of 2016 GP; ex-Egypt backlog additions Turnkey backlog tripled over six quarters to cEGP19 billion in 1Q2016; the largest two projects are Beni Suef (EUR785mn – completion in 2018) and Angola fast track (USD484.5mn – completion in 2016). We estimate turnkey revenue to grow c70% in 2016 to EGP11bn and GP margin to reach 17%. We assume deceleration of deliveries thereafter and GP margin to normalise at 15%; catalysts include winning new contracts in Egypt (MOUs signed) and UAE (bidding in process). Elsewedy only bears the receivable risk of Egypt’s fast track project; instalments are paid as scheduled.
• Cables stable on GP/tonne rise; electrical products backlog upsurges GCC elevated cables volumes 9% in 2015; this will likely subside in 2016, but GP per tonne should recover on a more favourable product and market mix. Electrical products backlogs (+4x meters, +30% transformers) should boost double-digit growth in GP. While management believes receivables provisioned for in 2015 are collectable; delays remain a risk, in our view. We forecast one-offs (provisions, others) of EGP200 million annually.
• Comfortable leverage level, FCF generation support dividend payout Leverage improved significantly in 2014-15 (0.5x net debt-to-equity, 1.1x net debt-to-EBITDA) on low capex and improvements in FCF and profitability. FCF-to-sales averaged 5% in 2014-15 and we expect it to reach 6% in 2016-17. Additionally, Elsewedy is a net beneficiary of EGP devaluation. Thus we expect its dividend payout to remain above 50% in the medium term.

Wafaa Baddour, CFA