We maintain our HOLD rating on Ezz Steel, and revise our target price upward from EGP 4.3 previously to EGP 6.5 due to a considerable adjustment in the risk premium. The recent court ruling on Talat Moustafa’s Madinaty project decreed the company is in compliance with Egyptian laws. This eased investors’ concerns about the legal consequences on companies that were close to the Mubarak regime. As for the three quarters in 2011, so far the company reported a 22.4% y-o-y increase in revenues to EGP 14,165M, led by strong long product sales but mostly by persistent increase in steel prices. With production costs flat at 88% of sales margin, the gross profit at Ezz improved by 20% y-o-y during the first nine months of the year to EGP 1,712M, however net income for the period fell by 11% y-o-y to EGP 450M pressured by an increase in finance expenses and the corporate tax rate in Egypt.
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