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Securities & Investment

Category: HC News

HC: We expect the MPC to leave interest rates unchanged at its upcoming meeting.

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the CBE to leave the interest rates unchanged in its upcoming meeting scheduled November 21, 2024

Financials analyst and economist at HC, Heba Monir commented: “Egypt’s external position remains stable while reflecting improvement, (1) with net international reserves (NIR) increasing by USD205m m-o-m in October to USD46.94bn from USD46.737bn in September, (2) the banking sector net foreign assets (NFA) position increasing by 6.0% m-o-m to USD10.3bn in September, reversing a net foreign liability (NFL) position of USD26.8bn a year earlier, and (3) Egypt’s 1-year CDS dropping to 349 currently, from 857 bps on 1 January. On the economic activity front, the PMI index rose slightly to 49.0 in October, 48.8 in September, recording below the 50.0 neutral, signaling that the non-petroleum sector in Egypt is still not growing. However, the sub-components to the PMI offered a mixed picture, with only the Output and New Orders indices keeping the headline measure below the neutral mark. And although October’s inflation of 26.5% came lower than our expectation of 28.5% despite the government increasing gasoline prices by c11–13%, and diesel prices by c17%, in mid October, we expect inflationary pressures to persist as November is expected to capture the full effect of the energy price increase. We also see Egypt’s carry trade as still attractive given no expected sizable EGP devaluation until year-end and in 2025 and our estimate of positive real interest rate of 2.9% on Egypt’s latest 12-month average T-bill rate of 26.241%, net of 15.0% tax on US and UK investors and factoring in our inflation estimate one year from now of 19.4%. So, given the inflationary pressures and Egypt’s expected external debt repayment in November of around USD4bn based on news flow and its repayment of USD1bn of its dues to foreign oil companies in November, we expect the MPC to leave interest rates unchanged at its upcoming 21 November meeting.”

It is worth mentioning that, in its 17 October meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation inched up to 26.5% y-o-y in October from 26.4% y-o-y in September, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.1% m-o-m compared to a 2.1% m-o-m increase in September. On the global front, on 6 November, the US Federal Reserve cut the federal funds rate by 25 bps to 4.50-4.75, bringing total cuts to 75 bps after it hiked rates by 525 bps since it started its tightening policy in 2022. Also, the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility by 25 bps in October to 3.40%, 3.65% and 3.25%, respectively, bringing total cuts to 75 bps, after it hiked rates by 250 bps since it started its tightening policy in 2022. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 21 November MPC meeting.

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP7bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.

HC: We expect Juhayna to preserve its market share and margins

Posted on by Marwa Nakhla

Juhayna Food Industries

  • We expect relative inflation easing to improve consumer demand and estimate JUFO’s volume to grow at a 2025–29e CAGR of c5%
  • Capitalizing on its leading dairy local market share, we expect JUFO to preserve its market share, margins, and increase exports. We estimate its 2025-29e EBITDA and EPS to grow at c19% and c24%, respectivel

  • In a recent report, HC Brokerage resumed their coverage of Juhayna Food Industries forecasting JUFO to preserve its market share and margins.

