We expect demand in Egypt to remain weak in 2012, further dropping by 20% according to SE’s management, on limited public spending as the country struggles to establish a sound political frame. Operations in Yemen continue to be jeopardized and divesting operations in the market might be SE’s next strategy, while the ongoing turmoil in Syria limits expectations of a major contribution from the Syrian market for the short term. Following, we believe SE will continue to compensate weak primary markets operations by less profitable export markets, notably in the GCC and Europe. However, the growing turnkey segment will continue to profit from a strong African market and slightly offset lost profitability in the cables business, as it increases its stake in the revenue pool. We thus lower our target price to EGP 24 per share and maintain a HOLD recommendation on the high uncertainty surrounding operations in core markets, which remains the major impediment to SE’s profitability.
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