SVCE Initiation of Coverage

1. Target Price Market Price Investment Grade
EGP9.91 EGP5.50 Speculative
Recommendation
Strong Buy
Upside Potential
80%
Source: SVCE & Prime Estimates
Prime Research 1
Executive Summary
Using the DCF valuation methodology, we value SVCE’s Target Price
at EGP9.91/share which reflect a 80% upside potential over the cur-
rent market price of 5.50/share with a strong buy recommendation.
We utilized a risk free rate after tax of 9.98%, market risk premium of 6% and
the company’s adjusted beta of 1.19, all of which translated to a WACC of
15.14%.
Our main value drivers are:
- In Nov-14, South Valley BOD’s signed a syndicated loan amounting
to EGP1,273 million “3-years grace period” to finance the company’s
production expansion from 1.5 mmtpa to 3.0 mmtpa alongside energy conver-
sion to Coal & alternative fuel which will result in lowering energy costs, the
main component in operating costs, alongside double capacity from the expan-
sion.
- In Nov-14, South Valley’s BOD agreed to raise its equity by EGP602
million within 2015 to finance the company’s new-focus strategy and the
possibility of acquiring a majority stake in Building Materials Industry Company
- BMIC.
- In late 2014, the company announced to exist from its financial in-
vestments portfolio within 3–5 years to focus on its industry core of
producing cement.
Stock Performance Chart
(EGP/ Share)
Analyst Mohab Yamany
Phone +202 33005 725
Email MHamdy@egy.primegroup.or
South Valley Cement (SVCE.CA)
Initiation of Coverage
A New Core-Focus Strategy
Egypt | Building Materials
April 21, 2015
SVCE.CA
Sector Building Materials
Company Traded Market EGX
Stock Currency EGP
Exchange Rate EGP7.63 /USD
Market Cap (EGP million) 2,673
Outstanding Shares (million) 482.2
Par Value/Share (EGP) 5
Price Low – High (EGP) 5.50 - 9.45
Average Daily Traded Vol-
ume (000)
777
Report Reason
Initiation of Cover-
age
Source: Bloomberg
Shareholders Stake
Blue Nile Limited 37.73%
Gazelletd Inc 6.46%
Free Float 50.16%
Al Nahla Trading Inc 5.65%
Financial Highlights 2013a 2014e 2015f 2016f 2017f
Revenue (EGP mn) 553 588 735 1,050 2,085
Growth 9% 6% 25% 43% 99%
EBITDA margin 36% 36% 25% 34% 44%
Net Income (EGP mn) 133 121 80 140 686
Net Attr. Income (EGP mn) 133 121 80 140 686
EPS (EGP) 0.3 0.3 0.2 0.3 1.4
EPS Growth 26% -9% -34% 76% 390%
DPS (EGP) 0.2 0.0 0.0 0.0 0.0
BVPS (EGP) 6.8 6.9 7.1 7.3 8.8
P/E x 20.05 22.18 33.66 19.10 3.90
Dividend Yield 4% 0% 0% 0% 0%
P/BV x 0.81 0.81 0.79 0.76 0.63
0.0
2.0
4.0
6.0
8.0
10.0
12.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
MnShares
Volume (000) Price (EGP)
Target Price: EGP9.91
Discounted Free Cash Flow Model (DCF) 2015f 2016f 2017f 2018f 2019f
Free Cash Flow (117) (745) 867 902 588
Present Value of Free Cash Flows (102) (562) 568 513 291
Terminal Value 4,772
Present Value Of Terminal Value 2,358
Adjusted Value for Operation 3,601
Net Debt 456
Long-term investment 1,677
Shareholder Value 4,822
DCF Value Per Share 9.91
Upside potential 80%

2. Prime Research 2
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Cement Production Process
In reference to the above flow-chart, the manufacturing process starts with the excavation of limestone from quarries, followed by
crushing it to fine ground limestone which is mixed alongside clay and then adding other raw materials (i.e. sand, iron ore…etc) to
mix in the grinding mill. Then, the drying process starts by entering the mix of the raw materials into the pre-heater and kiln sys-
tems to generate Clinker. The generated hot clinker goes into a cooling process to cool from approximately 1400 C to approxi-
mately 120 C. Finally, the clinker is mixed with other raw materials (i.e. gypsum, cement slag…) to produces cement.

