Orascom Construction Industries BLOM EGYPT ... Invest...Orascom Construction Industries Stock trades...

Share Data

Bloomberg Symbol OCIC.EY

Reuters Symbol OCIC.CA

Market Cap (EGP) 50,695,155,000

Number of Shares 206,919,000

Free Float 38.00%

Price-to-Earnings 13.7

Price-to-Book 3.2

Share Performance

Source: Reuters

-3.00% 1 Month Return

5.16% 3 Month Return



292 - 204 52 Week Range

Initiating coverage with a HOLD Recommendation and a Fair Value of EGP 270 per share based on the channels of analysis below

Fertilizer pricing and market dynamics favorable for growth Orascom’s fertilizer business continues to lead growth with revenues increasing by two-fold in 2010 and accounting for almost half of the company’s EBITDA. This will be further boosted during 2011 by rising prices and solid market dynamics. Overall, global demand of Nitrogen fertilizers is expected to expand by 15% through 2014 on increasing agricultural needs. Coupled with relatively high oil prices and significant exposure to stable markets in Europe, we anticipate prices to be on the rise during 2011-2013 with Orascom perfectly positioned to take advantage of this trend.

Revenues surged during 2010 but a mild decline is expected for 2011 Net income reached EGP 3.65 billion in 2010, a 51% rise over 2009’s reported earnings on a better than expected performance from the fertilizer sector and an almost unchanged construction contribution. We estimate OCI’s revenues to slightly decline to EGP 27.1 billion in 2011 compared to 27.6 billion in 2010. Fertilizer revenues are expected to post a hefty 27% Y-O-Y increase vs. construction’s 13% revenue decline. As per management guidance, we can expect to see growth in capacity for some of its fertilizers effective 2012.

Construction backlog estimated to decline in the short term The market outlook for Orascom’s construction business, which constituted 70% of revenue and 49% of EBITDA during 2010, remains weak for 2011. The company reported a backlog of USD 5.62 billion through 2010, 15% lower than the previous year. We expect to see further declines in 2011 as the potential for new business continues to weaken in Orascom’s major markets - Egypt and Algeria - comprising almost 40% of backlog. Growth may resume in 2012 provided the geopolitical situation in the region calms down and Egypt’s new political system takes shape.

245 Share Price (EGP): Equity Research – Initiation of Coverage 270 Fair Value (EGP):Construction/Fertilizers Sector: 10% Upside:Egypt Country: HOLD Recommendation: May 16, 2011Date:

Orascom Construction Industries

Stock trades at discount with potential for appreciation___ We estimate OCI’s fair value at EGP 270 per share using a Sum-of-the-parts methodology with 38% attributed to the construction segment versus 62% to the growing fertilizer group. When comparing OCI to an average composite, we find that it is considerably undervalued with a P/E of 13.7 as opposed to 19.3 for its peers. The company’s earnings are projected to remain considerably high in 2011, hence providing a possibility for share price appreciation as geopolitical risks settle and a new Egyptian president is elected.

الأوراق المالية بلوم مصر لتداول BLOMINVEST BLOM EGYPT SECURITIES BANK

Performance and Forecasts

Year 2008 2009 2010 2011e 2012f 2013f

Revenues (EGP billions) 20.3 21.3 27.6 27.2 28.9 32.0

Net Income (EGP billions) 5.4 2.6 3.7 4.0 4.5 4.8

EPS (EGP) 25.8 11.7 17.7 19.5 22.0 23.4

BVPS (EGP) 72.9 71.1 76.1 75.6 79.0 88.0

ROA (%) 7.9 5.7 7.3 7.6 8.6 9.0

ROE (%) 12.1 15.1 21.7 23.4 25.8 25.4

Source: Company Historicals and Blominvest Estimates

Contact Information: Equity Analyst: Karim Houri [email protected]

Senior Equity Analyst: Issa Frangieh [email protected]

Research Analyst: Nader Ali Khedr [email protected]

Head of Research: Marwan Mikhael [email protected]

Subject to Disclaimer on Last Page

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ORASCOM CONSTRUCTION INDUSTRIES

FINANCIALS & VALUATION

2008 2009 2010 2011e 2012f 2013f

Profit & Loss Summary

Revenue (EGPm) 20,253 21,313 27,560 27,148 28,932 30,257 Revenue Growth (%) 50.2% 5.2% 29.3% -1.5% 6.6% 4.6%

Gross Profit (EGPm) 5,300 4,732 6,746 7,303 7,869 8,381 Gross Margin (%) 26.2% 22.2% 24.5% 26.9% 27.2% 27.7%

Net Profit (EGPm) 5,444 2,550 3,652 4,034 4,547 4,848 Profit Margin (%) 26.9% 12.0% 13.3% 14.9% 15.7% 16.0%

Net Profit Growth (%) 188% 36.2% 43.2% 10.4% 12.7% 6.6%

Earnings Per Share (EGP) 25.82 11.74 17.65 19.49 21.98 23.43 Price-to-Earnings (Forward P/E) 9.33 20.53 13.65 12.36 10.97 10.29

Balance Sheet Summary (EGPm)

Cash & Cash Balances 8,269 5,925 5,443 5,334 5,494 5,604 Trade and Other Receivables 8,236 9,750 11,143 10,859 11,283 11,800 Property, Plant & Equipment 9,912 14,991 17,999 17,642 18,299 18,791 Intangible Assets 9,910 9,874 10,762 10,547 10,336 10,129 Total Assets 43,026 46,858 53,424 52,093 53,116 54,265

Total Liabilities 25,444 29,715 35,082 33,871 34,063 33,049

Book Value Per Share (EGP) 72.95 71.13 76.11 75.61 79.06 88.03

Profitability

ROA (%) 7.9% 5.7% 7.3% 7.6% 8.6% 9.0% ROE (%) 12.1% 15.1% 21.7% 23.4% 25.8% 25.4%

Liquidity

Cash / Current Liabilities 0.56 0.38 0.29 0.27 0.28 0.30 Current Assets / Current Liabilities 1.35 1.25 1.14 1.05 1.09 1.16 Net Working Capital / Current Assets 0.26 0.20 0.12 0.05 0.08 0.14

Comparables

Valuation Margin Analysis (%) Profitability (%) P/E P/Rev P/BV Gross Operat. Net ROE ROA

Orascom 13.6 1.8 3.2 24.5 18.6 13.3 21.1 7.3 Average of Peers 19.3 2.8 3.0 29.6 16.7 15.7 20.7 10.8

Valuation

Line of Business Subsidiary OCI Ownership Value (in EGPm) Per Share (in EGP)

Construction Group 100% 27,729 134.01

Fertilizer Group EFC 100% 11,392 55.06

Fertilizer Group EBIC 60% 5,500 26.58

Fertilizer Group OCI Nitro 100% 20,072 97.00 Fertilizer Group Sorfert 51% 1,624 7.85

Fertilizer Group Notore 14% 96 0.46

Fertilizer Group Gavilon 16.8% 1,904 9.20

Less: Net Debt 11,339 54.80

Less: Minorities 1,018 4.92

Total Value 55,834 269.83

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Table of Contents

INVESTMENT SUMMARY ............................................................................................................................. 4 COMPANY PROFILE ....................................................................................................................................... 6

Share Ownership ....................................................................................................................................... 6 Board & Management ............................................................................................................................... 6 Subsidiaries and Associates .................................................................................................................... 7

