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Citigroup cuts Egypt’s OCI to sell
OCI's management stated that it would not compromise on margins for the sake of new orders- says brokerage.
September 2, 2010 1:25 by Reuters
Citigroup downgraded Egypt’s Orascom Construction Industries (OCI) to “sell” from “hold,” saying ongoing fierce competition across the Middle East and North African region’s construction market would lead to margin erosion for the company over the medium term.
The brokerage said OCI’s management stated that it would not compromise on margins for the sake of new orders — a strategy not shared by the builder and fertilizer maker’s more aggressive competitors.
In order to gain some major awards, which are in the pipeline, Egypt’s biggest listed firm by market cap would need to accept lower margins, analyst Heidy Rehman said in a note.
However, the analyst remains positive on the near-term outlook for urea and ammonia fertiliser pricing and sees OCI as well-positioned to benefit from sustained wheat prices given its exposure to nitrates.
OCI has been capitalising on the strong pricing environment for nitrate-based fertilisers, offsetting the impact of softer urea prices.
The brokerage also lowered its price target for the stock to 220 Egyptian Pounds from 245 Egyptian Pounds.
Shares of the company traded down about 2 percent at 251.50 Egyptian Pounds Thursday.
(Reporting by Shobhana Chadha in Bangalore; Editing by Maju Samuel)