The short-term play for Orascom Construction Industries (OCI) is in the share price, but those with a longer horizon may be in line for a hefty dividend. That is the analysis from the Kuwaiti investment bank Global Investment House (GIH), which initiated coverage on OCI yesterday with a "buy" rating and price target of 321.3 Egyptian pounds. OCI is based in Cairo. The share closed yesterday at 257.3 pounds.
"OCI is a leading construction contractor in MENA and is on its way to be ranked among the top three nitrogen fertiliser producers by 2012," said Faisal Hassan, the head of research at GIH in Kuwait. There is precedent for the company rewarding its shareholders. When its cement business was among the world's top 10 producers in 2007, the company divested the unit from its portfolio and distributed a one-time dividend of 305 Egyptian pounds per share. Now it appears OCI is implementing the same strategy with its fertiliser enterprise, Mr Hassan said.
The company's fertiliser business looks to be the key driver of growth. The company has acquired several fertiliser subsidiaries in North America, Europe, the Middle East and North Africa. On the construction side, the company's contract awards are estimated to grow at a compounded annual rate of 11.6 per cent over the next three years. OCI is a separate company from Orascom Telecom, which is majority-owned by the same family.
Because of its acquisitions, OCI had a debt of 16.1 billion Egyptian pounds at the end of the first half of this year. But Mr Hassan said the debt was not overly worrisome because the company's balance sheet was strong elsewhere, with cash and investments of 5.3bn and 2.9bn pounds, respectively. Mr Hassan expects the company to be able to pay down its debt aggressively and for the obligation to fall below the cash level by 2013.