BUSINESS MODEL ......................................................................................................................................... 8 Revenue Mix .............................................................................................................................................. 8 Geographical Diversification .................................................................................................................... 9 Vertical Integration & Synergy ................................................................................................................. 9 Products & Services ................................................................................................................................ 10

STRATEGY ...................................................................................................................................................... 11 Fertilizer Segment to Lead Growth ...................................................................................................... 11 Revenue Expansion in Growing Markets ............................................................................................ 11 Cost Control ............................................................................................................................................. 11 Brand Associated with Top Quality and Competitive Pricing .......................................................... 12 Government Partnerships ...................................................................................................................... 12

OUTLOOK ...................................................................................................................................................... 13 Construction Backlog Continues to Decline ....................................................................................... 13 New Awards Expected to Continue Slump during 2011 .................................................................. 13 Reliance on Regional Infrastructure Investments .............................................................................. 14 Fertilizer Market Tied to World Demand for Food and Energy ........................................................ 14 Expectations for Fertilizer Prices & Capacity ....................................................................................... 15

RISKS .............................................................................................................................................................. 16

FINANCIAL ANALYSIS .................................................................................................................................. 17 COMPARABLE ANALYSIS ........................................................................................................................... 21

Relative Valuation .................................................................................................................................... 21 Profitability Comparison ......................................................................................................................... 22 Management Efficiency ......................................................................................................................... 22

VALUATION ................................................................................................................................................... 23 Assumptions in Valuation ...................................................................................................................... 23 Assumptions in Forecasting Construction Revenues ....................................................................... 24 Assumptions in Forecasting Fertilizer Revenue ................................................................................. 24

PROJECTED INCOME STATEMENT .......................................................................................................... 26 PROJECTED BALANCE SHEET ................................................................................................................... 27 APPENDIX ...................................................................................................................................................... 28

I – List of Comparable Peers ................................................................................................................. 28

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INVESTMENT SUMMARY

We are initiating a HOLD recommendation on Orascom Construction Industries (OCI) shares after

carefully analyzing the following:

Business Model

OCI is a leading construction contractor and fertilizer producer on a regional and international

scale. The company actively pursues contracts in various sectors but the preponderance of its

contracts consist of infrastructural works; ranging from building transportation projects to raising

power plants as well as a multitude of industrial and commercial ventures. More than 60% of its backlog consists of infrastructure while the rest is split between industrial and commercial

contracts. The grand majority of its backlog springs from the MENA region with Egypt, Algeria

and GCC countries leading way. In the span of a few years, the group has become a major player

in Nitrogen based fertilizers with a total production capacity of over 4.84 mtpa as of late 2010 with a target of 7.75 mtpa in 2012. Fertilizer revenues have followed an increasing trend and have

grown in importance in relation to the weight of the total revenue mix.

Profitability Net income reached EGP 3.65 billion in 2010, a 51% surge over 2009’s sharp fall to 2.53 billion

that was weighed down by the slowdown. This recovery in large part is due to the better than

expected performance from the fertilizer sector and an almost unchanged construction

contribution. Despite a lower share in revenue, fertilizers possess the advantage of having higher gross margins than construction which permits for a higher gross profit contribution. We estimate

gross margin for fertilizer in 2011 to be around 40%, significantly higher than construction’s near

20% margin. Construction COGS hover in the 80% range and are somewhat stable. We estimate

ROA to slightly increase to 7.6% in 2011 with ROE nearing 24%. Both ratios are expected to

fluctuate around these levels in the coming years as the fertilizer operations start to turn in more profits and as the construction sector recovers.

Growth

We expect OCI’s revenues to slightly decline in 2011 to reach EGP 27.1 billion compared to 27.6 billion in 2010. Growth is estimated to record a CAGR of 5.7% for the 2011-2014 timeframe. In our

model, fertilizer revenues are expected to post a hefty 27% Y-O-Y increase in 2011 vs.

construction’s 13% revenue decline. As per management guidance, we can expect to see growth

in capacity for some of its fertilizers effective 2012. OCI reported a backlog of USD 5.62 billion through 2010, 15% lower than what was reported in

2009. The stagnating and even diminishing backlog has been attributed to a slowdown in

construction activity and real estate in both the regional and international fronts. This decline

began in the year superseding the credit crunch that interrupted OCI’s exceptional performance in 2008 where backlog grew by 46% to around USD 7 billion. We expect this decrease to persist

through 2011 but we anticipate a rebound in construction activity and a return to backlog growth

during 2012.

Financial Position OCI’s liquidity ratios have conjointly followed a feebly-sloped downward trend from 2008 to 2010

as more borrowings and liabilities reached maturity. We see them continuing to decline in 2011

but stabilizing in 2012. Orascom’s current ratio is estimated at around 1.05 in 2011 with the quick

ratio also reaching a low of 0.27. OCI has held the reputation of being a cash-rich company as witnessed by its high cash balances of nearly EGP 5.5 billion in 2010. With ongoing expansion

plans and acquisitions in an otherwise slowing market, OCI maintained its capital expenditures in

order to remain competitive causing reliance on debt to surge from 2008 onwards. We expect a

debt to equity ratio of around 90% in 2011, with a possible gradual decline to start in 2012 as no

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new plans for acquisitions or expansions are in sight for the short term. OCI’s interest coverage

ratio has fluctuated between 5 and 6 during 2008 - 2010, which is associated with a relatively safe investment. As earnings improve along with little debt issues, we see the ratio climbing to 8.

Valuation

We estimate OCI’s fair value at EGP 270 per share using a Sum-of-the-parts (SOTP) methodology with 38% attributed to the construction segment versus 62% to the growing fertilizer group. Both

lines of business were valued using a discounted cash flow (DCF) model with a WACC of 11% for

fertilizer and 13% for construction; 2% was added to construction due to its high concentration in

the Middle East. As per management guidance, weighted average selling prices and capacity were provided for each product from each plant constituting the basis of our analysis.

When comparing OCI to an average composite, we find that it is considerably undervalued with a

P/E of 13.7 as opposed to 19.3 for its peers. This temporary discount that OCI trades at accounts

for the unrest that occurred recently in Egypt and the region, where the company’s construction

business mostly operates. However, OCI’s revenues and earnings surged during 2010 and are expected to remain considerably high in 2011, hence providing a possibility for share price

appreciation as the situation settles.

Dividends Historically, OCI has been consistently distributing dividends bi-annually since 2008. Besides its

large 300 EGP/share offered in march of 2008 which disbursed most of its earnings from the sale

of the cement group, the usual semi-annual dividend offered amounts to around 5 EGP or the

equivalent of 1 USD. The company’s dividend payout ratio is around 45% of net earnings.

Risks

While unrest has settled in Egypt, a key market for Orascom, uncertainty continues in several

markets that present a growth opportunity for the company. This may cause a delay in gaining new awards and have an adverse effect on its backlog since sovereign projects constitute a major

share of Orascom’s construction business.

Another key concern is the competitive environment in the construction business. With the sector

going through successive booms in the region, the market is now flooded with strong competitors on both the local and international levels with whom OCI has to contend in bidding

for new contracts.

