Orascom Construction Industries yesterday posted strong quarterly profits on the back of a buoyant fertiliser business, while analysts lauded the company's recovery in the construction sector.
Net profit in the third quarter increased by 24 per cent to US$182 million (Dh668.4m) compared with the same period last year, with revenue growing by almost 9 per cent to $1.36 billion.
Orascom's fertiliser arm drove profits. The company ranks among the world's 10 largest producers of nitrogen-based fertilisers, and prices for its product increased by a quarter in just three months.
Whereas the company was able to draw on good market fundamentals to boost the profit margins of its fertiliser sales in the short term, the revival of fortunes of the construction business holds long-term promise.
The backlog in construction business grew by almost 14 per cent between July and September this year for Orascom, Egypt's biggest publicly listed builder, on growth in the previous three months. Prior to the second quarter, Orascom's backlog shrank for six successive quarters. Having increased the size of its order book in two consecutive quarters, the company appears to have turned a corner.
"The positive surprise comes from the fact that their construction backlog has risen for the second quarter," said Heidy Rehman, a senior analyst for Citigroup. Orascom's project pipeline now stands at $5.95bn.
The construction sector in the Middle East has become increasingly competitive, as contractors pile into the market to benefit from one of the few industries to experience growth.
In spite of increasingly fierce competition, Orascom's construction group posted an earnings before interest, tax, depreciation and amortisation (Ebitda) profit margin of 15.6 per cent.
"It is generally thought that if you want to win contracts in the [Middle East and North Africa] region, you have to compromise on price, but they are still publishing pretty decent margins," said Ms Rehman.
With Abu Dhabi reining in spending on infrastructure projects, the construction sector in the Middle East is likely to become even more competitive. The Egyptian firm is exposed to the UAE market through its 50 per cent stake in the construction company Besix Group. The Belgian builder has a significant presence in the UAE, where it helped construct the Ferrari World theme park on Yas Island, and is currently completing the Cleveland Clinic in Abu Dhabi.
Citigroup regards Saudi Arabia as the main driver of construction spending in the region, and Orascom could benefit from its partnership with Saudi Bin Laden.
Healthy profits and a comeback in the construction sector have not prevented Orascom's share price suffering from the political situation in Egypt, where a popular revolt deposed Hosni Mubarak as president in February.
The company's shares have lost 23 per cent of their value since the beginning of the year, as Egypt's benchmark EGX 30 Index shed 44 per cent of its worth. Government spending is in limbo as the country awaits elections.
Longer term, the country aims to invest heavily in infrastructure projects to boost employment and government popularity, providing opportunities for Orascom.
"Orascom is a market leader, it will win projects. Egypt will look to spend to create jobs," said Ms Rehman.