FAB «Al Awal» Daily Cumulative Return Fund for Liquidity is re-opened now for subscription till the allowed limit is reached. To invest in the fund, please visit the nearest branch, hotline: 19977

Securities & Investment

Category: HC News

HC believes the MPC is to increase the policy rates by 1% in its coming meeting

Posted on by Marwa Nakhla

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled November 2nd. Based on Egypt’s current situation, they expect the CBE to increase the policy rates.

 Financials analyst and economist at HC, Heba Monir commented: “ We expect Egypt’s inflation to continue rising by 2.6% m-o-m and 38.0% y-o-y in October, similar to September’s figure, reflecting supply shortages of essential commodities and products mainly caused by the curbing of importation, exporting some crops and lack of USD availability and the seasonality effect of the partial start of schools and universities’ academic year. Moreover, Moody’s and S&P downgraded the Egyptian government’s long-term foreign and local currency issuer ratings with a Stable outlook. Besides the reasons mentioned by the rating agencies for the rating downgrade mostly related to Egypt’s worsening debt affordability, other concerning factors include  (1) the surge in Egypt’s 1-year CDS to 2,013 bps from 1,230 in mid-September, (2) the widening of the gap between the parallel and official FX rates to as much as c50% and c30% between the Real Exchange Rate (RER) and Real Effective Exchange Rate (REER) models, based on our calculations, (3) the increase of the inflation differential between the US and Egypt to 34.4% in 4Q23 from 33.8% in 3Q23, and (4) the increase of the 12M yield on US treasuries to 5.42% currently from 4.67% in January 2023 while Egypt offers a negative real yield of 4.0% currently on its 12M T-bills, based on the latest 12M T-bills auction offering a nominal yield of 26.4% compares to a positive real yield of c2.7% on US treasuries. For Egypt’s real yield calculation, we used a 15% tax rate for US, UK, and Europe investors) and an average inflation rate of 26.4% for for FY24. We also estimate that the 12M T-bills required return is c28%. On a more positive note, Egypt’s overall balance of payment (BoP) recorded a surplus of USD601m in 4Q22/23 and USD882m as well in FY22/23. Net international reserves (NIR) increased by 5.34% y-o-y and 0.12% m-o-m to USD35.0bn in September, and deposits not included in the official reserves increased by c6.4% m-o-m and 3.82x y-o-y to USD5.05bn in September. Egypt’s banking sector’s net foreign liabilities (NFL) narrowed by USD585bn m-o-m for the second consecutive month to USD25.7bn in August due to a USD995m m-o-m decline in the CBE’s foreign liabilities, according to CBE data. Excluding the CBE, the banking sector’s NFL widened by USD220m m-o-m to USD16.4bn due to a larger drop in banks’ foreign assets (excluding the CBE) by USD868m m-o-m versus a decline of USD648m m-o-m in banks’ foreign liabilities. Based on Egypt’s economic situation, and although the inflation spike is supply-driven rather than demand-driven, we forecast a total 200 bps policy rate hike before year-end, including 100 bps for the 2 November meeting as we believe that the rate hike may help defend the currency against dollarization and purchases of gold by Egyptian citizens, despite that we would still be in negative real yield territory until inflation normalize again.”

It is worth mentioning that, in its 21 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to maintain the benchmark overnight deposit and lending at 19.25% and 20.25%, respectively, after it increased it by 300 bps y-t-d and 800 bps in 2022. Egypt’s annual headline inflation accelerated to a record of 38.0% in September from 37.4% y-o-y in August, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 2.0% m-o-m in September compared to a 1.59% m-o-m increase in the previous month. On the global front, the US Federal Reserve raised interest rates in July by 25 bps to a range of 5.25-5.50%, a total of 100 bps y-t-d and 425 bps in 2022, with most expectations likely to maintain rates in its meeting next week, according to Bloomberg.