3. Prime Research 3
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Major Industry Related Events World Wide:
Global oil prices have dropped dramatically over the past six months hitting its lowest value since 2009. Benchmark Brent crude,
was trading at around USD50 per barrel in January 2015, down by more than 56% from last year’s peak in June of above USD115.
How did that happen and what will be the effect on Egypt’s cement industry?
How did that happen ?
• This crises initially started from the emergence of shale oil in the United States and Canada through the newly discovered
techniques of hydraulic fracturing and horizontal drilling that helped in extracting oil and gas from Shale rock. Adoption of
these methods resulted significant production growth during the past two years in the United States and Canada, which
are now driving virtually all non-OPEC production growth.
• Slower global growth that resulted in a lower demand for oil, especially in China
• Increase in supply especially from Libya and Iraq.
• Increase in production from OPEC countries.
• The refusal of OPEC countries to cut down production to stabilize prices, which was against expectations.
This sharp decline in oil prices will affect all oil producers negatively. However, OPEC’s view is to maintain their market share taking
an advantage of such prices decline with hopes that Shale-oil high cost producing firms will eventually exit the industry. Hoping that
in time till the supply and demand will go back to it’s norm. Many of shale oil firms operate at production costs hovering between
USD65 to USD70 per BBLT, such firms will suffer the most from price declines and are expected to exit the market as per OPEC’s
strategy. In the mean time OPEC countries depend on their reserve till they pass the Oil crises. The price decline will have a posi-
tive effect on the importing countries including but not limited to Egypt.
How will the oil crises affect the cement industry?
• The oil price decrease had a direct effect on coal prices to decrease as well. Further, the lower/higher coal prices will have
a positive/negative direct effect in Egyptian cement industry in general, and for companies using coal in particular.
• Oil and coal are theoretically considered substitutes, however, by looking at historical consumption and price movement
the trends tell a different story. As indicated by the below trend line, there is a positive correlation between oil and coal
prices ( r= 0.85, based from Yr 1993 to Yr 2013). Moreover, there is also a positive correlation between oil and coal con-
sumption ( r= 0.98, based from Yr 2003 to Yr 2013). Hence, we conclude that oil prices movement will have a direct effect
on coal prices which will enhance/lower Egypt Cement Industry’s GPM accordingly.
• This historical relationship between Oil and Coal is forecasted to continue for a long-term perspective. It is worth mention-
ing that International Energy Agency (IEA) forecasts that coal will last for 142 years, compared to 61 years for gas and
only 54 years for oil.
Coal Price Vs. Crude Oil Price
Source: World Bank
0
50
100
150
200
250
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Coal Price (USD per Metric Ton) Crude Oil Price (USD per Barrel)

4. Prime Research 4
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Major Industry Related Events In Egypt:
• Early 2014, Egypt became vulnerable to energy shortage and the Egyptian government sought out different strategies to
overcome the energy shortage consequences. In April 2014, the government permitted the use of coal in cement plants with a
commitment to environmental controls, standards and obtaining the approval of the environmental impact assessment studies in
all related phases. The government also requested to expand the usage of refuse-derived fuel (RDF) to reach utilization rates of
40% in cement production. By November 2014, the environment minister permitted 12 coal usage approvals to cement plants.
• In Jan-2015, The Egyptian Natural Gas Holding Company - EGAS decided to fully cut-off natural gas supply to ce-
ment plants and provide them with Heavy Fuel Oil - HFO instead for year 2015. This decision is executed to all cement plants
except for Helwan, Katamia and National Cement plants as these plants are directly connected with major natural gas line.
On our view, such a decision will have a negative impact on many cement players, as HFO requires wide range of storage unlike
natural gas which is easily accessible and utilized to heat the clinker ovens. Moreover, Mmbtu’s cost from utilizing HFO is higher than
natural gas.
With continuous rising demand of natural gas in generating electricity in general, and for residential sector in specific, shortage of
natural gas, and governmental approval to utilize coal and Refuse-derived fuel (RDF) in cement industry, all of these events com-
bined resulted in EGAS’s decision to cut-off natural gas supply to cement players and direct it to electricity generation instead. This is
elaborated as below.
• In mid March-15, Industrial Development Authority - IDA announced its plan to provide 12 cement licenses to pro-
duce 21 million tons. There is an expected gap that will reach 30 million tons by 2020, and as cement plants usually con-
struct in 2-3 years period hence it is crucial to initiate the licenses process within this period, said Ismail Gaber, IDA president.
The licenses proposal include the geographical destination, observance of environmental regulation, and investors commitment
to generate their own energy whether through dependence on Natural Gas or Coal, added Gaber.
• In 05-April-15, the Ministry of Industry and Trade is currently working on cement and steel licenses’ proposal to be
presented to the ministerial economic committee within the next week, said minister; Monir Fakhary. It will be
unlikely to obtain the approval of Steel licenses, however, it is only expected to obtain 12 cement licenses, sources from Indus-
trial Development Authority (IDA) stated. No more news regarding this matter have been issued.
• Regarding the proposed licenses, we believe its probability of execution is low mainly due to the industry low utiliza-
tion rates which has incurred as a result of energy shortage. With many cement players plans to convert to Coal & RDF
for its accessibility and lower costs, it will enhance the industry utilization rates to match the increasing demand, with the need
to only issue few extra cement licenses.
Electricity consumption
Source: CAPMAS
Local Natural Gas Consumption
Source: EGAS
76.90 78.70 80.50 82.50 84.60
0
10
20
30
40
50
60
70
80
90
FY08/09 FY09/10 FY10/11 FY11/12 FY12/13
Residential Industrial General
Govermnetal Agricultural & others Population (mn)
57%28%
11%
3% 1%
Electricity Industry Petroleum Residential others

