Misr Fertilizers Production Company (MOPCO) [MFPC.CA] is set to start trading today on EGX after years of being suspended from active trading. The company - a 2mn-tonne-per-annum nitrogen-based fertilisers producer - first had its shares listed back in the 90s and has a diversified shareholder base. Following a push by EGX management, the stock is set to be reactivated, and trading is expected to be resumed once again. EGX Chairman, Mohamed Omran, noted that the expected free-float of the stock will likely be c4.5%.   Key points of interest: Sellable capacity is expected to be c2.5mn tonnes (Urea: 2.04 mtpa; ammonia: 0.4 mtpa) Local urea quota stands at 40% of production, the price of which is fixed at EGP2,000/tonne Gas price are based on a formula linked to international urea prices. Accordingly, given the currently weak urea price levels, we estimate that MOPCO is paying cUSD2-2.25/mmbtu MOPCO's capacity expansion (1.4mtpa of urea, 1.26 mtpa of ammonia) was recently inaugurated by end of May 2016 and should begin to contribute to earnings by 2H16   How trading start will start: Trading on MOPCO will commence at the company's par value of EGP10/share (0.4x P/B and a 2015 trailing P/E multiple of only 7.4x), a level which we think is unjustifiably cheap, given the company's return profile and growth expectations. EGX officials also noted that price limits would be removed on the stock in its first trading session. Based on the IFA's report, the company was valued at EGP52.18/share (EGP11.9 bn); hence, it is expected that the original shareholders that are willing to sell would be asking for a much higher price than the par value and would drive the market price upwards, once trading commences.   Global nitrogen fundamentals are unappealing : We continue to hold a bearish view on the nitrogen fertilisers as global dynamics continue to be weak on i) oversupplied nature of the urea market, exacerbated by Chinese exports and further capacity additions still expected to make its way to the market; and ii) a decline in the urea cost curve globally, especially for marginal coal based producers in China, which has driven prices to a 12-13 year lows of cUSD180/tonne.   The situation in Egypt (gas supply, price, & urea volume quota): While Egyptian fertiliser producers have surprisingly been operating at c70% in 1H16, we think producers are still not out of the woods. Egypt remains short of natural gas and is still relying on LNG imports, but we believe the situation is likely to improve in the coming years as new gas concessions come online and boost Egypt's local gas supply. This will eventually lead to an improvement in operating rates for gas intensive industries such as MOPCO and other nitrogen fertiliser producers, we believe.   On gas pricing, MOPCO is one of very few companies in the market that currently enjoy a pricing formula. A move other companies have been aggressively calling for to be implemented across the board. We think that this pricing formula offers some visibility for MOPCO's earnings as i) the formula is expected to remain intact, given that Agrium's previous disputes with the Egyptian government on gas issues were settled through adopting the formula; and ii) margins should be relatively more stable as costs move with prices, in our view.   With regard to volume quotas, the company is currently contracted with the government to supply c40% of its production to the local market at a fixed rate of cEGP2,000/tonne (USD225/tonne at official exchange rate). While this price might seem attractive at current global urea prices (USD190/tonne), we note that should a proper devaluation take place, the price in USD terms will not adjust and could potentially fall below the global prices. Furthermore, the government has typically been slow to adjust the fixed price level of urea in the past years and, accordingly, we think that it is unlikely that the government would raise local urea prices, should a proper devaluation take place or if international prices rallied strongly.   Our view; stock liquidity is our main concern: Overall, we think that the addition of another fertilisers producer to the stock market offers some much-needed diversity. But, eventually, we believe the appeal of MOPCO stock will rely on several other factors than those mentioned above; including i) pricing post initial trading; and ii) actual free float of the stock, which at only c4.5% will be quite limited. On a trailing basis, the IFA's valuation (EGP52.18/share) implies a 2015a P/E of c39x. While this valuation may seem stretched, we highlight that there is expected to be considerable growth in coming years as i) the new expansion kicks in; ii) nitrogen fetiliser prices globally rebound in the coming years; and iii) as gas supply continues to improve in Egypt. (Ahmed Hazem Maher)