The company’s reliance on commodity prices is another notable risk since these fluctuate

aggressively as witnessed globally by the large spikes and sharp falls across the board. A drop in

commodities would signify a decrease in fertilizer prices and hence a drop in profitability. Specifically, oil has a direct impact on its fertilizer business; as oil prices increase, fertilizer prices

follow suite resulting in higher profitability. On the other hand, oil prices have an indirect effect on

its construction business; a considerable portion of Orascom’s backlog comes from oil-exporting

countries whose budgets rely on oil prices. The mounting tensions between the Egyptian and Algerian governments that occurred during the

summer of 2010 present another growth-impeding risk. Sorfert Algerie, an OCI fertilizer

subsidiary, is set to begin operations in 2011 and could face hindrances from the local

government that may hurt its profitability.

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COMPANY PROFILE

Orascom Construction Industries (OCI) is a leading construction contractor and fertilizer producer on a regional and international scale. It was originally founded in 1976 by Onsi Sawiris as a

general contracting and trading company based in Cairo and has grown into one of Egypt’s

largest corporations employing over 84,000 employees and workers. Throughout the years, the

construction group has positioned itself as one of the most prominent contractors in the MENA region, scoring multi-million dollar contracts from various locations. The newly acquired and

growing fertilizer segment represents a means of diversification as well as an alternative

independent revenue stream. Since its inception in the mid 2000’s, the nitrogen based fertilizer

group has grown to rank amongst the top 5 nitrogen fertilizer producers worldwide in terms of capacity. This sector shows substantial room for growth through continuous investments as

witnessed by the acquisition of new plants and the erection of others in different countries.

Share Ownership OCI made its initial public offering (IPO) on March of 1999, offering 14% of its outstanding shares

(8.63 million shares) with a par value of USD 12.50/share. Ordinary shares are listed on the Cairo

and Alexandria Stock Exchange (CASE) whereas its GDR shares are listed on the London Stock

Exchange (LSE) at a 1:1 ratio since 2009. Further issues followed suit bringing the total of shares

issued to 206,918,461. The Sawiris family collectively controls 55% of the outstanding shares of the company.

Source: OCI

Board & Management

Mr. Nassef Sawiris Chairman & CEO

Mr. Onsi Sawiris Chairman & Non-Executive Director

Mr. Salman Butt CFO

Mr. Osama Bishai Managing Director for Construction Group

Mr. Karim Camel-Toueg Director & Contrack President Mr. Nicolas Estay Executive Vice-President (Europe)

Mr. Kevin Struve Strategic Planning Director

Ms. Dalia Khorshid Corporate Treasurer

Mr. Fady Kiama Corporate Controller

Mr. Hassan Badrawi Director Business Development Mr. Hussein Marei General Counsel

Ms. Heba Iskander Corporate Development Director

Mr. Sherif Tantawy CFO Construction Group

Mr. Johan Beerlandt CEO BESIX Group Mr. John Baracat Managing Director NSF

Mr. Hossam Khattab Managing Director EFC

Mr. Amr Hassaballah Managing Director EBIC

Mr. Hesham Abdelsamie Director of Subsidiaries

Source: OCI

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Subsidiaries and Associates

OCI operates through wholly as well as partially owned subsidiaries in both construction and fertilizer segments.

Subsidiary Ownership

Construction

Orascom Construction 100%

BESIX Group 50%

Contrack 100%

Construction Materials

National Steel Fabrication 100%

United Paint and Chemicals 56.5%

United Holding Company 56.5%

Alico Egypt 50%

National Pipe Company 40%

SCIB Chemical 15%

Fertilizer

Egyptian Fertilizers Company 100%

Egypt Basic Industries Corporation 100%

OCI Nitrogen 100%

Sorfert Algerie 51%

Associate

Notore Chemical Industries 13.5%

Gavilon 16.8%

Source: OCI

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BUSINESS MODEL Revenue Mix OCI derives its revenue stream from two distinct business segments: a construction group which

has constituted the core of the company’s operations since its establishment and a newly

founded nitrogen fertilizer production group.

Source: BlomInvest

Construction Group: Throughout the years, OCI’s brand has become synonymous with a degree

of quality and competency in the MENA region allowing the company to contend in diverse markets and competitive bids for new contracts. The company actively pursues contracts in

various sectors but the preponderance of its business consist of infrastructural works; ranging

from building transportation projects to raising power plants as well as a multitude of industrial

and commercial ventures. In 2009, 60% of its backlog consisted of infrastructure while the rest was split between industrial and commercial contracts. In the last few years, the bulk of new

contracts awarded has stemmed from sovereign clients outgrowing those from its private

clientele. OCI operates through three entities, mainly: Orascom Construction, Contrack, and

BESIX. The company has also formed a 50/50 joint venture with Morgan Stanley to develop infrastructure in the MENA region.

Source: OCI

Fertilizer Group: OCI ventured into the fertilizer business in 2005 by acquiring Middle East Petrochemical Company (MEPCO) which held a 30% stake in EBIC. OCI later increased that stake

to 60% to control the majority of the company. With the divestment of its cement operations in

2007 by the sale of Orascom Building Materials Holding Co, a global cement producer, to Lafarge

SA, the firm was able to direct its attention to the fertilizer segment and expand its operations with the acquisition of EFC, DSM Agro & Melamine (now OCI Nitrogen), the erection of a new

plant in Algeria (Sorfert) as well as minority stakes in Notore and Gavilon. In the span of a few

years, the group has become a major player in Nitrogen based fertilizers with a total production

capacity of over 4.84 mtpa as of late 2010 with a target of 7.75 mtpa in 2012.

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Geographical Diversification

Through its acquisitions and investments in subsidiaries and associates, OCI benefits from a global presence in international markets asides its predominance in local markets for both

construction and fertilizer activities. Orascom construction has strong presence in emerging

markets across the Middle East and North Africa. Contrack and Besix, which are based in the

United States and Belgium respectively, provide OCI with exposure to the American and European market which were otherwise inaccessible. However, the grand majority of the backlog

springs from the MENA region with Egypt, Algeria and GCC countries leading way. During 2010,

both Europe and Asia constituted 15% of total backlog. The group maintains a well-diversified

backlog making it less prone to regional risks.

As for fertilizers, the recent takeover of Dutch-based OCI Nitrogen (formerly DSM Agro &

Melamine) as well as the minority stake attained in Gavilon, the largest distributor of fertilizers in

the US, allowed OCI to obtain this geographical diversification and offered the opportunity to

operate via different distribution channels and the ability to cater to different markets.

Source: OCI

Vertical Integration & Synergy The construction group owns and operates construction materials companies which consist of a

series of enterprises that specialize in the different phases of the construction process. From its

wholly owned steel fabrication plant (NSF) to partially owned pipe companies amongst others

whose core businesses entail of paint, glass, steel, chemicals and aluminum, OCI benefits largely from this vertical integration. Their involvement in the process means that OCI secures its building

materials and necessities from inside sources which provide a more maneuverable approach,

prompter service while granting lower margins and minimizing costs.

OCI also benefits from synergies through ventures and acquisitions that extend to the fertilizer segment. A prime example would be Sorfert Algeria which is set to begin production in 2011. OCI

owns 51% of Sorfert while the remainder is owned by Sonatrach, the largest oil and gas company

in Algeria. Sonatrach signed an agreement to provide gas stock supply at a competitive cost for

the plant over a period of 20 years. This proves to minimize substantial cost for a major input in the production process. The close proximity of EBIC and EFC permits the plants to benefit from

synergies by facilitating the exchange of inputs and materials.