5. Prime Research 5
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Local Cement Industry Overview
• Cement consumption in Egypt is spread out into three sectors; residential, infrastructure and non-residential sectors with 85%,
5% and 10% of cement consumption respectively.
• Therefore, we initially forecasted the building & construction sector based on its substantially well-built historical relationship
with GDP (correlation is 0.99 for historical figures starting year 2003 till 2014) through a simple statistical regression model.
• Following the construction & building forecasted figures, we were able to forecast cement production as almost all cement is
consumed at building and construction industry. The Cement Industry supply/demand model as per below:
GDP, Construction & Cement Sector Output
Cement Sector, Supply and Demand
Source: CBE, CAPMAS & Prime estimates
EGP million 2012a 2013a 2014e 2015f 2016f 2017f
GDP 1,507,928 1,539,594 1,571,647 1,636,085 1,709,708 1,786,645
Growth (%) 2.20 2.10 2.08 4.10 4.50 4.50
Building & Construction 67,390 71,366 75,362 82,316 90,536 99,577
Growth (%) 3.30 5.90 5.60 9.23 9.99 9.99
Cement Sector 25,136 27,236 34,425 38,456 43,215 48,563
Growth (%) 15.44 8.35 26.39 11.71 12.38 12.38
2011a 2012a 2013a 2014e 2015f 2016f 2017f 2018f 2019f
5Yrs
CAGR
Production Capacity 59.1 62.4 66.6 69.2 69.2 69.2 70.7 73.7 77.70 2%
Utilization (%) 81 88 75 74 79 87 91 94 99
Consumption 48.05 55.16 49.92 51.00 54.94 60.02 64.53 69.43 76.59 8%
Growth (%) -1.53 14.80 -9.49 2.17 7.72 9.25 7.53 7.58 10.32
Prices (EGP/T) 453 456 546 675 700 720 752 787 802 4%
Linear Relationship Between GDP & Construction Sector
Source: CBE & Prime estimates
Source: CBE, CAPMAS & Prime estimates
‐
20
40
60
80
100
120
140
‐
500
1,000
1,500
2,000
2,500
2003a
2004a
2005a
2006a
2007a
2008a
2009a
2010a
2011a
2012a
2013a
2014a
2015f
2016f
2017f
2018f
2019f
GDP ‐ EGP mn Construction & BM ‐ EGP mn

