Cairo - Mubasher: Pharos Research set its fair value (FV) for Orascom Construction (ORAS) at EGP82.97, offering 33% upside from current market price.
Pharos said it expects ORAS's backlog to reach $8.0 billion by the end of 2016 and $10 billion by the end of 2020.
The research house estimates executions on an average of 2.0 years. On the margin front, it estimates that GPM would continue to average 8.0% and EBITDA margin would stabilize at c. 5%.
Orascom Construction is a play on infrastructure spending and devaluation in Egypt, said the research note.
MENA accounted for 51% of revenue in the first half of 2016 led by Egypt, which represented 44% of total revenues. MENA EBITDA margin recorded 8.8% in H1-2016 and 9.2% in Q2-16, mainly driven by projects in Egypt.
According to ORAS's management, 74% of the group’s total backlog is in Foreign Currency Current Account (FCY) or priced in FCY. c.41% of backlog in Egypt is EGP denominated.
FCY and FCY-priced backlog outweigh FCY costs in Egypt.
The group also incorporates cost escalation clauses in the majority of Egypt contracts to protect against potential cost inflationary pressures, pointed out the research note.
