Thursday, April 15, 2021

Pharos: Reducing “energy prices” is capable of changing the landscape of Ezz Steel’s losses


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Pharos expects an increase in the company’s total revenues during 2021, supported by the resumption of the construction movement

Pharos Securities expects that the total revenues of Ezz Steel will increase during the fiscal year 2021 due to the expected improvement in volumes after the resumption of construction activities, and the improvement in global prices, especially flat iron.

Pharos added that some other factors were realized on the ground, including low interest rates, low energy prices or the value of the pound so that the company would turn into profitability by the end of the year.

She added that, at the level of combined revenues during the last quarter, they increased by 16.4% on an annual basis and 41% on a quarterly basis to 12.16 billion pounds. Quarterly.

As for the combined revenues during the year 2020, they decreased by 15.5% to 38,625 million pounds, due to the decrease in average prices by 12% on an annual basis, and a decrease in total volumes by 12-13%.

She emphasized, that this decline resulted primarily from the challenges that the company witnessed in the first half of last year, whether as a result of the closure measures to confront the Corona pandemic or the decision to suspend construction activity for a period of 6 months.

She indicated that the gross profit margin is still below the break-even point between losses and profits despite the recovery of margins.

She added that the average gross profit was green for the second consecutive quarter after it reached 957 million pounds in the fourth quarter of 2020, compared to a total loss of 1,504 million pounds in the fourth quarter of 2019, and a total profit of 185 million pounds in the third quarter of 2020.

The gross profit margin grew to 7.9%, compared to a gross loss margin of (-14.4%) in the fourth quarter of 2019, and a gross profit margin of 2.1% in the third quarter of 2020.

Pharos attributed the improvement in margins primarily to the rise in quarterly prices after successive increases in the price of a ton, totaling 3,500 pounds, noting that the fourth quarter alone witnessed a 35% increase in the price, bringing the price per ton to 13.6 thousand pounds, including 14% value-added tax.

She pointed out that the factors that led to the improvement in margins also were the increase in the rate of production during the fourth quarter to restore the company to some of its idle production capabilities, especially with the tendency of the management to use raw materials and feedstocks according to a price standard and rely on lower-priced sources, in order to avoid recording losses at the expense of Its total profits.

Pharos indicated that one of the positive scenes is the shifting of earnings before interest, tax, depreciation and depreciation to the green zone, reaching 672 million pounds, compared with losses of 1,975 million pounds in the fourth quarter of 2019, and losses of 80 million pounds in the third quarter of 2020.

On the other hand, the debt balance account reached 33.1 million pounds by the end of December 2020, compared to 32,474 million pounds at the end of September 2020, bringing the average net debt to the market value to 6.7 times.

There is no doubt that what eased the pressure of pressure, and even gave it an outlet, were the decisions to reduce interest rates in 2020, as well as the financing initiatives directed by the Central Bank of Egypt to support the industrial sector, according to Pharos.

Pharos explained that the margins levels improved on the quarterly and annual basis, which was evident in earnings before interest, tax, depreciation and amortization, which amounted to 672 million pounds, and profits before interest and tax, which amounted to 311 million pounds.

It led to high financing expenses of 942 million pounds, as well as 58 million pounds of currency difference losses, which led to a decline in net income and erosion of margins, and had it not been for tax incentives worth 115 million, the volume of losses would have worsened, according to “Pharos”.

Pharos emphasized that what changes the scene can be summarized in the setting of preventive, deterrent duties on iron imports, the recovery of international iron prices (or iron / steel prices), or a significant drop in the exchange rate, explaining that further reduction in electricity and gas prices will have a role. It can be denied, noting that the fate of the company’s profits is based on the aforementioned incentives.

Pharos believes that the positive aspect is related to the company’s profitability levels after the positive results for both total profits and profits before interest and tax during the quarter and after raising prices again in parallel with the rise in iron and raw materials prices in global markets.

The pace of global price increases continued in the first quarter of 2021; The average price of a ton of Turkish iron ore in the first quarter was $ 632, up by 46.6% annually and 23.8% quarterly, and the average price of a ton of iron ore rose 65% to $ 224, and the average price of scrap reached $ 422.

She indicated that in the first quarter of 2021, the price difference between iron ore and steel reached $ 295 per ton, compared to $ 262 in the fourth quarter of 2020, reflecting the rise in both the gross profit margin and the EBITDA margin.

It is likely that the net income figures will not be green after reaching the breakeven point between losses and profits, as this difference needs to reach $ 330-350 per ton, in addition to the gross profit margin reaching the barrier of 12-13%.

The article Pharos: Lowering “energy prices” is able to change the landscape of Ezz Steel’s losses. It was written in Al Borsa newspaper.


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