6. Prime Research 6
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Cement Industry Prices
• Historically, cement consumption grew from 24 mtn in 2004 to 44 mtn in 2009 with a five-year CAGR of 12% as a result of
building and construction rapid growth during the same period. Afterwards, consumption was stabilized between 44 mtn to 48
mtn from 2009 to 2011, until the consumption reached approximately 51 mtn in 2014, with a five-year CAGR of 3% between
2009 and 2014. From 2014 to 2019, we expect cement consumption to grow with a CAGR of 8% mainly due to
the expected growth in infrastructure and real estate sector.
• Cement prices increased from EGP546/ton in 2013 to EGP675/ton in 2014 reflecting 23.6% increase. This was mainly due to
energy shortage as the Egyptian Natural Gas Holding Company - EGAS started to lower its supply to cement plants and eventu-
ally it stopped providing them with natural gas since Jan-15 and instead started providing them with HFO. As a result, the pro-
duction process was affected which led to a gap in the demand/supply mechanism and accordingly cement producers decided
to increase the prices. With higher demand on cement, we expect the prices to gradually increase to reach EGP802
per ton in 2019 with 5 years CAGR of 4%. The above chart represents the consumption change and price trend from
2009 to 2019.
YTD cement prices
YTD average cement price per ton is EGP619.
Cement prices sharply decreased from early January then
started recovery in March.
Prices decreased mainly due to:
• The requests to government to put price limits which made
cement main players to reduce the prices as a response.
• Sales volumes in January and February slowed down due to
weak demand on bad weather conditions which affected
cement transportation.
• Furthermore, the cement distributors halted their orders for
any cement products prior 25th
of January due to security concerns. This accumulated higher inventory for cement producers,
incurring an ephemeral oversupply causing prices to decrease.
• The production line halted in Suez Cement in Mar-08 till Apr-05 eased the sharp decline of the prices, causing YTD prices to
close at EGP627 per ton, a 7% decline
Cement prices and consumption movement
Source: CBE, CAPMAS & Prime estimates
YTD Cement Price Movement As of 18-Apr
Source: Cementegypt
500
550
600
650
700
14%
6%
‐3% 1%
20%
24%
4% 3% 4% 5%
2%
22%
11%
‐2%
15%
‐9%
2%
8% 9% 8% 8%
10%
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
25%
30%
0
100
200
300
400
500
600
700
800
900
2009a
2010a
2011a
2012a
2013a
2014e
2015e
2016f
2017f
2018f
2019f
Price/ton % change % Consumption change

7. Prime Research 7
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
South Valley Cement – Company Brief
South Valley Cement was established in 1997 to produce top quality cement and its associated products, as well as a wide range of
other premium building materials products such as ready mix, beside owning and managing a huge portfolio of diverse multi sector
direct and indirect investments.
As of Sep-14, the company has 46% of its total assets bulked under non-core operating assets “financial investments 28%, Invest-
ment in affiliates 18% ” while 54% of total assets are core operating assets. The company’s management recently announced
its intention to reduce its exposure in financial investment to focus on its core operations - cement production.
South Valley Cement – Investment Exposure
South Valley Cement – Key Operational Assumptions
Source: SVCE, Prime estimates
SVCE - Investment Portfolio
Source: SVCE
Available for Sale Securities - Sector Focus
Source: SVCE
2012a 2013a 2014e 2015f 2016f 2017f 2018f 2019f
Cement capacity (mntpa) 1.5 1.5 1.5 1.5 1.5 3.0 3.0 3.0
Cement production (mn t) 1.1 1.1 0.9 1.1 1.5 2.9 3.0 3.0
Cement utilization rates (%) 72 74 62 72 100 95 100 100
SVCE Market Share (%) 2.7% 3.0% 2.9% 2.7% 2.5% 4.6% 4.3% 3.9%
Energy mix
Natural Gas (%) 100 100 60 - - - - -
HFO (%) - - 40 100 45 - - -
Coal (%) - - - - 50 75 75 75
RDF (%) - - - - 5 25 25 25
Blended energy cost (USD/Mmbtu) 4.0 6.0 7.4 10.3 8.2 5.7 6.1 6.4
Revenue/ton - EGP 468 498 631 681 700 732 765 781
COGS/Ton - EGP (excluding depreciation) 267 296 382 482 436 384 416 451
SGA/Ton - EGP 37 21 24 25 25 22 25 29
EBITDA/ton - EGP 163 181 224 173 239 325 324 300
1,703
1,778
1,109
1,180
682
705
102 112 50 72
1,805
1,890 1,841
1,956
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013
EGP million
Available for sale securities Investment in Affiliates
Others Total Investment portfolio
56 57
26
34
32 31
50
46
12 12
24 19
0
20
40
60
80
100
2010 2011 2012 2013
Figures are in %
Construction & Building Industrials Others