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: Edita Food Industries, resilient performance

Posted on by Marwa Nakhla

  • Attractive product offerings and efficient pricing and working capital management strategies help Edita navigate challenging conditions

  • We forecast EBITDA and EPS to grow at a 2024–28e CAGR of c18% and c21%, respectively, driven by volume and price increases

In a recent report, HC Brokerage presented their evaluation of Edita Food Industries forecasting their revenue to grow.

Pakinam El-Etriby, Consumers Analyst at HC commented that: “Edita diligently navigating a double whammy: The COVID-19 pandemic outbreak and lockdowns in 2020 impacted energy, commodity supply, and prices. When economies started to open up in 2021, the limited supply caused production bottlenecks, further fueling inflation. The Russian-Ukrainian war in February 2022 exacerbated the situation, resulting in additional disruptions in global supply chains. The impact was especially notable for commodities like wheat, primarily sourced from Ukraine and Russia. By March 2022, crude oil and wheat prices reached their highest levels in three years (from 2020 to the present), standing at USD128/bbl for oil (up from an average of USD70.9/bbl in 2021 and USD89.7/bbl for the first two months of 2022) and around USD524/tons for wheat (up from an average of USD258/tons in 2021 and USD290/tons for the first two months of 2022). Furthermore, the three consecutive EGP devaluations in March 2022, October 2022, and January 2023, by a total of around 50%, further increased raw material prices for Egyptian food producers, which eventually influenced consumer spending patterns. As a result, companies hiked prices to navigate this challenging economic environment, with Edita standing out by preserving its margins while not negatively impacting the demand for its products. From 2021 through 1H23, it managed to increase its volumes by an average of c22% y-o-y per quarter and expand its market share, as smaller producers found it difficult to withstand the challenging operating environment, with some even exiting the market, allowing Edita to increase its market share. In 2022, EFID increased its revenue and net profit by c46% and 2x y-o-y, respectively, and the momentum continued into 1H23 with a c80% y-o-y growth in revenue and a c2x y-o-y hike in net profit. We expect EFID to continue passing the bulk of cost increases onto consumers, directly and indirectly, to protect its margins against higher raw material costs.”

“We forecast revenue to grow at a 2024–28e CAGR of c14% on higher volumes and prices: During 1H23, total volume increased c31% y-o-y to 1,994m packs, and blended price increased c37% y-o-y to EGP2.83/pack, leading to the c80% y-o-y revenue growth to EGP5.64bn. We expect a similar performance in 2H23, as the company capitalizes on its attractive product offerings, serving as a meal replacement, and its active pricing strategy. Therefore, we expect 2023e revenue to increase by c64% y-o-y to EGP12.6bn. Furthermore, we forecast revenue to grow at a CAGR of c14% over our 2024–28e forecast period, with volumes growing at a CAGR of c10% and average selling prices growing at a CAGR of c4%. We expect the cake and bakery segments to continue contributing more than c80% to Edita’s total revenue over our forecast period.” El-Etriby added.

“We forecast EBITDA and EPS to grow at a 2024–28e CAGR of c18% and c21%, respectively, helped by stable margins and efficient working capital management: In 2023, we expect GPM to contract by c2 pp y-o-y to c32%, impacted by higher commodity prices and a weaker EGP, with average cost/pack standing at EGP2.06/pack (up c44% y-o-y), surpassing the c40% annual increase in average selling prices of EGP3.03/pack during the year, based on our numbers. However, starting in 2024, despite the further expected EGP devaluation, we estimate GPM to gradually recover over our 2024–28e forecast period and reach 34.9% by 2028e, as we expect Edita to pass on cost increases to consumers and successfully migrate them toward higher-priced SKUs. We expect the EBITDA margin in 2023 to marginally decline to 19.0% y-o-y from 19.8% in 2022, supported by the high operating leverage and economies of scale, with SG&A and distribution costs representing c15% of total sales versus 17% in 2022, respectively. We expect Edita’s EBITDA margin to average c22% over our 2024–28e forecast period. Accordingly, we forecast EBITDA and EPS to grow at 2024–28e CAGR of c18% and c21%, respectively. Edita has always maintained an efficient working capital strategy characterized by a negative cash conversion cycle (CCC). However, during the past two years, receivable and inventory days on hand (DOH) relatively surged due to global supply chain disruptions and the EGP depreciation, with the CCC averaging c23 days and we expect it to decline to c10 days by 2028e.” Pakinam El-Etriby 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: Orascom Construction, Robust business model

