We have updated our recommendation on Ezz Steel to a HOLD rating, with a fair value of EGP 9.50 per share presenting an upside of 8% over its closing price on September 5, 2011. Slower construction activity and delayed project pipeline coupled with the lack of new contract awards in Egypt and the region are expected to weigh down on revenues by around 6% in 2011 and cut earnings by around 50% y-o-y. However, 2010 proved to be a solid year for the company preceding the uprising which changed the competitive landscape of the domestic steel market and the Egyptian economy as a whole. Ezz Steel witnessed a twofold increase in the bottom line to EGP 252 million last year on a 32% surge in revenues to EGP 16,621 million which topped our projections. Earnings before taxes met our estimates as the spike in commodity prices during Q4 2010 pressured the company’s gross margin down to 11.6% for 2011 from 14.6% in H1 2010.
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