8. Prime Research 8
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
A Look On The Company - Operating Cost:
A) Energy
• As stated earlier, due to energy shortage, EGAS decided to pro-
vide cement plants with heavy fuel oil - HFO instead of natural
gas for 2015. That is the reason, energy cost will rise to 60% of
operating costs in 2015.
• In 2016, after partial energy transition to coal & refuse-derived
fuel (RDF) energy costs are expected to decrease. In 2017, after
full energy conversion, energy cost will further decrease then
will increase in line with coal & RDF costs growth.
Our forecasted coal costs are based on Bloomberg commodity fore-
casts accompanied with our estimates of related port fees, customs,
transportation, taxes and other costs. As coal is a global commodity
allowing prices to fluctuate periodically. Egypt as an importing coun-
try will follow global prices.
B) Raw materials
The company do not disclose raw materials in a separate item.
Hence, raw materials forecast is based on our model assumption.
• Limestone cost will slightly rise as a result of explosives cost
increase and transportation costs growth.
• With rising demand on cement, there is an expected rise in
Clay’s demand from cement producers which will put upside
pressure on clay prices.
• Iron ore is a global price which, like other commodities, corre-
lated with oil prices. Hence, we expect a slight increase in costs.
• Gypsum contribute in a low percentage in cement production.
Therefore, we expect a stable gypsum cost per ton.
• With rising demand on cement, and low cement slag supply we
believe that cement producers may turn to imported cement
slag which characterized by higher quality but yet higher prices.
Historical & Forecasted Operating Cost Per Ton
Energy, raw materials, clinker electricity & depreciation costs are bulked under Raw Materials in SVCE’s financials— These costs are based on our model
Source: SVCE & Prime estimates
Forecasted Raw Materials Assumptions
Source: Prime estimates
Forecasted Energy Assumptions
Source: Prime estimates
‐
100
200
300
400
500
2011a 2012a 2013a 2014e 2015f 2016f 2017f 2018f 2019f
Energy Raw materials Electricity Packing other costs
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
‐
50
100
150
200
250
300
350
2014e 2015f 2016f 2017f 2018f 2019f
Thousand tons
EGP cost/ton
Energy Production
500
1,000
1,500
2,000
2,500
3,000
3,500
0
5
10
15
20
25
30
35
40
2014e 2015f 2016f 2017f 2018f 2019f
Thousand tons
EGP cost/ton
Limestone Clay Iron ore
Gypsum cement slag Production

9. Prime Research 9
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
C) Electricity
Electricity costs assumptions are based on the governmental feed-in-
tariffs for electricity-intensive industries as per the below table.
In early July-2014, the Ministry of Electricity announced the annual
increase for the next five years separated per each industry’s utiliza-
tion. Cement industry is categorized as an Electricity heavy consum-
ing industry and the prices would increase as per the below table.
The firm’s electricity charts for both clinker and cement reflect the
cost increase due to higher electricity prices and higher cement pro-
duction.
D) Packing and Other Costs:
• Historical average packing cost was EGP26/ton. In 2013, packing cost per ton decreased to EGP23/ton versus EGP28/ton in
2012. However, 9M 2014 financial statements showed that packing costs are back to normal “estimated cost for 2014 EGP27/
ton”. As a result of an increasing demand on packing, we expect high steady growth for packing costs.
• Other costs are expected to increase proportionally with sales growth. Other costs include management fees, operating quarry
costs, salaries, development fees and fees for army land usage.
Electricity costs for Heavy Industry users 2014e 2015f 2016f 2017f 2018f 2019f
Electricity - KW/Piasters 37 38.4 39 41 43 45
Growth rate 9% 4% 2% 4% 6% 4%
Forecasted Packing Cost Assumptions
Source: Prime estimates
Forecasted Other Cost Assumptions
Source: Prime estimates
Forecasted Electricity Assumptions
Source: Prime estimates
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
‐
5
10
15
20
25
30
35
40
45
50
2014e 2015f 2016f 2017f 2018f 2019f
Thousand tons
EGP cost/ton
Clinker Cement Production
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
‐
10
20
30
40
50
60
2014e 2015f 2016f 2017f 2018f 2019f
Thousand tons
EGP cost/ton
Packing cost Production
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
‐
10
20
30
40
50
2014e 2015f 2016f 2017f 2018f 2019f
Thousand tons
EGP cost/ton
Other Costs Production