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Products & Services

With 60% of its backlog consisting of infrastructural works, OCI has been associated with this particular kind of activity capturing both soft and hard infrastructure contracts. Construction

expertise varies from building bridges, highways and railroads to water and energy plants to

telecommunications. With the advance of new technologies, OCI is gradually widening its

operating scope and reducing barriers for capturing new awards.

Fertilizers offered by OCI are mainly nitrogen based that vary by their nitrogen concentration and

their chemical composition. Since each type of fertilizer possesses different physical and

chemical characteristics, their usage varies as each would present advantages and disadvantages to the soil type and crop being grown.

At the base, anhydrous ammonia is amongst the cheapest and most commonly used

fertilizers. Most other commercial fertilizers are derived from it.

Urea contains 45-46% nitrogen content. On application, the nitrogen present in it gets converted into ammonia. It readily dissolves in water and is capable of showing quick

results.

UAN consists of a solution of Urea and Ammonium Nitrate. It has become popular

because it is more versatile as a liquid and is widely available. CAN is Ammonium Nitrate in crystallized from which is quick-acting but highly

hygroscopic.

Ammonium Sulfate (AS) contains only 21% nitrogen and is applied in dry form with no

nitrogen loss. It is a good source of sulfur that is an essential nutrient to plants. However it is acidifying and requires large quantities of lime to counteract the acidic effects.

Melamine, a derivative of urea, contains 66% nitrogen and is more expensive to produce

than other nitrogen fertilizers. Its nitrogen mineralization process is extremely slow,

making this product both economically and scientifically impractical for use as a fertilizer.

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STRATEGY Fertilizer Segment to Lead Growth The construction group has slowed in terms of growth relatively to that of the fertilizer segment

that has grown exponentially since inception and shows potential for more. Part of OCI’s strategy

is to catapult this segment which already ranks among the top 10 producers worldwide for

nitrogen fertilizers into the top 3. With the erection of Sorfert Algerie and the broadening of distribution channels, this target is highly likely. As for construction, despite the sluggish

performance that has ensued the global financial crisis, OCI remains strongly competitive in its

core markets but is recently weighed down by the regional upheaval.

Source: BlomInvest

Revenue Expansion in Growing Markets The Construction group recently conducted endeavors to solidify its presence in already

established markets such as the MENA region while penetrating new ones, mainly emerging

markets with strong construction opportunities such as India. OCI has been granted various

awards across the MENA such as a USD 675 million contract as part of the billion dollar Qatar development plan as well as a prior USD 750 million contract to expand the international airport.

The firm has also created a joint venture with Indian company HCC Infrastructure Limited (HIL) to

tender to projects issued by the National Highways Authority of India and have already begun to

grab part of the 11,854 km of roads and highway works that will be built.

Cost Control

Through vertical integration, OCI benefits from having the necessary capabilities of keeping its

margins in check despite volatile price environments. Since 2007, operating margin has averaged at 17% as a result of stable COGS (around 78% of total revenue) and constant SG&A.

Source: BlomInvest

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Brand Associated with Top Quality and Competitive Pricing

The OCI name and brand has been linked with top grade quality and efficiency in services and products offered at competitive prices. Through extensive years of experience in the field, the

contractor has gained a level of knowhow by overseeing various types of projects. Benefitting

from low cost margins has given OCI the ability to provide their service at favorable prices thus

giving an edge in the bidding process. A low cost player providing higher quality services are attributes that are favored thus giving OCI an advantage in gaining new awards. Customer

satisfaction is essential since the majority of their clientele consist of governments undergoing

infrastructural works; this gives rise to recurring businesses and the awarding of vast projects

which is more favorable and larger in size than those undertaken by private ones.

Government Partnerships

With almost 65% of its backlog stemming from sovereign clients, OCI has formed ties and

partnerships with many governments across the MENA region. In the GCC countries where it

conducts most of its business, OCI’s service is looked favorably upon in Qatar and UAE where no favoritism is exhibited towards local competitors. However, that is not the case in Saudi Arabia

where OCI’s exposure is weak due to the high barriers of entry and the availability of strong local

competitors which capture most of the new infrastructure projects.

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OUTLOOK Construction Backlog Continues to Decline OCI reported a backlog of USD 5.62 billion through 2010, 15% lower than 2009. The diminishing

backlog is attributed to a slowdown in construction activity on both the regional and international

fronts. This started in 2008 as countries in the GCC and the entire MENA region felt the effect of

the worldwide economic slowdown. We expect to see further declines in 2011 as the potential for new business continues to weaken

in Orascom’s major markets, such as Egypt and Algeria which constitute almost 40% of backlog.

Growth may resume in 2012 as the geopolitical situation in the region calms down and Egypt’s

new political system takes shape. Both infrastructure and real estate investment are key demands of revolutions in the region with their respective governments indicating strong support by

declaring massive spending plans. On a positive note, projects in Qatar, which constitute 20% of

Orascom’s backlog, are anticipated to continue growing as massive infrastructure projects take

place in preparation for the World Cup.

Source: OCI, BlomInvest

New Awards Expected to Continue Slump during 2011 New awards have experienced a phase of decline since 2008 where they reached a record USD

5.48 billion, almost 80% of total backlog for the year. In 2009, new awards slumped to USD 3.17

billion as a result of the slowdown in construction activity where the fourth Quarter of 2009

proved to be the worst in 4 years with a meager USD 360 million. New awards in 2010 showed no improvements as OCI reported weaker numbers than last year with USD 2.62 billion vs. 3.17

billion in 2009. We expect New Awards to continue declining throughout 2011 due to geopolitical

pressure that may slow demand for new construction. However, governments all over the MENA

have declared spending plans to update their infrastructure and increase housing supply which

would improve the company’s construction line-of-business. We expect this to begin appearing in Orascom’s operational and financial results in 2012.

Source: BlomInvest

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Reliance on Regional Infrastructure Investments

While the outlook for 2011 remains grim, we see new awards increasing in 2012 through augmented exposure to new markets and increased investment in key markets. Looking forward,

this sector shows promise, and with the advent of new development plans in various countries

throughout the GCC and MENA region, OCI’s strong competitive edge and competencies in its

field are guaranteed to make it capture an extensive portion of bids. Chief among these structuring plans are listed here below:

o On the domestic level, Egypt is planning development and infrastructural projects for USD

24 billion. The Algerian government has allotted USD 150 billion to spend on infrastructure

by 2013. o In the Gulf, Qatar has consorted significant restructuring and development plans that will

shape and direct the country’s future. The government is implementing new plans to erect

stadiums and to rearrange and renew infrastructure in preparation for the World Cup.

o In the UAE, Abu Dhabi announced that a major USD 300 billion package is underway for

construction and infrastructure. o As for Dubai, workload has slowed noticeably this past year upon suffering from the

effects of the debt crisis contrarily to Abu Dhabi. However, upon the restructuring of its

debt and improvements in its economy, activity is likely to resume.

o Saudi Arabia, a market in which OCI does not possess strong presence due to strong local competition, might see increased exposure as new plans are being implemented to

secure the long-term development of the country.

