Dubai-Mubasher: MubasherTrade Research (MTR) set the price target (PT) of Misr Fertilisers Production Company (Mopco) at EGP 39.75, while maintaining “Buy” recommendation, according to a statement.
In March 2016, Mopco's 229.1 million shares with a par value of EGP10 each were listed on the Egyptian Stock Exchange (EGX) and it was decided that the company’s shares will start trading on the bourse on 7 September 2016, with no price limits only in the first trading session.
The stock's opening price will be EGP 10, but MTR believes it will fetch a higher price when it starts trading.
MTR set Mopco's PT at 24% lower than its independent financial advisor's (IFA) fair value of EGP 52.18, the statement said, adding that the company is an "attractive investment opportunity" for being the “largest” fertilizers producer in Egypt by capacity with current expansions allowing the company to grow its market share.
“It boasts one of the highest profitability among its global peers (2015 EBITDA margin of 51.7% vs. a global peers' average of 28.5%), thanks to its favorable pricing of its feedstock (natural gas),” the statement said.
A potential EGP devaluation should provide the company with a competitive edge in exports.
"Against the backdrop of the fertilizers industry's high barriers to entry, market demand should be sustained given a growing population and the Egyptian government's plan to expand arable land by 1.5 million feddans over the coming few years," the statement highlighted.
MTR said that there are several risks to keep in mind when investing in MOPCO like declining fertilizers' prices.
Any surprise increase in feedstock (natural gas) prices will negatively affect MOPCO's profitability, the research unit noted, adding that natural gas supply shortage can disrupt production.