10. Prime Research 10
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
A Look On The Company - Asset Efficiency & Profitability
• During 2012, the company increased its production by 105%, from 526 thousand tons in 2011 to 1.08 million ton which en-
hanced rapidly its sales growth.
• In 2015 and 2016, we expect the company will boost its revenue as a result of growing production which came from gradual
shift to coal and RDF and higher cement prices due to rising demand, thus it would also contribute in increasing total assets
turnover.
• In 2015-2016, the company is expected to utilize the syndicated loan through the production expansion and energy transition
which will boost the assets growth.
• In 2017, after the capital expenditure period, the revenue is estimated to double as a result of double production. Further more,
total assets will grow with a slower trend.
• In 2018 & 2019, the assets growth will fall due to the expiration of the syndicated loan’s 3-years grace period, and the payment
of debt installments alongside higher accumulated depreciation.
• In 2014, EBITDA margin is expected to stay the same due to the net effect of higher cement prices and soaring energy costs.
On a separate point, net margin is expected to slow-down as the 9M 2014 company financials incurred a non-recurring expense
(Electricity and gas price differences) alongside which derived the net margin to decrease.
• In 2015, EBITDA margin is affected by full energy utilization of HFO as a result of earlier-stated EGAS decision. Net margin is
also projected to be lower due to the syndicated loan’s interest expense.
• In 2016, EBITDA and net margins are estimated to be enhanced by partial conversion of coal and RDF.
• In 2017, EBITDA and net margins are predicted to rocket-up after full energy conversion and higher production.
• In 2018 and 2019 the EBITDA margin is projected to stabilize while net margin is expected to slow-down in 2019 and recover
after full payment of the syndicated debt.
Source: SVCE, Prime estimates
Assets Efficiency
Profitability
Source: SVCE, Prime estimates
‐50%
0%
50%
100%
150%
2012a 2013a 2014e 2015f 2016f 2017f 2018f 2019f
Revenue Growth Assets Growth Assets turnover
5%
15%
25%
35%
45%
55%
2012a 2013a 2014e 2015f 2016f 2017f 2018f 2019f
EBITDA margin Net margin

11. Prime Research 11
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Valuation
• Utilizing the DCF model to value SVCE’s core operations. We utilized an after tax risk-free rate of 9.98% - 5-year T-bond
yield-, adjusted beta of 1.19 and a market risk premium of 6% which translated to a WACC of 15.14%.
• The investment in affiliates have been valued at book value due to the uncertainty of the deal’s execution. This amount repre-
sents the company’s stake in BMIC. As per SVCE’s management guidance, they are still undergoing negotiations with EK holding
(EKHO.CA) about the purchase of a part or whole stake “at least 30% of shares”. Currently, BMIC is being valued through an
independent financial advisor who will submit its results to EK holding. There are talks that upon the independent valuation, EK
holding may either partially exist the investment or keep its stake and control over BMIC. Worth mentioning, SVCE’s equity in-
crease announced earlier in Nov-14 in a bourse statement to raise EGP602 million to finance the acquisition of BMIC and the
expansion plan. As of early-April, there is no actual steps towards the equity increase. And as per SVCE’s management guid-
ance, the deal’s acquisition is expected to be either through this capital increase or through partial disposal of the company’s
investment portfolio. Therefore, we valued BMIC’s investment per its book value.
• The company’s investment portfolio (excluding BMIC) is valued at 20% discount of the book value.
Accordingly, we have arrived to a target price of EGP/9.91 share with an upside potential of 80% over the current mar-
ket price of EGP5.50. Hence, we issue a Strong Buy recommendation on SVCE stock.
Discounted Free Cash Flow Model (DCF) 2015f 2016f 2017f 2018f 2019f
NOPLAT 126 283 835 821 571
Non-cash Items 61 76 93 152 165
Gross Cash Flow 187 358 929 972 736
Change in Operating Working Capital 16 (20) 16 11 20
Capital Expenditure (319) (1,083) (78) (81) (168)
Free Cash Flow (117) (745) 867 902 588
Present Value of Free Cash Flows (102) (562) 568 513 291
Terminal Value 4,772
Present Value Of Terminal Value 2,358
Adjusted Value for Operation 3,601
Net Debt 456
Long-term investment 1,677
Shareholder Value 4,822
DCF Value Per Share 9.91
Upside potential 80%

