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Securities & Investment

Month: July 2020

Investing After Covid-19: Why Invest Now

Posted on by Marwa Nakhla

  • Investing After Covid-19: Why Invest Now: Covid-19 has left the world reeling, and has led to countless infrastructural changes in societies around the globe. Consumers are becoming used to a new reality, and even as the world begins to open up again, things still aren’t back where they were six months ago. In the wake of the global change brought about by covid-19, however, it’s important to band together and support each other so that we can effectively reopen society and begin working together to move into a new future. Now more than ever, we need to help each other heal. That can look like healing through putting your investments into new and emerging industries, through supporting education and health companies that are working to rebuild society, or through supporting other economic activities. No matter what, the importance is that we band together and support each other in healing after the global pandemic. Let’s dive into what that looks like in the investment sector as we rebuild from COVID-19.

  • The Importance of Investing After Covid-19

While investing after Covid-19 may seem counterintuitive, this time is actually even more important for people looking to invest. Covid-19 has left the world reeling and in need of economic stimulation in order to get things up and running again, which is why putting your money in society is ever more important. Many businesses have continuity plans in place for opening their operations back up and for beginning to help society return to normal. These plans are taking into account widespread quarantines, travel restrictions, and school closures all while doing their best to continue operations and assist with the reopening. Investing in reopenings helps society to return to normalcy at a quicker rate and allows for you to start seeing a return on your investment much faster.

  • Investing in the Educational Sector

In the wake of a global crisis, there are several industries that can both provide better support for the economy as well as provide you with a more secure return on your finances. For one, educational institutions are a great choice for investment. As schools begin to reopen, the need for financial support is huge. Egypt is seeing huge profitability in the education sector with higher enrollment numbers in higher education institutions and new online learning platforms. Plus, as more people are stuck indoors with social distancing restrictions, the likelihood of enrolling in online classes and online learning is growing, making your investment more profitable.

  • Investing in the Healthcare Sector

One industry that certainly won’t be declining any time soon is the healthcare industry. Health care facilities are overloaded with patients suffering from covid-19, which is also putting a slow down in treating other ailments and diseases. By investing in healthcare facilities, you help these businesses to expand and support the healing of more people. Egypt’s healthcare industry has been booming in recent years, with modern technology allowing the country to offer more advanced treatments and care for patients. Egypt has also managed to keep covid-19 cases relatively low, thanks to investments in healthcare technology and infrastructure.

  • Investing In Technology

It’s not just education and health care which need strong financial backing in order to help society return to normal. Technological advancements are what make cures, treatments, and vaccines for covid-19 possible. The more support we’re able to give to the technology sector, the quicker we can begin to return to normal. Egypt is at the forefront of the hunt for a vaccine for covid-19, and researchers at Egypt’s National Research Center plan to begin human trials in the next five months. With extensive experience fighting MERS, Egypt is a country that’s already poised for success in creating a workable, lasting solution to prevent the spread of covid-19.

  • Investing in Worker Training

The last major industry where we’re seeing prolific growth and an opportunity for successful investing is in the training industry. Covid-19 has left businesses with the aforementioned contingency plans to carry out, requiring new worker training programs and different workplace protocols. Egypt has seen great success in implementing a covid-19 reopening program and is currently even beginning to allow tourists back into the nation. However, as the country leads the world in reopening travel and business operations, the need for support in creating lasting and careful training programs is also expanding.

  • Investing in Creating Strong Partnerships

Another part of the investing puzzle is partnering with investment companies that understand how to respond to global issues and economic downfall. HC is one of those teams, and with experience in not only helping to rebuild society after the decline of Covid-19 but also after many other issues that the world has faced. After both the international financial crisis of 2008 and the Egyptian revolution of 2011, HC helped investors to make informed and practical decisions that helped them rebuild their finances and achieve success through smart investments. Moving forward from Covid-19 is no different, and again requires the guidance and expertise of a team who understands financial difficulties in the wake of large-scale problems. Using the guidance and knowledge from experts who have tackled these situations before can help you to make smart financial choices that not only benefit you but which benefit society as well.

Are you ready to put your money where it matters? Reach out to the team at HC and start making investments that add value.

Egypt’s Banking Sector, Well shielded

Posted on by Marwa Nakhla

HC Brokerage just issued their report about Egypt’s banking sector asserting that it is facing the Covid-19 outbreak steadily and shared their evaluations of the three banks under their coverage, CIB, ADIB-Egypt and CA-Egypt.