Pakinam El-Etriby, Consumers Analyst at HC commented that: “ JUFO navigating a challenging 2021–24 operating environment: In 2021, JUFO experienced a c3 pp y-o-y decline in gross profit margin (GPM) to c29% from a previous three-year average of c31%, impacted by the 2020 COVID-19 lockdowns, disrupting supply chains and energy and commodity prices. As economies began to reopen in 2021, the supply bottlenecks led to further inflationary pressures. In February 2022, the Russian-Ukrainian war worsened the situation, causing additional global supply chain disruptions, leading to higher commodities prices, with crude oil prices surging c40% y-o-y in 2022 after a c64% y-o-y increase in 2021, corn prices rising c19% in 2022 and c60% y-o-y in 2021, soybean prices increasing c13% y-o-y in 2022 and c44% y-o-y in 2021, sugar prices increasing by c5% y-o-y in 2022 and c39% y-o-y in 2021, and skimmed milk powdered (SMP) increasing c15% in 2022 and c23% y-o-y in 2021.  In 2023, while commodity prices began to normalize – with oil prices dropping by c17% y-o-y, corn c19%, soybean c9%, and SMP c31% – JUFO’s 2023 GPM remained below c30% due to the several EGP devaluation rounds in October 2022 of c19% and January 2023 of c18%, as JUFO imports more than c30% of its COGS, mainly packaging and SMP, and to a lesser extent concentrates. Nevertheless, in 1H24, JUFO’s GPM improved by c10 pp y-o-y to c35%, helped by the March 2024 economic reforms and the Ras El Hekma investment deal, allowing it to source its USD needs from banks at the official rate, c4% y-o-y lower SMP price, and higher exports margin from concentrates. JUFO’s concentrates revenue (c15% of 1H24 total revenue, up from c9% in 1H23) benefited from the global supply shortage of oranges (expected to last for three years) due to climate change and the March 2024 EGP devaluation, increasing its competitiveness and export margins.

“We forecast JUFO’s revenues to grow at a 2025–29e CAGR of c19% on higher volumes and prices: We expect a relative moderation in inflation in 2025 to a yearly average of c23% from c30% in 2024 to help consumer demand recover. We project JUFO’s volumes to grow at a CAGR of c5% and average selling prices at c13% over 2025–29e. In 2024e, we expect revenues to grow by c48% y-o-y to EGP23.9bn, largely due to a threefold y-o-y increase in concentrate exports to EGP3.24bn (c14% of total sales from c6% in 2023), partially hedging JUFO’s FX needs. In 2025e, we expect revenues to rise by c26% y-o-y to EGP30.0bn, mainly driven by a c25% y-o-y increase in blended selling prices to EGP61.7/liter and a c31% y-o-y increase in concentrates revenue to EGP4.70bn. Starting 2026e, we expect interest rate cuts, declining inflation, and salary adjustments to accelerate consumer demand recovery and drive revenue growth, leading us to estimate a 2025-29e revenue CAGR of c19%.” Pakinan added.
“We estimate JUFO’s EBITDA and EPS to grow at a 2025–29e CAGR of c19% and c24%, respectively, on healthy revenue growth and higher export rebates despite higher net interest expense: In the absence of any external shocks, we generally expect the company to pass additional costs onto consumers to preserve its margins. We expect JUFO’s GPM to expand to 32.5% in 2024e from 26.2% in 2023, despite higher transportation costs in 4Q24 due to the c17% increase in diesel price on 18 October. However, in 2025e, we project a slight c1 pp y-o-y decline to 31.4% and to increase slightly to c32% in 2026e. In 2024e, we forecast EBIT margin to expand by c7 pp y-o-y to 19.8% on the GPM expansion and c4x y-o-y higher export rebates to EGP392m, and project EBIT margin to average c19% over our 2025–29e forecast period, with export rebates growing at a 2025–29e CAGR of c17%. Accordingly, we estimate JUFO’s EBITDA to grow at a 2025–29e CAGR of c19%. Despite expected higher net interest expenses in 2024e and 2025e due to JUFO’s higher EGP-denominated debt – reporting a net debt of EGP2.14bn as of June 2024, up from EGP1.21bn as of 30 March 2024 and EGP150m as of December 2023 – we expect net profit margin (NPM) to expand by c5 pp y-o-y to 11.3% in 2024e, and 12.2% in 2025e. However, starting 2026e, we forecast a gradual increase in NPM to 14.0% by 2029e, driven by easing interest rates. We estimate JUFO’s EPS to grow at a 2025–29e CAGR of c24%.” Consumers Analyst concluded.  