12. Prime Research 12
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Scenario Analysis
The firm’s strategy is based on production expansion and energy transition to coal and alternative fuel, and as per the normal pro-
ject-finance strategies, the project delivery date may be extended.
Our base case is based on partial conversion of coal & RDF in 2016 and plant. Hence, the following represents several scenarios per-
taining to this matter and its impact on the company’s target price.
Scenario 1, 1-Year Delay In Energy Conversion “ all other assumptions are constant”:
Upon one year delay in coal & RDF implementation as
shown, same assumptions otherwise, the stock’s TP is esti-
mated at EGP9.28/share which is EGP0.63/share below
the base scenario.
Scenario 2, 1-Year Delay In Production Expansion “ all other assumptions are constant”:
Upon one year delay in production expansion as shown,
same assumptions otherwise, the stock’s TP is estimated at
EGP9.15/share which is EGP0.76/share below the base
scenario.
Scenario 3, 1-Year Delay In Production Expansion & Energy Transition “ all other assumptions are constant”:
Upon one year delay in energy partial transition in 2016 and
one year delay in production expansion in 2017, the stock’s
TP is projected at EGP8.71/share which is EGP1.20/share
below the base scenario.
Income Statement
Base Case
2017f 2018f 2017f 2018f
Revenue 2,085 2,296 1,042 2,296
COGS 1,093 1,248 553 1,248
S,G & Admin. Expenses 63 75 41 75
EBITDA 928 972 448 972
Capacity assumptions
Cement capacity (mntpa) 3.0 3.0 1.5 3.0
Cement production (mn t) 2.9 3.0 1.4 3.0
utilization rate 95% 100 95% 100%
Scenario 2
Income Statement
Base Case
2016f 2017f 2016f 2017f
Revenue 1,050 2,085 1,050 2,085
COGS 655 1,093 793 1,343
S,G & Admin. Expenses 37 63 37 63
EBITDA 358 928 219 678
Energy mix
HFO (%) 45% - 100% 45%
Coal (%) 50% 75% 0% 50%
RDF (%) 5% 25% 0% 5%
Blended mmbtu - USD 8.19 5.71 11.50 8.83
Scenario 1
Income Statement
Base Case
2016f 2017f 2018f 2016f 2017f 2018f
Revenue 1,050 2,085 2,296 1,050 1,042 2,296
COGS 655 1,093 1,248 793 678 1,248
S,G & Admin. Expenses 37 63 75 37 41 75
EBITDA 358 928 972 219 323 972
Energy mix
HFO (%) 45% - - 100% 45% -
Coal (%) 50% 75% 75% 0% 50% 75%
RDF (%) 5% 25% 25% 0% 5% 25%
Blended mmbtu - USD 8.19 5.71 6.06 11.50 8.83 6.06
Capacity assumptions
Cement capacity (mntpa) 3.0 3.0 3.0 1.5 1.5 3.0
Cement production (mn t) 2.9 3.0 3.0 1.3 1.4 3.0
utilization rate 95% 100% 100% 85% 95% 100%
Scenario 3

13. Prime Research 13
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Sensitivity Analysis On Target Price
The following represents a sensitivity analysis for the company’s target price with different variables, allowing more flexibility and
insights for investors in the decision making process depending on their risk appetite.
1. Cost of Equity & Perpetual Growth
2. Financial investments
• Our base case assumes 20% discount of the in-
vestment portfolio. As shown, different scenarios for
the sale of the financial investments “on discount/
premium”.
3. Cement Prices
• With the cement prices increasing in 2014,
there were several requests to the govern-
ment to put a price cap for cement. A sensitivity
chart shows a 5% and 10% lower/higher prices and
its effect on the Target Price.
4. Coal Prices
• As mentioned earlier, coal price movement is
highly correlated with oil prices. Hence, higher
oil price would result in a higher coal price, which
will have a negative impact on SVCE and vice versa
as well.
5. Coal Carbon Taxes
• Our base case assumes 0% of landed coal
costs. Occurrence of carbon tax on coal would have
negative effect on the Targeted Price as shown.
14.97% 15.97% 16.97% 17.97% 18.97%
0.5% 10.10 9.54 9.03 8.59 8.19
1.5% 10.65 10.00 9.44 8.94 8.50
2.5% 11.29 10.55 9.91 9.35 8.85
3.5% 12.07 11.20 10.46 9.82 9.26
4.5% 13.02 11.98 11.11 10.37 9.73
Cost of Equity
PerpetualGrowth
9.91
10.16
10.41
10.66
9.00 10.00 11.00
Base Case ‐20 %
10% Discount
Book Value
10% Premium
Impact on Sale of the Financial Investment Portofilo Excluding BMIC
7.01
8.46
9.91
11.36
12.81
0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00
‐10% change
‐ 5% change
Base case
+ 5% change
+ 10% change
Cement Prices Fluctuations Effect
8.63
9.27
9.91
10.55
11.18
7.00 8.00 9.00 10.00 11.00 12.00
40% increase
20% increase
Base case
20% decrease
40% decrease
Coal Price Fluctations Effect
8.82
9.18
9.54
9.91
7.00 8.00 9.00 10.00 11.00
30% taxes
20% taxes
10% taxes
Base case 0%
Coal Carbox Tax Effect