  • Despite our downward GDP revision, Egypt provides attractive risk-adjusted return for carry-trade, while Egypt’s banking sector is strong enough to weather a business slowdown in 2020, in our view

  • CAPEX lending now delayed to 2021, however CIB, ADIB-Egypt and CAE are expected to maintain decent profitability, despite 2020e EPS downward revision, in our view,

  • We remain Overweight on CIB and ADIB-Egypt, and upgrade our rating for CAE to Overweight from Neutral, despite lower valuations for the 3 banks. CIB is our sector pick

Monette Doss, Chief Economist and Head of macro and financials at HC Brokerage declared that: “We lower our TP for CIB by c17% to EGP95.5/share, ADIB-Egypt by c14% to EGP21.8/share, and CAE by c21% to EGP41.0/share; and maintain an OW rating for CIB and ADIB-Egypt, while upgrade our rating for CAE to OW from N. CIB is our top pick: CIB is our top pick due to the bank’s s healthy balance sheet growth, high profitability, good asset quality and high capitalization. Even though we like ADIB-Egypt, we believe the delayed capital increase will continue to be an overhang on the share price. At current levels, we believe CAE is oversold.”

Monette explained: “Despite our downward GDP revision, Egypt provides attractive risk-adjusted return for carry-trade, while Egyptian banks are strong enough to weather a business slowdown in 2020, in our view: We believe tourism, private investment and consumer spending are the main GDP components hit by the COVID-19 outbreak in Egypt. Accordingly, we revised our FY19/20e GDP growth estimates downwards twice from 5.9% to 4.7% and now to 4.0% as we expect the economy to remain flat y-o-y in 4Q19/20e and account for 9M19/20 actual GDP growth of 5.4%. We also revised our FY20/21e GDP growth downward to 3.7% from 6.1% previously. In order to combat the negative effect of the COVID-19, the Egyptian government and the Central Bank of Egypt (CBE) launched several initiatives to support the private sector including a 300 bps rate cut by the CBE in March to stimulate economic activity. Using the Sharpe ratio for different emerging markets, we believe Egypt’s current treasury yields continue to offer relatively attractive risk-adjusted return coupled with low currency volatility. This in our view should lead to regained foreign inflows into the Egyptian treasuries market and therefore result in cooling off T-bills yields as well as banks’ cost of funding, while we expect corridor rates to remain unchanged for the rest of 2020. We believe that Egypt’s strong economic fundamentals will support banking sector profitability, despite our 2020e EPS downward revision.

“CAPEX lending now delayed to 2021. CIB, ADIB-Egypt and CAE to show decent profitability, in our view, despite our 2020e EPS downward revision on lower balance sheet and non-interest income estimates and higher provisioning: The outbreak of COVID-19 since mid-March, has led to a slowdown in business activity in Egypt as the government has implemented some precautionary measures including the imposition of a partial curfew and halting some transportation means. As a result, companies operating in Egypt have decided to delay their CAPEX plans to 2021 and only maintained working capital borrowing. The CBE launched several initiatives to ease the burden on individuals and businesses, including delaying loan repayment for personal and corporate loans for a 6-month period and waiving online fees and commissions. We believe that these initiatives will lower Egyptian banks’ 2020 profitability and pressure its cash flows, however other CBE initiatives of offering subsidized loans to the tourism, industrial, contracting and agriculture sectors provided a breather as the CBE compensates banks for the difference between mid-corridor rate + 2% and the subsidized 8% interest rate paid by these corporates. We revised downward our 2020e deposit estimates for Commercial International Bank, Abu Dhabi Islamic Bank-Egypt, and Crédit Agricole Egypt by an average of c11% in order to account for rising unemployment as well as significant decline in business activity. Similarly, we revise downwards our banks’ 2020e loan estimates by an average of c12% as we now expect investments to shrink by c12% in 1H20e, while maintained fund utilization at c106% for CIB and ADIB-Egypt and at c95% for CAE, as banks allocate their excess liquidity to government treasuries. Looking at asset/liability duration gaps we believe CIB is well positioned to achieve healthy NIMs over 2020e, while high L/D ratio and high local currency portion of loans support CAE’s NIMs. ADIB-Egypt’s significantly long liability duration should result in the lowest 2020e NIMs compared to the 2 other banks, in our view. We revise downwards our 2020e net profit estimates by an average c29% for the 3 banks on lower non-interest income and higher provisioning.” Monette Doss added.