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

 

For further information, please contact:

Research@hc-si.com

HC:  We believe that the MPC will opt to delay the cut until later in 2024

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the MPC to keep the interest rates unchanged in its upcoming meeting scheduled October 17, 2024

Head of Equity Research at HC, Nemat Choucri commented: “Egypt’s external position showed signs of improvement with (1) the 4Q23/24 balance of payments (BoP) surplus widening by c9x y-o-y and c22% q-o-q to USD5.55bn, (2) the banking sector remaining in a net foreign assets (NFA) position of USD9.73bn in August, however narrower by USD3.54bn m-o-m, and reversing a net foreign liability (NFL) position of USD25.9bn a year earlier, (3) net international reserves (NIR) increasing by USD140m m-o-m in September to USD46.737bn from USD46.597bn in August, and (4) Egypt’s 1-year CDS dropping to 407 currently, from 857 bps on 1 January. However, Egypt’s business activity remains subdued due to the high interest rate environment impacting private sector investments. Egypt’s September PMI index dropped below the 50.0 mark to 48.8 after it surpassed it in August, signaling a renewed decline in business conditions across the Egyptian non-oil private sector, as rising price pressures dampened sales and slowed business activity and 4Q23/24 GDP reached 2.4%, translating into a GDP growth of 2.4% for FY23/24, down from 3.8% a year earlier, also impacted by geopolitical tensions. To overcome this, the government plans to announce investment incentives and a tax relief package to encourage private local and foreign investments to drive GDP growth. Regarding inflation, we expect the headline inflation to accelerate by 1.0% m-o-m to 26.5% y-o-y in October due to the electricity price increases to the household, retail, and industrial sectors in September and potentially higher energy prices in October with the government’s committee in charge of the indexation of gasoline and diesel prices scheduled to meet in October to discuss 4Q24 gasoline and diesel prices, and the Egyptian Natural Gas Holding Company (EGAS) considering increasing natural gas prices for the industrial sector by c10–30% depending on each industry, due to higher natural gas import costs. Regarding interest rates, Egypt’s latest 12-month average T-bill rate of 26.238%, offers a real interest rate, of 3.00% (net of 15.0% tax on US and UK investors and using our inflation estimate one year from now of 19.3%), higher than the real interest rate on the US 12-month T-bill of 1.86%, yet lower than the real interest rate on Turkey’s 12-month T-bill rate of 17.4%. So although a rate cut is needed to drive GDP growth, we believe that the MPC will opt to delay the cut until later in the year given the expected higher inflation in October, and hence we expect the MPC to maintain rates at its 17 October meeting.”

It is worth mentioning that, in its 5 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation accelerated to 26.4% y-o-y in September from 26.2% y-o-y in August, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 2.1% m-o-m compared to a similar 2.1% m-o-m increase in August. On the global front, on 19 September, the US Federal Reserve cut the federal funds rate by 50 bps to 4.75-5.00% after it hiked rates by 525 bps since it started its tightening policy in 2022. Also, the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility, by 25 bps in June and 25 bps in September to 3.65%, 3.90%, and 3.52%, respectively.

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP7bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.

 

HC expects the CBE to maintain the interest rates, waiting for more inflation deceleration

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the global conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in its upcoming meeting scheduled September 5th, 2024

