We upgrade our rating on Ezz Steel to an ACCUMULATE rating with a fair value of EGP 8.60 following the release of its 2011 results. This presents a premium of 17.5% over its recent closing price EGP 7.32. Ezz Steel reported a 12% y-o-y increase in net sales to EGP 18.6 billion for 2011, close to our estimates. This was supported by higher steel prices for both long and flat products during the period along with strong long product sales volumes which grew by 7% y-o-y to 3.62 million tons. However, net income dropped by 20% y-o-y to EGP 202 million, in line with our expectations, pressured by income tax charges associated with the increase in the Egyptian corporate tax rate. A key contributor to our rating change is related to the court ruling against fraudulent companies linked to the ousted Mubarak regime, which imposed fines equal to the difference between the market value of their acquired assets net of the actual purchase price. This reflects the government’s efforts to protect investors’ interests and restore confidence in the market.
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Ezz Steel – FY 2011 Update