Posted on by Marwa Nakhla

  • Imminent inflection point in the GCC to support MENA operations

  • ORAS capitalizes on its U.S. presence, hedges setbacks, and further diversifies its exposure through BESIX

  • In a recent report, HC Brokerage issued an update note about Egypt’s construction sector, through shedding the light on Orascom Construction focusing on the the company’s exposure rebalancing.

Nesrine Mamdouh, Industrials Analyst at HC commented that: “Despite a challenging operating environment in Egypt, projects in the pipeline still offer moderate potential: In 2022, The Russian-Ukrainian war caused commodity market turmoil, supply chain disruptions, soaring global inflation, and hence rate hikes by major international central banks, pressuring the EGP and stressing Egypt’s state budget. As a result, the Egyptian government rationalized public spending, and despite delaying the implementation of new projects with a USD component (estimated at USD8bn), it allocated EGP587bn for investments (USD18.8bn) in the FY23/24 state budget. It also endorsed legislative and regulatory amendments to reduce its footprint in various economic sectors and encouraged private sector participation, including amendments to the executive regulations of the PPP Act for infrastructure projects to facilitate public-private partnerships in key projects. The budget also marks EGP600bn for private investments, representing c33% of total investments of EGP1.8trn and c50% by FY25/26, which is achievable if domestic macroeconomic visibility and investor sentiment improve, in our view. Regarding ORAS’s main business areas, we expect the transportation sector’s share of total investments to retreat after the completion of its ten-year (2014–2024) development plan with total investments of EGP1.7trn. We also see growth potential in the logistics, manufacturing (with expected investments of USD3.3bn in FY23/24), electric regional interconnectivity, and renewable energy sectors. Renewables include green hydrogen projects, which are attracting remarkable investments to Egypt, and water desalination projects with investments of USD3.1–3.3bn for the first phase of Egypt’s water desalination program, targeting a capacity of 3.35m cbm/day by 2025.”

“Rebalancing exposure in MENA in a quest for potential opportunities:  We expect ORAS’s share of Egypt’s investments to soften to an average of c3.1% in 2023–2027e (a proxy for its awards from Egypt), from 3.7% in 2018–2022, as the government plans to scale down USD-intensive projects and as ORAS targets quality projects, entailing a foreign financing component. Having said that, we expect a c20% y-o-y decrease in Egypt awards to USD1.6bn in 2024e, while a faster-than-expected resumed USD spending on planned projects, and private sector participation would represent an upside risk to our numbers. However, the 2023e healthy backlog from Egypt, estimated at USD3.9bn, representing c69% of its total backlog, should secure decent sustained revenue over 2024 until the economy overcomes its bottlenecks and FX shortage. Also, the government’s compensations to negatively affected contractors by the EGP devaluation, should support its revenue from Egypt. As for MENA, we see ORAS capitalizing on its flexible and diversified business model to increase its exposure to the GCC through vigorous investment plans and mega projects aiming at diversifying their hydrocarbon-based economies. The GCC’s total underway and planned projects are estimated at USD2.6trn, of which c54% are in the KSA, c21% in the UAE, and are led by the construction sector at c56% of total investment projects, according to the GCC 2023 planned projects by MEED. As for KSA, which dominates the lion’s share of investments, we expect its awards to average c35% of investments over our forecast period, a growth of c2.2x, from an average of c16% in 2018–2022. Despite fierce competition, we see ORAS, relying on its expertise, actively bidding and consorting with national and international companies for various water projects, including desalination, transmission, strategic reservoir, and wastewater treatment projects.” Mamdouh added.