Egypt’s Food & Beverage sector weathering the pandemic

Posted on by Marwa Nakhla

In a recent report, HC Brokerage presented their analysis of Egypt’s food & beverage sector in Egypt and a valuation of the four stocks within their coverage universe in light of the COVID-19 outbreak. HC maintains Overweight for Juhayna, Domty, Oburland and Edita.

  • While the coronavirus outbreak hindered a lot of industries, staples players benefited from panic buying and stockpiling of necessities

  • We expect a more rationalized consumer spending as economic recovery takes time to materialize. We differentiate between stocks based on elasticity of demand, cost outlook, pricing, and profitability

  • Maintain Overweight for all our Egypt’s Food & Beverage sector coverage, especially post recent sell-off. Juhayna is our top pick

Noha Baraka, the Head of Consumers at HC commented that: “Demand for staple products proved to be resilient in light of COVID-19 outbreak: Since the outbreak of the coronavirus in mid-March, the Egyptian government implemented precautionary measures to contain its spread, including a partial curfew and the halt of some transportation means, which resulted in panic buying and stockpiling of essential staple goods by Egyptian consumers. This was further helped by higher demand during Ramadan. On the other hand, companies delivering snack food products witnessed a demand slowdown during the same period of time, which we attribute to less commuting, the closure of schools, universities and sporting clubs, and not to mention consumers shying away from ready-made meals and shifting to healthier options as a precautionary measure. By the end of June, the government started lifting most of these measures, which will help stimulate economic activity, reduce unemployment, which spiked to 9.1% in April, and ultimately improve private consumption which we estimate to grow to 2.0% in FY20/21 from an estimated figure of 0.87% in FY19/20e. Having said that, we believe that the economic slowdown witnessed in the first 4 months of 1H20 took its toll on consumer purchasing power, suggesting that private consumption recovery will take time to materialize, and lead to a more rationalized spending skewed towards staple goods.”

“Companies to fare differently in 2020e; with Juhayna benefiting the most: Demand for staples is proving to be resilient, coupled with the continuation of a favorable cost outlook, which should bode well for F&B companies’ margins. We differentiate between companies based on elasticity of demand, cost outlook, pricing, profitability and FX exposure. Based on this, we see Juhayna standing out in terms of profitability mainly due to its products diversity in unsaturated segments and decent market share. On the contrary, Edita is the most exposed name, in our view, as it mainly targets on-the-go consumption and sells less essential products. We see Obourland offering the best exposure to the cheese sector, across our coverage, given its strength as a readily available product, attainable in underserved areas, having a low exposure to governmental channels, along with its expected revamped cheese packaging with an easy-open feature, which differentiates its offerings from that of competition. Despite that, we see Domty’ s new plain bread product launch as a good shift that could make up for some of the Domty Sandwich lost sales, yet we believe the stock rerating is contingent on the recovery of its core operations.” Baraka added.

“Egypt’s Food & Beverage sector offering compelling valuation; Juhayna is our top pick: The sell-off across the board left valuations undemanding for our Egypt’s Food & Beverage coverage universe, leading us to maintain our Overweight ratings for the 4 companies. We choose Juhyana as our top pick as we believe it is a strong defensive play during economic uncertainty given its well-diversified portfolio with strong presence in staple offerings, which suggests sustained demand. Also, being the most liquid stock across our F&B coverage sets it apart, in our view. We keep the company’s 12-month TP unchanged at EGP10.6/share. We also raise our 12-month TP for Obourland c9% to EGP10.0/share. Although we are fond of Obourland’s business model, yet a catalyst is needed for stock rerating, in our view. Due to lower cheese volumes mainly from lost government sales and lower bakery margins, we cut our 12-month TP for Domty c27% to EGP8.4/share. As for Edita, we cut our 12-month TP c32% to EGP14.7/share, mainly on a weaker demand for snack-food products in 2020e, but still maintain our Overweight ratings for both, on share prices’ weaknesses. We also like Juhayna for its attractive yields and multiples, however, it has higher multiples than Obourland, which we believe is being penalized for its lower stock liquidity. Juhayna is offering a 2021e dividend and FCF yields of c6%, and c12%, respectively, and trading at a 2021e EV/EBITDA multiple of 5.3x, a c44% discount to its peers’ implied multiple of 9.4x.” Baraka Concluded.