Pegas can overcome unrest-induced Egypt plant closure: bank

19 August 2013 15:04  [Source: ICIS news]

LONDON (ICIS)--Substantial polyethylene (PE) and polypropylene (PP) buyer Pegas Nonwovens should avoid taking a hit to its earnings as long as the security situation in Egypt does not completely collapse, an investment bank said on Monday.

Czech Republic-based Pegas Nonwovens has suspended the trial operation of its new synthetic nonwoven textiles production line in Egypt because of the violent civil unrest in the country.

In a note to investors, Prague-based investment bank WOOD & Company said: “The plant supplies Procter & Gamble's new regional diaper [nappy] production hub for the MENA [Middle East & North Africa] region and, short of a complete collapse in the security situation, we assume the 2014-onward earnings will not be affected and so would use the current situation to buy the [Pegas Nonwovens] stock on weakness.”

"With respect to the escalating tensions in the country, the transport of workers to the production plant [in an industrial zone near the 6th of October City, 35 kilometres outside Cairo] presented an unnecessary level of risk that we do not wish to undertake,” said Frantisek Rezac, CEO of Pegas Nonwovens.

He added: “The date for resuming operation of the production line will depend on further developments of the Egyptian crisis. We can only hope that the situation will stabilise in the near future and that the country will return to normal.”

Approximately 85 Egyptian and 15 foreign staff are employed at the production plant, which has already made some commercial deliveries during the trial phase to date, Pegas Nonwovens said.

In April last year, Erste Group Bank upgraded its recommendation on Pegas Nonwovens stock after analysing the company’s plans to possibly double its production capacity by adding production lines in Egypt and an additional line in the Czech Republic.

However, the upgrade report noted that the main risks to the expansion plan were linked to the political uncertainty following the ousting of the previous Mubarak regime.

Approximately 45,000 tonnes/year of the extra capacity of 75,000 tonnes/year planned by Pegas Nonwovens – which produces synthetic nonwoven textile products such as nappies from PP and PE filaments – is to be provided by two production lines in Egypt.

The first phase of this investment, securing 20,000 tonnes/year by the end of this year, requires, according to an Erste estimate, an investment of around €55m–60m ($73m-80m).

($1 = €0.75)

By: Will Conroy
+44 20 8652 3214

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