“Sustained business in the US and diversification benefit from Besix: The US Infrastructure Investment and Jobs Act (IIJA) signed in 2021 authorized USD1.2trn for transportation and infrastructure spending, of which USD550bn were allocated to new investments over five years in the nation’s bridges, airports (the Bipartisan Infrastructure Law provides USD15bn in airport infrastructure funding), waterways, and public transit among others. However, the Fed Reserve’s restrictive policy to curb inflation by raising rates by 525 bps since March 2022 to date to a range of 5.25–5.50%, created tighter credit conditions, gradually weighing down on growth. While supply chain bottlenecks are largely resolved, and inflation is gradually improving, it is still relatively high, at 3.7% as of August. Whereas in July 2023, the US total construction spending (SAAR) increased by c5.5% y-o-y to USD1.97trn, driven by a c17% y-o-y growth in total non-residential spending and a c71% y-o-y growth in notable private manufacturing spending. ORAS maintains its exposure to the US data center business, the recession-proof student housing, and the light industrial and commercial sectors, while increasing it to the advanced manufacturing and aviation infrastructure works. We foresee ORAS focusing on non-interest-rate sensitive and sophisticated projects where it possesses a comparative advantage, which should sustain its EBITDA margins at an average of c2.2%, on our numbers. As for Besix, despite a gloomy outlook for the European construction sector in 2023, the Eurostat Construction Production Index increased y-o-y as of June 2023 for Belgium, Netherlands, and Luxemburg, with a slight decrease for France, Besix’s main business markets in Europe. We foresee investments in these economies to maintain an average share of c33% of total Euro area fixed capital formation over 2023–2024e. Also, the infrastructure and renewable projects public tenders should sustain Besix’s business in concessions and assets. Moreover, the company’s expertise in marine, high-rise innovative buildings, its exposure to the Middle East, along with the phasing out of lower-quality projects should improve its net profit margin at an estimated average of c1.1%, suggesting a decent contribution to ORAS’s bottom line, further enhanced by the magnitude of any potential appreciation of the EUR/USD exchange rate.” Nesrine Mamdouh 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

 

HC believes the MPC is to keep the policy rates unchanged

Posted on by Marwa Nakhla

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled September 21st. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.

Financials analyst and economist at HC, Heba Monir commented: “ We anticipate Egypt’s inflation to continue rising by 1.8% m-o-m and accelerate to 37.8% y-o-y in September, reflecting supply shortages of basic commodities and products mainly caused by the curbing of importation and lack of USD availability and the seasonality effect of the partial start of schools and universities’ academic year. Egypt’s overall balance of payment (BoP) recorded a deficit of USD317m in 3Q22/23, despite recording surpluses during the previous two quarters, mainly due to a c17% q-o-q drop in exports. Moreover, Egypt’s 1-year CDS soared c60% y-t-d and c31% m-o-m to 1,217 bps in mid-September 2023. On a more positive note, net international reserves (NIR) increased by 4.39% y-o-y and 0.14% m-o-m to USD34.9bn in August, and deposits not included in the official reserves increased by c1.6% m-o-m and 5.35x y-o-y to USD4.74bn in August. Egypt’s banking sector’s net foreign liabilities (NFL) narrowed by USD822m m-o-m to USD26.3bn in July, according to CBE data. Excluding the CBE, the banking sector’s NFL narrowed by USD965m m-o-m to USD16.1bn, due to an increase in banks’ foreign assets (excluding the CBE) by c8% m-o-m versus no change in banks’ foreign liabilities. Based on Egypt’s economic situation, we believe that the MPC is likely to maintain interest rates at its 21 September meeting to fully absorb the effect of the last 100 bps increase, especially that the inflation is supply-driven and not demand-driven. Additionally, the latest 12-month T-bills recorded an average yield of 25.541%, up 663 bps y-t-d and 83 bps m-o-m, partially reflecting the 3 August 100 bps rate hike, the spike in Egypt’s CDS and to maintain the attractiveness of Egypt’s carry trade, which also suggests that the MPC may hold interest rates at its upcoming meeting.”

