We downgrade Ezz Steel to a HOLD rating, revising down our target price to EGP 18.06 per share as we view the current share price as fairly reflective of the market and company risks at hand. We also hold our expectations of feeble financial results in 2014 following the negative impact of the interrupted availability of natural gas, the main energy source used in steelmaking.
Ezz Steel registered a noticeable poor performance during H1 2014 with total production falling by 3.1% y-o-y to 4.04 million tons as the shortage of natural gas supply on top of power cuts led to a massive loss of production during peak hours at all Ezz Steel plants. As a result, Ezz revenues plummeted by 7.9% y-o-y to reach EGP 10.3 billion in H1 following a yearly 8.5% drop in sales volumes to 2.3 million tons. Earnings followed suit with Ezz posting a massive half-year loss of EGP 176 million in H1 compared to a profit of EGP 302 million registered a year earlier. Going forward, we expect Ezz to record a loss of EGP 217 million in 2014 as we believe the company will continue to suffer from increasing production costs and lower capacity utilization for the rest of the year.
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Ezz Steel – 2014 Q2 Update