Financials analyst and economist at HC, Heba Monir commented: “We expect urban inflation to decelerate to 24.9% y-o-y for August on a favorable base effect. However, we anticipate a 1.0% m-o-m increase on the recent energy and transportation cost hikes at the beginning of August. Egypt’s PMI index surpassed the 49.0’s level over the last three consecutive readings, coinciding with the deceleration in inflation. Egypt’s external position showed a stable outlook, as follows: (1) Egypt received USD820m from the IMF, representing the third tranche of its USD8.0bn EFF, (2) the banking sector’s net foreign assets (NFA) narrowed by USD1.27bn m-o-m to USD13.0bn in June from USD14.3bn in May, reversing a net foreign liability (NFL) position of USD27.0bn a year earlier. We attribute the m-o-m lower NFA to probably normalized FX inflows, (3) net international reserves (NIR) increased c33% y-o-y and 0.2% m-o-m to USD46.5bn in July, and deposits not included in the official reserves rose 2.11x y-o-y and 3.0% m-o-m to USD9.86bn in the same month, (4) Egypt’s REER index decreased to 91.9 in July from 126 in January, and the NEER index also retreated to 16.6 from 25.5 in January, according to Bruegel data, (5) Egypt’s 1-year CDS recorded 403 currently, down from its figure of 857 bps on 1 January. On the global front, the US sovereign 12M rate also retreated to 4.40% from its peak at 5.23% on 30 April. Thus, our interest rate model estimated the required interest rate by investors on the 12-month T-bills at 33.1%, which implies a real positive interest rate of 7.1% (after deducting a 15% tax rate for European and US investors and based on our 12M average inflation rate forecast of 21.1%), higher than the estimated positive interest rate of 1.2% over the latest 12M T-bill rate of 26.2%. All these factors pave the way for interest cuts; however, we expect the MPC to maintain rates unchanged at the 5 September meeting, waiting for more inflation deceleration, given recent electricity bill hikes scheduled to take effect in September.”

It is worth mentioning that, in its 18 July meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation decelerated to 25.7% in July from 27.5% in June, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices inched up 0.4% m-o-m, compared to an increase of 1.6% m-o-m in the previous month. On the global front, the US Federal Reserve maintained the target range for the federal funds rate at 5.25–5.50% after it hiked rates by 100 bps in 2023 and 425 bps in 2022, with a total of 525 bps since it started its tightening policy, while the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility by 25 bps to 4.25%, 4.50% and 3.75%, respectively after nine months of holding rates steady on an improved inflation outlook. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 5 September MPC meeting

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP7bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.

 

 

 

HC: TMG Holding witnesses exponential growth

Posted on by Marwa Nakhla

TMG Holding — Growing exponentially

  • Recent business expansions create sizeable value, offer exposure to regional economic growth, more recurring income, and hedge against EGP weakness

  • Hospitality expansions to boost recurring revenue in the short term, while Banan to positively impact the P&L by 2029e. We expect a 4-year CAGR of c42% in revenue, c58% in EBITDA, c78% in net profit

 

HC Brokerage issued their update about Egypt’s real estate sector through shedding the light on TMG Holding performance and studied how the aggressive expansionary mode affected its share’s price and turnover.

Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “ An aggressive expansionary mode positively reflected on TMGH’s share price and turnover: TMG’s past year was full of mega expansions and updates. Most notably, the updates included, 1) announcing in September 2023 the development of a 10m sqm mixed-use project in Saudi Arabia in partnership with the Saudi National Housing Company (NHC) (with total expected proceeds of SAR40bn and investments of SAR31bn), granting it a regional foothold, substantial USD exposure and access to higher client spending power compared to Egypt, 2) acquiring in July 2023 a 51% majority stake with management rights in Legacy Hotels, in which TMGH is partnering with ADNEC Group, fully-owned by ADQ Holding, through its hospitality arm, ICON, which expands TMGH’s existing hotel portfolio of c1,000 rooms to c3,500 rooms in addition to c1,500 under development  in Egypt (currently a 2.1% market share of Egypt’s hospitality capacity, to increase to 3.0% once SouthMed hotels become operational, on our numbers), and 3) launching in July 2024 SouthMed, a mixed-use project in the North Coast, in partnership with the Egyptian government, granting the company sizeable cash flows with almost no execution risk. The updates have changed the company’s story, in our view, labeling it as a regional real estate developer and one of the largest hospitality players in Egypt. Also, this has positively reflected on its share price and turnover surpassing the USD10m average daily turnover mark y-t-d, from an average of USD1.38m in 2023. The increase in market cap led to the inclusion of the stock in the MSCI Egypt Index as part of the May 2024 semi-annual revision of the MSCI Global Standard Indexes after it was part of the MSCI Egypt Small Cap Index.