It is worth mentioning that, in its 3 August meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 100 bps to 19.25% and 20.25%, respectively, with 300 bps total rate hike y-t-d and 800 bps in 2022. Egypt’s annual headline inflation accelerated for the third consecutive month to a record of 37.4% in August from its previous record of 36.4% y-o-y in July, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.59% m-o-m in August compared to 1.86%m-o-m in the previous month. On the global front, the US Federal Reserve raised interest rates in July by 25 bps to a range of 5.25-5.50%, a total of 100 bps y-t-d and 425 bps in 2022, with an expectation to maintain rates in its meeting next week, according to Reuters poll.

Orascom Development Egypt: Gouna masterplan amendments add value

Posted on by Marwa Nakhla

  • Amendments to the Gouna masterplan waive environmental fees, unlock value, and increase ODE’s hospitality exposure

  • ODE enjoys solid profitability in 2023e as the 3Q23 land sale should offset potential FX losses

In a recent report, HC Brokerage issued an update note about Egypt’s real-estate sector, through shedding the light on Orascom Development Egypt where they expect ODE to offset potential FX losses.

Mariam Elsaadany, real estate analyst at HC Brokerage commented: “Gouna masterplan amendments should pave the way for significant value unlocking: In February 2023, Orascom Development Egypt (ODE) signed a new masterplan agreement with the Egyptian authorities, including the following terms: (1) approval of a new master plan for the remaining land bank in El Gouna and 1,000 hotel rooms at the company’s discretion, (2) granting ODE the right to connect its lagoon system to the sea via two new water canals to improve water quality in existing and future projects, (3) reducing the shoreline setback for the remaining land bank from 200 meters to 105 meters, which allows ODE to make commercial use of the most prime land of the destination, and (4) amending the transfer fee payable by ODE on real estate sales for the remaining land bank, which is fixed for ten years and will be paid in advance over 15 years, and (5) granting environmental permits for 24 projects in Gouna and exonerating ODE from all charges and settlement of all disputes with the Environment Protection Agency (EPA). The amendments remove the overhang on the stock and allow significant value extraction from its 16.6m sqm, which we had previously valued at an NPV of only EGP209/sqm, compared to EGP402/sqm currently. Moreover, ODE’s recurring income business benefitted from a strong touristic season, contributing c32% to 1Q23 revenue, up from c28% in 1Q22, and c29% to EBITDA, up from c20% in 1Q22. Nonetheless, ODE’s USD and EUR debt balance, representing c73% of total debt, exposes it to significant FX losses during EGP devaluations, despite recording higher hospitality revenue in EGP terms helped by the EGP devaluation. Accordingly, we expect more one-off transactions, including land sales and non-core asset sales, to offset possible FX losses and margin compression from the real estate business, such as the company’s sale of an EGP390m high-margin land plot in Gouna in 3Q23.”

 

Mariam concluded: “We expect accelerated collections on shorter payment plans in first-home projects and expect reduced risk of margin erosion due to core and shell offerings: We assume substantial increases in ODE’s real estate selling prices, hospitality average room rates (ARRs), and rental prices to preserve its profitability amid inflationary pressures. Annual urban headline inflation averaged 31.6% in 1H23 compared to a c59% increase in residential selling price increase and a c86% increase in hospitality ARR over the same period, demonstrating the company’s efforts to preserve its margins. Margin compression for ODE is limited during the coming two years, in our view, due to (1) the company’s strategy to raise selling prices and (2) expected one-off sales going forward, and (3) more core and shell offerings allow it to avoid margin erosion on finishing materials. For the real estate business, we expect a drop in sales volumes over 2023—2024e, in line with management’s strategy to hold onto inventory, where it opts to reduce the number of units launched to the market during uncertain times and offers them when the profitability outlook is higher. Our total receivables estimates over our forecast period stand at EGP151bn, including the company’s share of O West receivables. Our CAPEX estimate is EGP90.2bn for the forecast period, which implies an average margin of c40% for the company’s residential business. Over our forecast period, we increased hospitality occupancy rates to range from c70%–80% in Gouna and increased ARRs at an average of c10% annually. We did not include in our estimates any of the 1,000 planned hotel rooms in Gouna, and it is worth noting that the company is not obliged to build these rooms and can abandon the plan if it chooses to. Our hospitality estimate yields a c28% 4-year CAGR in hospitality revenue, and we expect the company’s hospitality margin to average c30% over our 2H23–2027e forecast period. We expect ODE’s 2023e net debt-to-equity to drop to 0.46x from 1.10x in 2022 as its cash balance grows on the back of strong collections. It is worth noting that the company has reduced payment plans in O West, which we believe affirms strong demand.  We also highlight the increase in the company’s interest expense, especially on the EUR and USD debt, given that c73% of its debt is in these currencies.”