Fertilizer Market Tied to World Demand for Food and Energy Fertilizer markets overall whether potash, nitrogen or phosphate based took a downturn in 2009

but has firmly rebounded in 2010 and is expected to maintain sustained growth trends for the

coming four years. At the start of 2010, supply stagnated due to slower than anticipated growth in

capacity. However, we expect a surplus to run for nitrogenous fertilizers in the long run due to capacity growth overtaking that of demand. Fertilizer production and consumption remain tied to

the health of the global economy. As the economic recovery progresses, the agricultural market

fundamentals are stabilizing and thus increasing agricultural needs to meet world demand for

food and energy. Overall, global trade of Nitrogen fertilizers is expected to expand by 15% through 2014. In the short-run however, OCI has benefitted from favorable market dynamics in

2011: Competitors from Ukraine and China are experiencing rising cash costs in production while

exports from Russia, China and Ukraine are constrained due to the surge in domestic

consumption.

Source: Blominvest

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Expectations for Fertilizer Prices & Capacity

As prices bottomed in 2009, they did not gain as much momentum as was expected in 2010. However, we are witnessing a gradual recovery and we expect prices to be on the rise during

2011-2013. As stated above, capacities aren’t experiencing much growth. Worldwide

expectations remain positive over a four year time scale. For OCI, as per management guidance,

we can expect to see growth in capacity for some of its fertilizers effective 2012. Year by year, the fertilizer segment grows in importance. The acquisition of DSM Agro & Melamine now known as

OCI Nitrogen which outperformed in the first half of the year plays a pivotal role in the expansion

plans of the group as it has gained the capability to access new markets such as Europe and

China. The erection of Sorfert in Algeria will also increase their foothold in the continent as well secure their domination in the nitrogenous fertilizer world.

Source: Blominvest

16


RISKS Outlined here are some of the main hurdles that could threaten to slow OCI’s growth and affect revenue hence shrinking profitability:

Delay in Demand for Construction

While unrest has settled in Egypt, a key market for Orascom, uncertainty continues in several markets that present a growth opportunity for the company. This may cause a delay in gaining

new awards and have an adverse effect on its backlog since sovereign projects constitute a major

share of Orascom’s construction business. Plans to update infrastructure and increase housing

supply are already being proposed by several Middle Eastern governments in response to protester demands. However, actual construction and contract signing may lag until political risks

in the region decline.

Increased Competition in an Already Saturated Market OCI’s construction division benefited from large margins early on due to the unavailability of

equally experienced construction companies. However, with the advances made to the sector

ensuing successive construction booms in the region, the market is now flooded with strong

competitors on both the local and international level with whom OCI has to contend in the bidding for new contracts.

Algerian Government Squabbles

With mounting tensions between the Egyptian and Algerian governments that occurred during the summer of 2010, the outlook in Algeria remains uncertain for Egyptian companies. Orascom

Telecom already faced some backlash with Djezzy, its Algerian operations as the government

imposed high taxes and pushed for a hostile takeover. Sorfert which is set to begin operations in

the first half of 2011 could face hindrances from the local government, thus affecting its

profitability.

Fluctuating Commodity Price Cycles

Most commodity prices move concomitantly as witnessed globally by the large spikes and sharp

falls across the board. OCI’s reliance on commodity prices is apparent in both business segments. Specifically, oil has a direct impact on its fertilizer business; as oil prices increase,

fertilizer prices follow suite resulting in higher profitability. On the other hand, oil prices have an

indirect effect on its construction business; a considerable portion of Orascom’s backlog comes

from oil-exporting countries whose budgets rely on oil prices. As oil prices increase, thicker budget surpluses encourage them to invest in new construction projects.

Another key commodity that affects Orascom’s fertilizer business is natural gas, as it constitutes

a large part of the costs. Despite having contractual agreements to have gas supplied at fixed prices, some contracts are about to expire such as OCI Nitrogen in 2012 (paying $5/MMBTU)

which may push the company to pay spot prices that are expected to average $7/MMBTU in 2012

based on futures.

17


FINANCIAL ANALYSIS Revenues We expect OCI’s overall revenues to stagnate in 2011 due to the regional turmoil that may cause

a temporary slowdown in new orders for construction. However, the company’s strategy to

propel the fertilizer group coupled with a recovery in fertilizer prices will help spark an increase in

revenues. We expect fertilizer revenues to post a hefty 27% Y-O-Y increase vs. construction’s languorous 4% in 2011. Fertilizers are gradually capturing a larger part of total revenues,

estimating growth to record a CAGR of 16.1% for the 2010-2014 timeframe.

Source: BlomInvest

Gross Margins Despite lower revenue contributions, fertilizers possess the advantage of having higher gross

margins than construction which permits for a higher gross profit contribution. We estimate gross

margin for fertilizer in 2011 to reach 44%, significantly higher than construction’s near 20%

margin. Construction COGS hover in the 80% range and are somewhat stable while fertilizer costs are more variable and are forecasted to near 60% in the future. In 2011, we estimate around EGP

4.2 billion of gross profit from fertilizer compared to EGP 3.2 billion from construction.

Source: BlomInvest

18


Earnings

Net income is estimated to reach EGP 4 billion in 2011, an 11% rise over 2010’s reported earnings of EGP 3.65 billion. This increase in large part would be due to the favorable environment for

fertilizer sellers as demand continues to expand and high oil prices allow gross margin

enhancements. OCI nitrogen has been consistently beating estimates with better than expected

results, and Sorfert Algeria which is on track to begin operations in 2011 will give an important boost to fertilizer revenues. Despite an expected sloppy performance in the construction sector

for 2011, we anticipate an expansion for 2012 with higher awards granted and a return to backlog

growth by year end.

Source: BlomInvest

Liquidity

OCI’s liquidity ratios have conjointly followed a feebly-sloped downward trend since 2008 as more

borrowings and liabilities reach maturity. However, we see them stabilizing near our 2012 estimates. The company’s current assets have always been greater than its current liabilities while

the cash ratio, a measure of cash availability, will remain around 0.30. OCI has held the reputation

of being a cash-rich company as witnessed by its high cash balances of nearly EGP 5.4 billion in

2010.

Current Ratio = Current Assets / Current Liabilities

Cash Ratio = Cash / Current Liabilities

Net Working Capital (NWC) Ratio = (Current Assets – Current Liabilities) / Current Assets

Source: BlomInvest

19


Leverage

With ongoing expansion plans and acquisitions in an otherwise slowing market, OCI continued the same level of capital expenditures in order to remain competitive. Reliance on debt

experienced a surge from 2009 and its capital structure mix was varied with more leverage

factored in. For example 70% of the Sorfert plant’s investment cost was debt-financed as the

company tapped a EUR 1.064 billion loan facility. Consequently, this had for effect of pushing up the debt equity ratio by 25% in 2009. We expect the ratio to start a gradual decrease during 2011

as no new plans for acquisitions or expansions are in sight for the short term. OCI’s interest

coverage ratio was around 7 in 2010, which is considered a relatively safe investment. As

earnings improve along with little debt issues, we see the ratio climbing to the 8-10 range.

Source: BlomInvest

Profitability

We estimate a slight increase in ROA to reach 7.7% in 2011 along with ROE rising to 23%. Both

ratios are expected to improve further in 2012 as the fertilizer operations start to turn in more profits and construction recovers from a slowdown in orders. In 2010, OCI’s ROA experienced a

boost to reach 7.3% from 5.7% in 2009. This in large part is due to a recovery in earnings from

the prior year where both business segments were under pressure.

.

