We revise our target price on Ezz Steel up to EGP 12.07 per share from EGP 10.27 per share previously, using a WACC of 20% after accounting for the additional specific risk associated with the lawsuits filed against the ex-chairman, Ahmed Ezz, and the ability of the company to hold on to its largest and most profitable subsidiary, EZDK. We maintain our HOLD rating, anticipating a continuous pressure on Ezz’s share price amid greater levels of political and economic uncertainties. The company recorded a 7.4% y-o-y rise in revenues to EGP 5.6 billion during the first quarter of 2013, mainly due to higher average selling prices and a 7.5% y-o-y increase in long product sales to 1 million tons. Moreover, earnings at Ezz Steel witnessed a remarkable jump to EGP 202 million from EGP 18 million in Q1 2012 as revenues grew faster than expenses and borrowing costs, further supported by a EGP 130 million in foreign exchange gains.
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