 

Eastern Company – HC revises their estimates on higher selling prices

Posted on by Marwa Nakhla

In a recent report, HC Brokerage presented their updated evaluation of Eastern Company where they upward revised their revenue estimates.

  • Higher local cigarette selling prices should support EAST’s operating margins over our FY22/23–27/28e forecast period

  • Machinery leasing income and investment income from UTC should also preserve EAST’s profitability and cash distribution capabilities 

Pakinam El-Etriby, Consumers Analyst at HC commented that: “ We upward revise our revenue estimates by c78%, with an average 16.9% y-o-y price increase over our FY22/23–27/28e forecast period: On 25 March 2023, Eastern Company’s board approved increasing the retail price of its local cigarette brands by EGP1.00–3.00/pack, following the EGP2.00/pack price increase in September 2022, to preserve its operating margins and withstand higher raw tobacco cost, translating into a c34% y-o-y increase in the FY22/23e ex-factory price to EGP5.72/pack. Furthermore, we forecast an average increase of c13% in the blended local ex-factory price over FY23/24–27/28e, from our previous estimated average increase of 3.11%, assuming that the company still operates within the EGP4.00/pack flat tax bracket as the Egyptian government did not yet announce any revision to the flat tax brackets. Moreover, EAST’s 24%-owned subsidiary United Tobacco Company (UTC) increased its ex-factory prices to an average of EGP17.2/pack from an average of EGP14.7/pack, positively contributing to EAST’s profitability. Nevertheless, we estimate FY22/23–23/24e local cigarette volumes to drop by an average of c6% y-o-y, negatively impacted by the FX shortage implications. Yet, over FY24/25–27/28e, we expect volumes to normalize and increase by an average c5% y-o-y to 71.9bn cigarettes by the end of our forecast period. Therefore, we estimate EAST’s top line to grow at a 6-year CAGR of c19% over our forecast period, translating into an upward revision of c78% in our FY22/23–27/28e total revenue estimates.”

“We upward revise our FY22/23–27/28e gross profit estimates by c95%, on average: We upward revise our FY22/23–27/28e gross profit estimates on the higher local cigarette selling prices, leaving our GPM to average c42% over our forecast period, up from a previously estimated average of c39% over the same forecast period. However, we estimate a c5 pp y-o-y drop in FY23/24e GPM to 39.9% due to a weaker EGP and inflationary pressures, inflating EAST’s imported raw material costs. Moreover, May’s average tobacco prices increased by c45% y-o-y to USD6,780/ton, according to Brazil’s tobacco export data from the Ministry of Economics of Brazil. Nonetheless, starting FY24/25e, we expect GPM to normalize, reaching c43% by the end of our forecast period.  As a result, we forecast the EBITDA margin to average c40% over our forecast period, leaving our terminal margin at c41%. As for EAST’s NPM, we expect it to average c41% over FY22/23–27/28e, up from an average of c27% over the past six years, primarily backed by both the machinery leasing income and investment income from UTC. We expect the investment income from UTC to start appearing on EAST’s 4Q22/23 income statement.” Pakinam 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 believes the CBE to keep the policy rates unchanged

Posted on by Marwa Nakhla

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled June 22nd. Based on Egypt’s current situation, they expect the CBE to keep the policy rates unchanged.