 

“ We expect strong real estate cash collections of EGP841bn over our 2Q24—30e forecast horizon: We estimate EGP841bn in collections over 2Q24—30e, including collections from existing receivables, new sales in the launched areas of Egypt projects, Banan, and income received from SouthMed sales which we estimate at EGP144bn. We estimate EGP577bn of real-estate revenue recognition over 2Q24–2030e, accounting for the outstanding backlog of EGP180bn and EGP397bn from new sales from the launched projects’ phases. We assume total real estate cost recognition of EGP368bn over this period, implying an average future gross profit margin of c36% for the launched projects. We expect hospitality revenue to grow at a 2023—27e CAGR of c69%, positively impacting TMGH’s margins and profitability. We expect a hospitality gross profit margin of c44% over 2024—30e. For rental, club, and other revenue, we expect a 2023—27e CAGR of c18% and a gross profit margin of c54% over 2Q24–2030e. TMGH has been increasing its third-party sales over the past several quarters, on which we estimate it receives a c8% share of sales; accordingly, we account for such sales over our forecast period. As profitability increases, we expect higher dividends starting 2026 (backed by Noor deliveries) and forecast a DPS of EGP3.92 then.” Mariam Elsaadany concluded.

 

HC expects the CBE to maintain the interest rates, Egypt’s credit outlook improvement is one of the reasons

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the global conditions, HC Securities & Investment expects the CBE to maintain the interest rates in its upcoming meeting scheduled July 18th, 2024, Egypt’s credit outlook improvement is one of the reasons

Financials analyst and economist at HC, Heba Monir commented: “We expect the MPC to maintain the overnight deposit and lending rates at its upcoming meeting despite (1) the y-o-y deceleration in headline inflation for four consecutive months, despite m-o-m increases, on favorable base effect, (2) improved FX liquidity post the Ras El Hekma investment deal, which helped increasing net international reserves (NIR) by c33% y-o-y and c0.6% m-o-m to USD46.4bn in June and reversing the net foreign liabilities (NFL) position of the banking sector of USD29.0bn in January into a net foreign assets position (NFA) of USD14.3bn in May, (3) the improvement in Egypt’s one-year CDS to 303 bps currently from 857 bps on 1 January, and (4) the recent improvement in Egypt’s credit outlook by Moody’s to Positive from Negative and to Positive from Stable by Fitch and S&P. However, our interest rate model estimated the required interest rate by investors on the 12-month T-bills at 36.1%, corresponding with the maximum yields requested by banks and reflected in the high bid-to-cover ratios currently witnessed, which implies a real positive interest rate of 7.9% versus a current minor negative real interest rate of 0.6% (after deducting a 15% tax rate for European and US investors and based on our 12M average inflation rate forecast of 22.8%) over the latest 12M T-bill rate. Since the 6 March EGP floatation, the 12M T-bill rate rebounded to 26.1% currently from its lowest level of 25.7% in early April, yet it remains lower than its peak at 32.3% in early March. Therefore, given the current negative real interest rate on treasuries and the possibility of higher inflation following the imminent revision of household electricity and fuel prices in 3Q24, we anticipate the MPC will keep interest rates unchanged.”  

It is worth mentioning that, in its 23 May meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation decelerated to 27.5% in June from 28.1% y-o-y in May, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.6% m-o-m, compared to a decrease of 0.7% m-o-m in the previous month. On the global front, the US Federal Reserve maintained the target range for the federal funds rate at 5.25-5.50% after it hiked rates by 100 bps in 2023 and 425 bps in 2022, with a total of 525 bps since it started its tightening policy, while the European Central Bank (ECB) ECB lowered the key ECB interest rates by 25 bps after nine months of holding rates steady on an improved inflation outlook. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 18 July MPC meeting.

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP7bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.

