Our interest in SNEP stock comes in an unprecedented international context marked by the sustainability of PVC prices at profitable levels rarely observed. During the last three quarters, the price of this product has remained above 1,700 $/T against less than 1,000 $/T historically. According to professionals in the sector, this situation should continue for at least the next two years. At the origin of this strong conviction, the visible impact of economic stimulus plans which limit the availability of PVC on the international market.
In this favorable context, the forecasts of Chemicals & Parachemicals operators have been revised upwards on an international scale. Based on a sample of 8 companies comparable to SNEP, the consensus forecast for their average EBITDA margin was raised by +5.8 pts, from a normative level of 17.3% to 23.1% in 2021E.
Assuming the sustainability of current PVC prices, SNEP would be able to significantly improve its profitability levels. To this end, we note several reasons that lead us to believe in SNEP, namely: (1) A positioning as the sole producer of PVC in Morocco allowing it to benefit from an optimal utilization rate of 80%, (2) A proven global competitiveness through a sale price 10% lower than imports and finally, (3) The entry into service of the new capacity increase project resulting in an increase in PVC sales volumes of +29.0% in H1-22.
To date, two major scenarios arise during the period 2022E-2023E :
- Optimistic scenario : The sustainability of the PVC price levels observed during the last three quarters (i.e. above 1,700 $/T) would allow SNEP to reach an average earning power of MAD 160 Mn equivalent to an attractive target P/E of 11.2x ;
- Central scenario : Decline in PVC prices to return to around 1,500 $/T would, according to our estimates, result in an average earning power of MAD 116 Mn over the forecast period, i.e. a relatively attractive target P/E of 15.5x.
At the end of our exercise of updating SNEP's growth forecasts, which is based on the "Conservative scenario", we revised our target price from MAD 685 initially to MAD 900 currently. On the basis of a price of MAD 750 on November 12th 2021, the stock offers an upside potential of 20% on the stock market, achievable during the year 2022. Therefore, we reiterate our recommendation BUYING the SNEP stock.