Financials analyst and economist at HC, Heba Monir commented: “We expect the MPC to leave the overnight deposit and lending rates unchanged, despite the latest 2.72% m-o-m increase in May’s monthly inflation figure. We base our belief on: (1) the government’s need not to increase the burden on corporates’ borrowing capabilities, as they struggle with rising input prices and weak demand, (2) the Egyptian government’s need to keep its local debt servicing cost in check, (3) the drop in Egypt’s 1-year CDS which lowered the 12-moth required return on Egyptian T-bills compared to one month earlier. Despite the delay in the IMF’s program review and hence the tranche disbursement, Egypt’s 1-year CDS eased significantly to 1,221 currently from its record high of 2,510 in mid-May, lowering the required 12M T-bills rate by c200 bps from one month earlier, based on our calculations; and (4) the Egyptian government’s direction not to devalue the EGP currently due to the high inflation figures taking a toll on affordability, as announced by Egyptian President Abdel Fattah El Sisi yesterday. Despite a slight m-o-m improvement in the latest figures of the Egyptian banking sector’s net foreign liability (NFL) position and net international reserves (NIR), they evidence the USD shortage, and we continue to monitor them closely. Egypt’s banking sector’s NFL, including the CBE, narrowed slightly to USD24.1bn in April from USD24.5bn in March, according to CBE data. Excluding the CBE, the banking sector’s NFL also narrowed slightly to USD15.0bn from USD15.4bn in March. Also, net international reserves (NIR) slightly increased by 0.3% m-o-m up to USD34.7bn in May, while deposits not included in the official reserves dropped by c8% m-o-m to USD3.7bn in May.”

It is worth mentioning that, in its 18 May meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to keep the benchmark overnight deposit and lending rates unchanged at 18.25% and 19.25%, respectively, after it raised it by 200 bps on 30 March, which is the total rate hike y-t-d.  Egypt’s annual headline inflation accelerated again to 32.8% y-o-y in May from its record low of 30.6% y-o-y in April since it started accelerating in July 2022, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 2.72% m-o-m in May compared to 1.7% m-o-m in the previous month. On the global front, the US Federal Reserve maintained interest rates on Wednesday after it increased it by 25 bps on 4 May to a range of 5.00-5.25%, with a total of 75 bps y-t-d and 425 bps in 2022.

HC Brokerage has been awarded the Best Overall Forecaster for Egypt in 2023

Posted on by Marwa Nakhla

HC Brokerage has been awarded the Best Overall Forecaster for Egypt in 2023 by Focus Economics

Cairo, Egypt – June 2023: HC Brokerage research team has been honored for its exceptional performance with the prestigious “The Best Overall Forecaster for Egypt in the 2023 Focus Economics Analyst Forecasts Awards”. The Research team has also secured the top spot in inflation forecasts and ranked third in exchange rate and fiscal balance forecasts.

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.

Focus Economics is recognized for its exceptional provision of macroeconomic insight, offering a diverse array of solutions, including renowned Consensus Forecast – which provides comprehensive and easily digestible coverage of the latest economic developments. All evaluations have unequivocally commended HC’s exemplary performance in economic analysis and forecasting.

Hassan Choucri, Managing Director of HC Brokerage, expressed his pride in receiving the award for “The Best Overall Forecaster for Egypt in 2023.” He said: “This award is proof of HC’s research team’s exceptional dedication to maintaining the company’s position as the leading provider of economic analysis and forecasting services. The team’s steadfast commitment to accuracy, dependability, and innovation has been instrumental in the company’s success, allowing it to provide clients with the highest-quality economic evaluations and outlook.”

It is worth noting that HC Brokerage HC as 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.