 

HC expects outstanding bank’s profitability in 2024 for CIB

Posted on by Marwa Nakhla

Commercial International Bank (CIB)

  • Egypt’s favorable economic structural reforms entail monetary and fiscal tightening, enabling private sector growth and currency liberalization, making the Egyptian banking sector a key beneficiary of these reforms
  • We expect outstanding profitability for COMI in 2024 as a result of the expected NIM expansion, while CAPEX loan growth would be delayed to 2025, in our view

  • HC Brokerage resumes coverage on Commercial International Bank expecting outstanding bank’s profitability in 2024 as a result of the expected NIM expansion.

Economist and financial analyst at HC, Heba Monir commented: “The Ras El Hekma investment deal improved Egypt’s external position and outlook: The Egyptian economy restored confidence after concluding the Ras El Hekma USD35bn investment deal with the UAE in February 2024. The disbursement of the first and second cash tranches worth USD24bn, helped narrow the banking sector’s net foreign liabilities (NFLs) significantly by c85% y-o-y to USD3.64bn in April, from USD29bn in January 2024. On 6 March, the Central Bank of Egypt (CBE) hiked policy rates by 600 bps, raising them by 800 bps y-t-d and 1,900 bps since it started tightening rates in March 2022, and allowed market forces to determine the exchange rate, leading to an EGP devaluation of c35% y-t-d to EGP47.7/USD currently. Following this, and given the impact of the Gaza war on tourism and Suez Canal receipts, the International Monetary Fund (IMF) and the Egyptian authorities reached a staff-level agreement on a set of comprehensive policies and reforms needed for the Extended Fund Facility (EFF) arrangement, increasing it significantly to USD8.0bn from the previously approved USD3.0bn in December 2022, leading to the disbursement of USD820m in April and another USD820m to be disbursed in June. The European Union (EU) also pledged a EUR7.4bn (USD8.06bn) aid package for Egypt to be disbursed through 2027. All this reflected positively on Egypt’s economic and banking sector credit ratings; S&P Global Ratings and Fitch Ratings upgraded Egypt’s economic outlook to Positive from Stable and Moody’s to Positive from Negative. Despite these positive developments, we do not expect CAPEX lending growth before 2025, given the prohibitive high borrowing cost and our expectation of delayed monetary easing to late 2024 or early 2025. Yet, we expect banks to benefit in 2024 from the higher treasury yields and high deposit auction rates, leading to unusually high net interest margins (NIMs).”

“We expect solid banking sector profitability in 2024 due to high treasury yields and real growth in loans: We forecast the banking sector’s loans to grow by c31% y-o-y to EGP7.25trn in 2024, mainly driven by EGP loans to finance working capital needs and inflated by the EGP devaluation. Given the high-interest rate environment, we do not expect CAPEX lending to materialize before 1H25. In January 2024, the state-owned National Bank of Egypt (NBE) and Banque Misr introduced a one-year certificate of deposits (CDs) at a 27.0% interest rate paid annually. Following the 6 March EGP devaluation, they introduced in March a three-year declining interest rate CDs paying interest annually of 30.0% in the first year, 25.0% in the second year, and 20.0% in the third year. In January 2024, some private banks like Commercial International Bank (COMI) followed suit and issued three-year CDs at a monthly 20–22% interest rate while setting a minimum value per CD of EGP0.1–5.0m. Therefore, we estimate market deposits to increase by c27% y-o-y to EGP13.7trn in 2024. Regarding profitability, we expect local currency NIMs to continue expanding, given the high treasury yields and high interest rates. We see room for higher treasury yields by 100–200 bps if inflation accelerates, which would represent an upside risk to our numbers. Regarding asset quality, we forecast that large to medium-cap banks will report good asset quality, as most of them increased their provisions charges during 4Q23. Meanwhile, we could see higher NPLs for small-cap banks. As for the capital adequacy ratio (CAR), most banks’ CARs are above the CBE’s minimum requirement, and if they happen to be impacted by the EGP devaluation, we expect them to recover, helped by their solid profitability.” Heba Monir added.

