We upgrade El Sewedy to an ACCUMULATE rating with Medium risk following the release of their H1 2012 results, raising the target price from EGP 24.0 previously to EGP 28.2 per share. This presents an 11.68% premium over the recent closing price. While all major divisions have achieved growth during Q2, finance costs have doubled q-o-q due to a EGP 93 million foreign exchange loss on the Sudanese pound. This significant loss caused net income to decline 70% q-o-q to EGP 31 million. The infrastructure boom experienced over the past decade in the GCC has contributed significantly to El Sewedy’s expansion. However, given the strong local competition and low market share, we expect El Sewedy to shift its focus to geographies that provide opportunity for market share growth. Iraq, Egypt and the African continent are seen as the main target for El Sewedy’s expansion as electricity supply shortfalls and need for renewed infrastructure will be tackled over the medium term. Along with the upside potential, we perceive significant risks mainly from Sudanese and Syrian operations.
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