 

 

Avior – HC Egypt Virtual Conference 22-25 May

Posted on by Marwa Nakhla

  • Over 4 days 22-25 May, HC Brokerage and Avior Capital Markets hold their third Virtual Conference

  • “Avior – HC Egypt Conference May 2023”

The Avior-HC Egypt Virtual Conference started yesterday and runs until 25 May, offering financial institutions from the US, Canada, Europe, South Africa, the UAE, and Egypt insights on compelling investment opportunities within the Egyptian equities market. Investors will e-meet representatives of 29 listed companies on the Egyptian Exchange (EGX) through group and one-on-one meetings.

The CEO of the Sovereign Fund of Egypt (SFE), Mr. Ayman Soliman, was the keynote speaker of the opening session of the conference, where he shared highlights of the Egyptian government’s partial asset sale program currently underway.

Hussan Choucri, Managing Director of HC Brokerage, said: Our third 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 733 Third Avenue, New York, New York 10017.

 

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, Mohandessin 12655

 

For further information, please contact:

Research@hc-si.com

HC believes that a 100bps hike is possible

Posted on by Marwa Nakhla

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled May 18th. Based on Egypt’s current situation, they expect the CBE to increase the policy rates 100bps.

 Financials analyst and economist at HC, Heba Monir commented: “ Our comment: We see the recent deceleration in inflation rate to be short-lived and expect inflation to inch up 1% m-o-m in May following the recent increase in diesel prices and changes in the ration cards system, averaging at 30.2% for 2H23, on our numbers. Also, the banking sector’s net foreign liabilities (NFL), including the CBE, widened to USD24.5bn in March from USD23.0bn in February, according to CBE data. Excluding the CBE, the banking sector’s NFL widened significantly to USD15.6bn in March from USD13.8bn in February. As a result of the pressure on the local currency, Egypt’s 1-year CDS reached a record high. On a more positive note, the current account registered a surplus of USD1.41bn in 2Q22/23 for the first time in many years compared to a deficit of USD3.80bn a year earlier, mainly due to significant import control. On the other side, the capital and financial account recorded a deficit of USD1.63bn in 2Q22/23, reversing a surplus of USD5.38bn a year earlier, mainly due to a USD3.96bn deficit in the assets of the banking and other sectors compared to a surplus of USD2.38bn a year earlier and net foreign portfolio outflows reached USD855bn in 2Q22/23 bringing these outflows to USD3.01bn in 1H22/23. The external debt increased by c5% q-o-q and c12% y-o-y to USD163bn in December 2022.  A 100 bps policy rate hike in the coming meeting could increase the required 12M T-bills rate to 27.5%, based on our calculations, due to a significant hike in Egypt’s 1-Year CDS to 2,510 bps from only 618 at the beginning of the year and a widening in the inflation differential between Egypt and US to 29.1% in 2Q23 from 24.2% in 1Q23, which would translate into a real interest rate of 6.57% based on our calculation (accounting for a 15% tax rate for US and European investors and 16.5% inflation in May 2024) compared to 3.63% currently and 0.50% in the US. We believe this could attract carry trade again, especially with the Federal Reserve hinting that are no more hikes expected soon. So, considering our inflation expectations until year-end, the need to attract carry trade, the banking sector’s widening NFL, and the delay in the partial asset sale program, we expect the MPC to raise the policy rates by 100 bps. The downside of a rate hike is higher debt servicing costs; however, we see bridging the FX shortage through carry trade as a more urgent priority.”

It is worth mentioning that, in its 30 March meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to raise the benchmark overnight deposit and lending rates by 200 bps to 18.25% and 19.25%, respectively, with a total of 200 bps y-t-d and 800 bps in 2022. Egypt’s annual headline inflation decelerated to 30.6% y-o-y in April from 32.7% y-o-y in the previous month, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.7% m-o-m in April compared to an increase of 2.7% m-o-m in the previous month. On the global front, the US Federal Reserve raised interest rates by 25 bps on 4 May to a range of 5.00-5.25% with a total of 75 bps y-t-d and 425 bps in 2022. Based on Egypt’s current economic situation, we provide below our expectations for the likely outcome of the 18 May MPC meeting.