HC’s economist concluded: “We forecast COMI’s net income to grow at a 5-year CAGR of c24% while maintaining its leading market share: We forecast COMI’s net income to grow at a 5-year CAGR of c24% from 2023–28e, with a c70% y-o-y growth in 2024e to EGP50.4bn on higher interest rates, the EGP devaluation, and a favorable deposit mix, as its current account savings accounts (CASA) represent c55% of its total deposits. We estimate its NIM to increase to 9.57% in 2024e from 7.75% in 2023e, with an ROE of 49.8%, up from 37.5% in the previous year. We forecast COMI to maintain its attractive deposit market share, which we estimate at 6.4% in 2024e, growing its deposits by c23% y-o-y to EGP835bn in 2024e, on our numbers, and we estimate its loan market share at 4.9% in 2024e, growing its loan portfolio by c29% y-o-y to EGP303bn in 2024e to finance corporates’ higher working capital needs, inflated by the c35% EGP devaluation. We expect COMI to report an adequate asset quality, with NPLs of 4.65% of gross loans, higher than the 3.59% it reported in 2023, due to more volatile business conditions and the precautionary measures required by the expected credit loss (ECL) model of IFRS 9. We forecast the bank to record a lower coverage ratio of 276% in 2024e from 305% in 2023 due to its good provisioning and the sound credit profile of its corporate clients. We estimate its net loan-to-deposit (L/D) ratio to increase to 36.3% in 2024e from 34.8% a year earlier. We estimate the bank’s financial investments holdings to surge by c39% y-o-y to EGP378bn, representing c45% of customer deposits in 2024e from c40% in 2023 due to the attractive treasury yields. We expect COMI’s CAR to increase to 30.3% in 2024e from 26.2% in 2023.”

 

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

 

 

HC Brokerage awarded best Forecaster of Egypt’s Fiscal Balance – 2024 by Focus Economics

Posted on by Marwa Nakhla

For the second year, HC Brokerage awarded an Egypt Best Forecaster in one of Focus Economics’ macro forecasts categories

  • HC Brokerage’s Research Team has been awarded for its exceptional performance for the second consecutive year from the prestigious Focus Economics, winning the Best Forecaster of Egypt’s Fiscal Balance in the 2024 FocusEconomics Analyst Forecast Awards.

This remarkable achievement is a testament to the team’s proactive efforts in building robust relationships with a diverse range of experts and sources, enabling them to gain valuable insights into economic trends and events, improving the accuracy of their forecasts, and earning them well-deserved recognition in the industry.

FocusEconomics is a leading provider of economic analysis and forecasts for 198 countries in Africa, Asia, Europe, the Middle East, and the Americas, as well as for 30+ key commodities. Each month, FocusEconomics surveys over 1,500 economic experts from national and international banks, top financial institutions, and economic research companies to obtain their projections for the main economic indicators and elaborate the Consensus Forecast, which is the average of all individual forecasts. FocusEconomics has established a solid reputation among the most renowned financial institutions, multinational companies, consulting firms and government agencies as a reliable source for timely and accurate business intelligence.

Hassan Choucri, Managing Director of HC Brokerage, expressed his pride in this achievement for the second year in a row, he added: “HC continues to grow its capacities in providing accurate forecasts and analysis related to the Egyptian economy indicators in general, especially in light of the economic and geopolitical developments the world is witnessing today. We are always keen to maintain our position as a leading provider of financial research services in the Egyptian market through a wide range of solutions.”

In 2023, HC Brokerage research team won the prestigious “The Best Overall Forecaster for Egypt in the 2023 Focus Economics Analyst Forecasts Awards”. The Research team also secured the top spot in inflation forecasts and ranked third in exchange rate and fiscal balance forecasts.

It is worth noting that HC Brokerage is an affiliate of HC Securities & Investment– the full-fledged investment bank has consistently maintained its position as a dynamic participant in the region. The company’s primary objective is to support its partners, clients, and staff in achieving their goals by providing exceptional financial services in various markets across the region.