Source: BlomInvest

20


Dividends

Historically, OCI has been consistently distributing dividends bi-annually since 2008. Besides its large 300 EGP/share offered in march of 2008 which disbursed most of its earnings from the sale

of the cement group, the usual dividend offered amounts to around 5 EGP or the equivalent of 1

USD. The company’s dividend payout ratio is around 45% of net earnings.

Date Price/Share (EGP) Div./Share (EGP) Div.Yield

30-Jun-08 367.00 5.00 1.36%

21-Sep-08 326.11 5.48 1.68%

25-Mar-09 144.86 5.63 3.89%

27-Sep-09 245.30 4.40 1.79%

29-Mar-10 267.22 5.50 2.06%

13-Sep-10 257.74 5.71 2.21%

07-Apr-11 248.50 5.70 2.29%

Source: OCI, BlomInvest

21


COMPARABLE ANALYSIS When studying a company, we find it necessary to see how it compares to its peers from three

standpoints:

1. Profitability Comparison: Indicative of how efficiently the company is managing its

expenses through different margin analysis (Gross Margin, Operating Margin, Net Income)

2. Relative Valuation: Shows how the market perceives the company as opposed to its

peers (overvalued, undervalued, or fairly valued)

3. Management Efficiency: Shows how well management is utilizing its assets and equity to generate earnings.

Comparable Firms

We stratify our selection to companies that operate in the region and/or the fertilizer and construction industries which will provide insights into the strengths and weaknesses of our

target company. Since OCI operates in two industries that possess dissimilar margins and

different dynamics, comparison of the consolidated business to other firms can be distorted.

Hence we proceeded by compiling a list that consists of 8 fertilizer producers and 8 contracting

companies. To account for the differences, we computed a weighted average for these companies with the weights based on the gross profit contribution by both business segments in

OCI. Thus a weight of 50% was accorded to both the construction and fertilizer businesses based

on their gross profit contribution in 2010.

The average market cap was of USD 6.6 billion with values ranging between 650 million and 16.9 billion. The average was significantly lower than OCI’s 8.8 billion market cap due to the inclusion

of smaller cap competitors from the MENA region.

The complete list of companies is available in the appendix.

Relative Valuation

We compared Price against earnings, revenues, book value and cash flow in order to alleviate

differences in accounting standards that can arise from operating in different countries. Through

price to earnings and revenues, we can see that OCI is significantly undervalued compared to the peer composite due to an excellent performance in 2010 where both earnings and revenues

registered around 30% growth. Instead of a rise in its share price, the stock fell considerably

caused by the recent upheaval in the region. Performance during 2011 is expected to be close to

its 2010 performance indicating an undervalued share price. On the other hand, its price to book value and cash flow are on par with the peer composite.

Source: BlomInvest, Reuters

22


Profitability Comparison

OCI’s gross margin is of 24% when compared to the significantly higher average of 29%. The individual companies that compose the list exhibit various discrepancies. Mainly, construction

firms from Europe have unusually high gross profit margins which tend to skew our data.

However, OCI’s gross margin seems to be the most competitive relative to its Middle Eastern

peers. On another note, OCI’s operating margin is slightly higher than that of the average composite. This indicates that OCI is more cost effective in running its day-to-day activities. OCI

has leveraged its know-how through extensive years of experience in the field to achieve better

quality at lower costs. This is further validated through its SG&A margin which is almost half that

of its peer. Net income margin is slightly lower than the peer average. Its higher debt results in higher interest expense which reduces its net income margin compared to its peers.

Source: BlomInvest, Reuters

Management Efficiency OCI’s Return-on-Equity (ROE) at 21% is on par with its peer average whereas its Return-on-Assets

(ROA) is lower. This lagging performance can be attributed to OCI’s overleveraging with a Debt-to-

Equity (D/E) ratio of 91%, resulting in considerably higher interest expenses. In addition, its

Revenue/Assets ratio is half that of its peers which further contributes to a lower ROA.

Source: Blominvest, Reuters

23


VALUATION We estimate OCI’s fair value at EGP 270 per share using a Sum-of-the-parts (SOTP) methodology. Both lines of business were valued using a discounted cash flow (DCF) model; however the

construction segment was valued as a whole while the fertilizer subsidiaries were segregated and

valued individually.

Line of Business OCI Ownership Value (in EGPm) Per Share (in EGP)

Construction Group 100% 27,729 134.01

Fertilizer Group 40,462 195.54

Subsidiaries

EFC 100% 11,392 55.06

EBIC 60% 5,500 26.58

OCI Nitro 100% 20,072 97.00

Sorfert 51% 1,624 7.85

Notore 13.5% 96 0.46

Gavilon 16.8% 1,777 8.59

Total 68,191 329.55

Less: Net Debt 11,339 54.80

Less: Minorities 1,018 4.92

Net Equity Value 55,834 269.83 Source: BlomInvest

Assumptions in Valuation

Discount Rate We used a WACC of 11% in valuing the fertilizer business group and a WACC of 13% for

construction derived as follows:

Fertilizer WACC = (Weight of Debt * Cost of Debt)*(1-Tc) + (Weight of Equity * Cost of Equity) = (50% * 5.98%)*(1-15%) + (50%*17.16%) = 11.09%

OCI Cost of Debt = Interest Expense for 2010 / Debt for 2010

= EGPm 678 / 11.34 = 5.98%

OCI Cost of Equity = Risk-Free Rate + (Beta * Market Risk Premium)

= 10.4% + (1.06 * 6.4%) = 17.16%

We used a Risk-Free Rate of 10.4% represented by the yield on the one year Treasury bill

issued by the Egyptian Government. This captures the additional risk of investing in a

relatively undeveloped country such as Egypt when comparing it to the U.S. Treasury.

OCI’s weekly Beta over the past 3 years is estimated at 1.06. This is a measure of OCI’s

share volatility against the EGX-30 Index that represents the 30 largest shares on the Egyptian Stock Exchange.

A Market Risk Premium of 6.4% is the result of the difference between the average 5

year return of the EGX-30 estimated at 16.8% and the Risk-Free Rate of 10.4%. This

represents the premium investors expect to gain for realizing the additional risk of investing in securities.

To calculate construction’s WACC, we added a 2% premium to the WACC of the fertilizer

business segment in account for geopolitical risks in the MENA region where most of Orascom’s construction projects are.

24


Terminal Growth Rate

With the construction and fertilizer business segments being in different stages, we took different terminal growth rates beyond our forecasts to account for this. A 3% growth rate was used for

construction compared to 4% for fertilizers.

Corporate Tax Rate A 15% effective tax rate was applied on our forecasts based on previous taxes paid and due.

Assumptions in Forecasting Construction Revenues

1. Existing Projects in Backlog Revenues were recognized over a four year time frame using an accelerated method with

revenues heavily recognized in the first two years and then moderately over the remaining

two. This assumption was based on historical observations of project completion time as

well as the payment compatibility from clients. The top ten biggest contributors to backlog

with values exceeding USD 140 million each had their revenues recognized independently. The remainder of backlog was then recognized as a whole with an average template of 30%

in year 1, 40% in year 2, 20% and 10% in year 3 and 4 respectively.

2. New Awards Based on our estimates of the construction outlook in the region, as well as OCI’s positioning

in the markets, we see new awards gaining momentum as early as 2011. New awards are

expected to bounce back to the USD 4 billion range in 2011 from its scanty USD 3.12 billion

end-of-year estimate in 2010. Thereafter, we anticipate bids won to maintain an upward trend for the coming three years. Note that once awards are won, they are captured in the backlog

and therefore follow the same principles for revenue recognition as existing projects.