14. Prime Research 14
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
FINANCIAL SUMMARY
(Figures in EGP million))
Income Statement 2013a 2014e 2015f 2016f 2017f
Revenue 553 588 735 1,050 2,085
Growth 9% 6% 25% 43% 99%
COGS 329 356 521 655 1,093
S,G & Admin. Expenses 23 22 27 37 63
Other Provisions 0 0 0 0 1
EBITDA 201 209 187 358 928
Growth 14% 4% -11% 92% 159%
EBITDA Margin 36% 36% 25% 34% 44%
Depreciation & Amortization 50 60 61 76 93
EBIT 151 149 125 282 835
Interest Income 2 2 3 1 1
Investment Income 19 13 15 15 15
Interest Expense 29 22 64 158 164
Non-Operating Income 0 0 0 0 0
Non-Operating Expenses 0 0 0 0 0
Extra-Ordinary Items -10 -22 0 0 0
Pre Tax Income 133 121 80 140 686
Income Tax 0 0 0 0 0
Effective Tax Rate 0% 0% 0% 0% 0%
Minority Interest 0.000 0.000 0.000 0.000 0.000
Net Income 133 121 80 140 686
Growth 25% -10% -34% 76% 390%
Profit Share to Employees & Board 0 0 0 0 0
Net Attributable Income - NAI 133.474 121 80 140 686
Growth 25% -10% -34% 76% 390%
NPM 24% 21% 11% 13% 33%
Balance Sheet 2013a 2014e 2015f 2016f 2017f
Cash & Marketable Securities 88 95 74 103 833
Trade Receivables-Net 4 4 5 7 14
Inventory 55 49 63 88 170
Other Current Asset 4 5 6 8 16
Total Current Asset 151 152 148 206 1,034
Net Fixed Assets 1,683 1,680 1,684 1,928 2,931
Projects Under Implementation 29 0 255 1,018 0
Subsidiaries & Other Long Term Investments 1,884 1,884 1,884 1,884 1,884
Other Assets 254 254 254 254 254
Total Assets 4,000 3,971 4,224 5,290 6,103
Short Term Bank Debt 230 251 242 113 760
Accounts Payable 75 94 137 173 288
Other Current Liabilities 139 185 185 185 186
Total Current Liabilities 444 530 564 471 1,234
Long-Term Debt 250 115 255 1,273 637
Provisions 0 0 0 0 0
Other Non Current Liabilities 1 2 3 3 3
Total Shareholders' Equity 3,305 3,324 3,403 3,543 4,230
Total Liab.& Shareholders' Equity 4,000 3,971 4,224 5,290 6,103
Free Cash Flow Statement 2013a 2014e 2015f 2016f 2017f
NOPLAT 151 149 126 283 835
Non-Cash Items 50 60 61 76 93
Gross Cash Flow 201 209 187 358 929
Change in Operating Working Capital 11 81 16 -20 16
Capital Expenditure -70 -29 -319 -1,083 -78
Free Cash Flow Excluding Goodwill 142 262 -117 -745 867
Investment in Goodwill, Intangibles & and Adjustment 0 0 0 0 0
Free Cash Flow Including Goodwill 142 262 -117 -745 867

15. Prime Research 15
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
Recommendation Target-to-Market Price (x)
Strong Buy x > 25%
Buy 15% < x <25%
Accumulate 5%< x <15%
Hold -5% < x < 5%
Reduce -15% < x < -5%
Strong Sell x < -25%
Stock Recommendation Guidelines
Sell -25% < x < -15%
Investment Grade Explanation
Growth 3 Yr. Earnings CAGR > 20%
Value Equity Positioned Within Maturity Stage of Cycle
Income Upcoming Dividend Yield > Average LCY IBOR
Speculative Quality Earnings Reflect Above Normal Risk Factor

16. Prime Research 16
South Valley Cement (SVCE.CA)
Initiation of Coverage
Egypt | Building Materials
April 21, 2015
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