 

 

HC Brokerage and Avior Capital Markets fourth Egypt Virtual Conference

Posted on by Marwa Nakhla

  • Over 4 days 27-30 May, HC Brokerage and Avior Capital Markets hold their fourth Egypt Virtual Conference – “Avior – HC EGYPT VIRTUAL CONFERENCE May 2024”

27 May 2024

The Avior-HC Egypt Virtual Conference starts on 27 May and will run until 30 May, offering financial institutions from the US, Canada, Europe, South Africa, and Egypt insights on compelling investment opportunities within Egypt’s leading listed companies across multiple sectors. Investors will e-meet representatives of some 25 listed companies on the Egyptian Exchange (EGX) through group and one-on-one meetings.

The Deputy Governor of the Central Bank of Egypt (CBE), Mr. Rami Abulnaga, is the keynote speaker of the opening session of the conference.

Hassan Choucri, Managing Director of HC Brokerage, said: Our fourth initiative, in cooperation with Avior, comes within our relentless endeavor to promote investment opportunities in Egypt, especially in light of the current global economic conditions.

For Further details on Avior Capital Markets, please visit: https://avior.co.za/

For Further details on HC Brokerage, please visit: https://www.hc-si.com/

About Avior Capital Markets

Avior Capital Markets (Pty) Ltd is an independent, globally recognized capital markets research and trading firm providing in-depth and insightful research in a broad range of equities, fixed income, and derivatives in South Africa and Sub-Saharan Africa. Avior Capital Markets US LLC is a FINRA registered broker-dealer (CRD # 172595) formed for that purpose in the State of Delaware with its principal office at 630 Fifth Avenue, 45 Rockefeller Plaza, New York, 10111.

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

For further information, please visit

www.hc-si.com

HC expects the CBE to maintain the overnight deposit and lending rates

Posted on by Marwa Nakhla

  • Based on Egypt’s macro economy developments, HC Securities & Investment expects the CBE is to most likely keep the policy rates unchanged in its upcoming meeting scheduled May 23rd, 2024

Financials analyst and economist at HC, Heba Monir commented: “ We expect the MPC to maintain the overnight deposit and lending rates at its upcoming meeting given (1) the y-o-y deceleration in headline inflation for two consecutive months, despite m-o-m increases, (2) improved FX liquidity post the Ras El Hekma investment deal after receiving around USD25bn from the UAE and the IMF, which helped increasing net international reserves (NIR) by c19% y-o-y and c1.7% m-o-m to USD41.1bn in April and narrowing the net foreign liabilities (NFL) of the banking sector significantly by c81% m-o-m and c83% y-o-y to USD4.18bn in March, (3) the improvement in Egypt’s one-year CDS to 287 bps from 857 bps on 1 January, and (4) the recent improvement in Egypt’s credit outlook by Moody’s to Positive from Negative and to Positive from Stable by Fitch and S&P.

Egypt’s latest 12M T-bill rates retreated to 25.98%, implying an estimated negative real yield of c6.8%, down from its peak of 32.30% in mid-March. The decline in T-bills rates reflects a rebound in foreign holdings in treasuries by around USD11-12bn until 8 April (according to banking sector sources), following the CBE’s decision to allow market supply and demand forces to determine the FX rate, the Ras El Hekma investment deal, and resumed IMF program.

It is worth mentioning that, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) hiked the benchmark overnight deposit and lending rates by 600 bps on 6 March in a special meeting to 27.25% and 28.25%, respectively, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation decelerated to 32.5% in April from 33.3% y-o-y in March, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.1% m-o-m in April, compared to an increase of 1.0% m-o-m in the previous month. On the global front, the US Federal Reserve maintained interest rates at its current range of 5.25-5.50% after it hiked rates by 100 bps in 2023 and 425 bps in 2022, with a total of 525 bps since it started its tightening policy. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 23 May MPC meeting.”

 

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP7bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.