Our assumptions hence yielded the following forecasts:

(in millions USD) 2010 2011e 2012f 2013f 2014f

New Awards 2,620 2,490 2,700 2,860 3,030

Backlog 5,620 5,355 5,683 5,921 6,152

Revenue 3,398 2,941 3,063 2,939 3,004

Revenue growth -13.0% 4.1% -4% 2,2% Source: BlomInvest

Costs of Goods Sold were assumed stable and hovering around 80% of total revenues.

Assumptions in Forecasting Fertilizer Revenue

Fertilizer Price Forecasts Since OCI owns and operates different fertilizer plants, revenues and profits were recognized by

subsidiary. As per management guidance, weighted average selling prices and capacity were

provided for each product from each plant constituting the basis of our analysis.

Our forecast for average selling prices over the next three years is as follows: Prices are in USD per ton

Fertilizer 2010 2011e 2012f 2013f 2014f

Urea 238 249 261 275 289

Ammonia 321 336 352 372 390

UAN 204 213 224 236 247

CAN 227 238 249 263 276

AS 200 210 219 231 243

Melamine 1,512 1,584 1,659 1,750 1,837

Source: BlomInvest

25


Among the factors we considered to model our fertilizer pricing forecasts are:

Production Inputs & Natural Gas Costs

The production of nitrogenous fertilizers requires natural gas as a primary input. Although most

plants have contracts for natural gas to be provided at fixed costs, OCI Nitrogen’s contract will

expire forcing the company to pay spot prices in 2012 and resulting in a hike in costs. Other production input prices were assumed to increase marginally every year.

Global Supply & Demand

Overall, we estimated that global supply of nitrogenous fertilizer will increase on average causing surplus to rise accordingly. These dynamics are correlated to many factors that interplay resulting

in an upward or downward pressure on prices. Chief amongst these factors considered were

world agricultural needs, granular prices, restraints and oversupply from other producers,

inventory carryover, cheaper alternatives, seasonality…

Transportation Costs

Transportation costs were based on shipping charges (as per the Harpex and the Baltic Dry Index)

and raw material costs that are tied to other commodity futures since they tend to move together.

Production Capacity

OCI’s management guidance was taken for any planned changes in capacity. We assumed 100%

capacity utilization:

Plant Fertilizer Capacity (mtpa) Capacity Change Timescale

EFC

Urea 1.3 1.60 in 2012

UAN 0.325 No Change as of 2011

AS 0.3 No Change as of 2012

EBIC Ammonia 0.7 No Change

OCI Nitrogen

Ammonia 0.45 No Change

CAN 1.2 1.45 in 2012

UAN 0.2 No Change

AS 0.75 No Change

Melamine 0.24 No Change

Sorfert Ammonia 0.8 No Change as of 2012

Urea 1.2 No Change as of 2012

Source: BlomInvest, OCI

Fertilizer COGS consisted of cash costs of production which varied for each fertilizer. These were

provided by OCI and projections were made in accordance with changes in future costs.

26


PROJECTED INCOME STATEMENT

Source: Blominvest

(in millions of EGP) 2008 2009 2010 2011e 2012f 2013f 2014f

Continuing Operations

Revenues 20,253 21,313 27,560 27,148 28,932 30,257 32,025

COGS (14,952) (16,581) (20,814) (19,818) (20,252) (21,180) (22,418)

Gross Profit 2,309 5,300 4,732 6,273 7,051 7,826 8,480

Other Operating Income 64 168 17 217 231 242 256

SG&A (1,093) (1,284) (1,626) (1,710) (1,736) (1,876) (1,954)

Provisions for Claims & Doubtful Debts (201) (212) (473) (543) (579) (605) (641)

Operating Profit 4,070 3,404 4,664 5,294 6,596 6,838 7,270

Interest Income 677 134 104 92 126 97 132

Interest Expense (668) (632) (678) (757) (759) (734) (729)

Gain on Foreign Currency Exchange 494 35 (31) 50 50 50 50

Net Finance Cost 503 (462) (605) (615) (583) (586) (547)

Investments Income 2 99 429 150 150 150 150

Income Before Taxes 4,575 3,042 4,488 4,829 6,163 6,402 6,872

Income Tax Expense (576) (491) (835) (773) (924) (960) (1,031)

Net Profit From Continuing Operations 3,999 2,550 3,652 4,057 5,239 5,441 5,841

Discontinued Operations

Results from Discontinued Operations 11 0 0 0 0 0 0

Gain on Sale of Investment 1,434 0 0 0 0 0 0

Net Profit From Discontinued Operations 1,445 0 0 0 0 0 0

Net Income 5,444 2,550 3,652 4,057 5,239 5,441 5,841

EPS 25.82 11.74 17.65 19.61 25.32 26.30 28.23

EPS from Continuing Operations 18.87 11.74 17.65 19.61 25.32 26.30 28.23

27


PROJECTED BALANCE SHEET

(in millions of EGP) 2008 2009 2010 2011e 2012f 2013f 2014f

ASSETS

Current Assets

Cash and Equivalents 8,269 5,925 5,443 5,334 5,494 5,604 5,660

Inventories 1,462 1,402 1,834 1,737 1,852 1,936 2,050

Trade and Other Receivables 8,236 9,750 11,143 10,859 11,283 11,800 12,490

Receivable on Sale of Discontinued Cement Operations 0 0 0 0 0 0 0

Marketable Securities 163 211 252 250 250 250 250

Assets Held for Sale 535 539 449 450 450 450 450

Dues from Clients 1,194 1,523 2,159 1,900 1,736 1,846 2,050

Total Current Assets 19,859 19,350 21,280 20,531 21,065 21,886 22,949

Non-Current Assets

PP&E 9,912 14,991 17,999 17,642 18,299 18,791 18,886

Payments for Purchase of Investments 2,785 0 0 0 0 0 0

Intangible Assets 9,910 9,874 10,762 10,547 10,336 10,129 9,927

Investments in Associated Companies 136 2,105 2,588 2,600 2,600 2,600 2,600

Investments Available for Sale 133 253 237 250 250 250 250

LT Receivables 255 247 329 271 289 303 320

Deferred Income Taxes 36 38 229 251 277 306 338

Total Non-Current Assets 23,167 27,508 32,144 31,562 32,051 32,379 32,321

TOTAL ASSETS 43,026 46,858 53,424 52,093 53,116 54,265 55,270

LIABILITIES

Current Liabilities

Bank Overdraft for ST Loans 3,671 2,266 4,125 3,765 3,240 2,965 2,690

Trade and Other Payables 8,318 8,494 10,358 10,407 10,615 10,199 9,991

Due to Clients 1,600 3,659 2,884 4,344 4,340 4,539 4,644

Provisions 634 650 877 650 650 650 650

Income Taxes Payable 457 361 377 409 409 409 409

Liabilities Related to Assets Held for Sale 0 0 0 0 0 0 0

Total Current Liabilities 14,679 15,429 18,621 19,575 19,254 18,762 18,384

Non-Current Liabilities

LT Loans 7,754 11,219 12,656 10,994 11,454 10,990 11,237

Provisions 1,891 1,913 2,096 1,947 1,925 1,950 1,922

Other LT Liabilities 613 571 739 750 700 650 600

Deferred Taxes 507 582 970 600 600 600 600

Total Non-Current Liabilities 10,766 14,285 16,461 14,291 14,679 14,190 14,359

TOTAL LIABILITIES 25,444 29,715 35,082 33,866 33,933 32,951 32,743

EQUITY CAPITAL

Share Capital 1,074 1,035 1,069 1,035 1,035 1,035 1,035

Reserves 6,183 4,320 4,523 4,706 4,909 5,171 5,443

Retained Earnings 6,484 8,836 8,738 7,785 7,381 9,068 9,619

Net Profit for the Year 5,367 2,417 3,531 3,883 5,040 5,221 5,612

Own Shares -1,668 -200 -205 -200 -200 -200 -200

Adjustment on Translation of Foreign Companies -86 -15 -320 0 0 0 0

TOTAL SHAREHOLDERS' EQUITY 17,355 16,393 17,336 17,209 18,164 20,295 21,509

Minority Interest in Subsidiaries 227 750 1,018 1,018 1,018 1,018 1,018

TOTAL EQUITY CAPITAL 17,581 17,143 18,354 18,227 19,182 21,313 22,527

TOTAL LIABILITIES

& SHAREHOLDERS' EQUITY 43,026 46,858 53,436 52,093 53,116 54,265 55,270

Source: BlomInvest

28

APPENDIX

I – List of Comparable Peers

Informational Valuation Profitability Analysis Management Efficacy

Company Ticker Exchange Country Mkt Cap

USD (m) P/E P/Rev P/BV P/CF

Gross

Margin (%)

Oper

Margin (%)

Profit

Margin (%)

SG&A /

Rev ROE ROA D/E

Rev /

Assets

Construction Contractors Combined Group CGC KUW Kuwait 650 20.07 1.61 5.62 13.75 12.82 8.69 7.34 3.27 27.97 6.69 62.09 0.91 Arabtec Holding PJSC ARTC DFM UAE 582 6.96 0.39 0.79 2.93 15.14 7.81 7.91 7.62 12.07 4.85 27.32 0.61

Aveng Limited AEG JNB S. Africa 2,085 8.86 0.42 1.11 4.65 16.24 6.12 5.51 - 16.23 7.99 3.11 1.45

Colas SA RE EPA France 7,670 23.46 0.44 2.21 8.29 52.63 2.68 1.32 47.71 9.69 2.01 19.57 1.52

Leighton Holdings Limited LEI ASX AUS 8,677 13.8 0.54 2.85 5.51 38.96 5.79 4.22 28.51 24.96 7.48 65.13 1.77 Fluor Corporation (NEW) FLR NYSE USA 12,035 34.51 0.58 3.43 19.05 3.38 2.68 2.12 0.75 10.51 5.96 3.27 2.82

ACS Activ. de Construc. ACS MCE Spain 15,942 8.06 0.68 2.42 6.93 44.32 6.84 8.33 25.65 30.23 4.10 334.04 0.48

China State Const. Corp 601668 SHA China 3,502 23.19 2.27 5.06 22.64 10.76 8.42 9.35 3.93 25.49 6.59 115.83 0.71

Construction Average 6,393 17.36 0.86 2.94 10.47 24.28 6.13 5.76 16.78 19.64 5.70 78.78 1.28

Fertilizer Producers Abu Qir Fertilizers and ABUK CAI Egypt 1,727 7.57 4.15 3.55 - 42.12 41.6 47.26 10.82 41.77 29.96 0 0.63 Jordan Phosphate Mines JOPH AFM Jordan 1,629 12.52 2.04 2.14 12.37 25.71 10.49 13.18 5.24 15.89 12.05 7.19 0.91

China BlueChemical Ltd. 3983 HKG China 3,751 20.72 3.55 2.31 11.52 27.92 24.55 19.94 7.75 11.61 10.08 3.18 0.51 Taiwan Fertilizer Co., Ltd. 1722 TPE Taiwan 3,302 55.26 6.56 1.9 48.42 13.02 5.87 11.94 7.58 3.45 2.73 0.01 0.23

Arab Potash Company APOT AFM Jordan 5,008 21.77 6.33 4.32 17.28 46.55 32.9 29.09 6.14 21.19 17.18 3.87 0.59

CF Industries Holdings CF NYSE USA 9,956 28.43 2.51 2.45 12.31 29.75 22.16 10.44 2.68 12.08 7.36 48.37 0.7

Saudi Arabia Fertilizers 2020 SAU Saudi 11,933 14.59 11.81 6.27 14.07 70.99 69.19 60 0.31 41.45 34.13 4.95 0.44

Yara International ASA YAR OSL Norway 16,945 8.8 1.36 2.52 7.97 23.22 11.42 13.45 7.00 27.32 13.83 37.76 1.03

Fertilizer Average 6,781 21.21 4.79 3.18 17.70 34.91 27.27 25.66 5.94 21.85 15.92 13.17 0.63

Average Composite (50% Construction, 50% Fertilizer) 6,587 19.29 2.83 3.06 14.08 29.60 16.70 15.71 11.36 20.74 10.81 45.97 0.96

Orascom Construction Industries 8,759 13.65 1.81 3.17 15.43 24.48 18.58 13.25 6.30 21.07 7.28 91.44 0.52

Source: Blominvest, Reuters

29

Orascom Construction Industries

BLOMINVEST BANK s.a.l. Research Department

Verdun, Rashid Karameh Str.

POBOX 11-1540 Riad El Soloh Beirut 1107 2080 Lebanon

Tel: +961 1 747 802

Fax: +961 1 737 414 [email protected]

For your Queries:

Marwan Mikhael, Head of Research

[email protected]

+961 1 991 784 Ext: 360

Issa Frangieh, Senior Equity Analyst

[email protected]

+961 1 991 784 Ext: 361

Karim Houri, Equity Analyst - TDP

[email protected]

+961 1 991 784

Nader Ali Khedr, Research Analyst

[email protected]

+202 3761 7682

IMPORTANT DISCLAIMER

This research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. Blom Bank SAL or BlomInvest SAL can have investment banking and other

business relationships with the companies covered by our research. We may seek investment banking or other business from

the covered companies referred to in this research. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are

contrary to the opinions expressed in this research. Our asset management area, our trading desks and investing businesses

may make investment decisions that are inconsistent with the recommendations or views expressed in this research. We and

our affiliates, officers, directors, and employees, excluding equity analysts, will from time to time have long or short positions

in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research. This research is not an offer to sell or the solicitation of an offer to buy any security in

any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take

into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider

whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice. The price and value of the investments referred to in this research and the income from them may

fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original

capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to

substantial risk and are not suitable for all investors. Fluctuations in exchange rates could have adverse effects on the value or

price of, or income derived from, certain investments.

Copyright 2010 BlomInvest SAL.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior

written consent of BlomInvest SAL.

Equity Rating Key

Buy: A recommendation with a potential return

greater than 10% based on our current 12-month

view of total shareholder return*.

Hold: A recommendation with a potential return

between -10% and 10% based on our current 12-

month view of total shareholder return.

Sell: A recommendation with a potential return of

less than -10% based on our current 12-month view

of total shareholder return.

* Total Shareholder Return is calculated by the

potential price growth over a 12-month period along

with the expected dividend yield.

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