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Securities & Investment

Category: HC News

HC: Edita Food Industries, undemanding valuation

Posted on by Marwa Nakhla

  • In a recent report, HC Brokerage presented their analysis of the food & beverage sector in Egypt where they shed the light on Edita Food Industries’ performance and maintained their OW rating on compelling valuation.

  • Consumption recovery is behind us; however, the 14% VAT imposition may drag volumes; we estimate a 2020–25e volume and revenue CAGR of c10% and c14%, respectively
  • Improved sales mix, along with indirect price increases, should mitigate higher costs, translating to a 2020–25e EPS CAGR of c18%
  • We reduce our 12M target price c18% to EGP12.0/share on lower estimates but maintain our OW rating on compelling valuation

Noha Baraka, the Head of Consumers at HC commented that: “Inevitable volume recovery, in our view, yet the potential imposition of a 14% VAT remains a risk: We see a good year ahead for the snack-food market, with inevitable private consumption recovery, in our view, backed by easing inflationary pressures, stable FX rates, and a low-interest-rate environment. If it were not for the possible imposition of a 14% value-added tax (VAT) (instead of 5% currently) on snack food goods, including bakery, we would have been more optimistic about a surge in demand. This surge would have been backed by the Egyptian government’s eased COVID-19 precautionary measures allowing more on-the-go consumption of snacks, not to mention the change in consumer behaviour, tilting more towards products offering more value for money, despite higher price points. However, we opt to be conservative in our volume estimates for the time being as we believe direct price increases following the VAT imposition could initially cause a demand shock, especially in light of tamed inflation rates. Accordingly, we expect total volume to rise c9% y-o-y in 2021e to 104,800 tons, almost unchanged compared to our previous estimate. Longer-term, we expect inflation to average c9% and private consumption to increase and normalize at 5% from an estimated 1.0% only in FY20/21, further supporting our assertion of an acceleration in the pace of volume recovery. Accordingly, we look for a 2022e–25e total volume CAGR of c11%, on average. We expect the croissants and wafer segments to stand out the most given new product launches, not to mention the inauguration of the biscuit segment and potentially rolling out of new SKUs, and the materialization of the company’s Moroccan JV to all help accelerate demand recovery.”

“We expect high margins to sustain over our forecast period, despite an unfavourable cost outlook: Despite the significant surge in most of the input costs, rising almost c18% y-t-d (except for sugar and cocoa, which remained essentially unchanged y-t-d, yet still increased c31% y-o-y), and higher cost base to support new ventures, we believe a more robust EGP/USD rate and higher volumes should primarily mitigate this. Therefore, we expect the 2021e EBITDA margin to expand 1.4 pp y-o-y to 17.1%. Going into 2022e we expect margins to continue expanding mainly on: (1) Edita’s continued efforts to re-engineer its portfolio and introduce to the market new offerings at higher price points, 2) venturing into new segments, 3) and ramping up of utilization rates. Thus, our numbers point to a terminal EBITDA margin of 17.6% by 2025e.  We are optimistic about the company’s management initiatives over the past year to increase its debt level in EGP terms, which we expect would expedite Edita’s earnings recovery and enhance returns. We forecast 2020–25e EPS to increase at a CAGR of c18%, on average, which leaves our ROE at 27.3% by 2025e from 17.2% in 2020, further solidifying our view of improving profitability.” Baraka added.

“ We reduce our 12-month target price by c18% and maintain an Overweight rating on further share price dip: We reduce our 12-month target price by c18% to EGP12.0/share on our new lower estimates across the board. Our new target price implies a 2022e P/E multiple of 19.1x and EV/EBITDA multiple of 9.5x, offering a potential return of c58% over the 22 April closing price of EGP7.75/share. Therefore, we maintain our Overweight rating. In our view, the current valuation is highly compelling, with the stock trading at a 2022e P/E multiple of 12.3x, which is a c49% discount to its peers’ implied multiple of 24.2x. The stock is also trading at a 2022e EV/EBITDA multiple of 6.1x, a c61% discount to its peers implied multiple of 15.5x. We believe the market is overstating VAT-associated risks and over penalizing the stock, which is unjustified in our view in light of its good operational recovery. We see Edita as too cheap to ignore in a sector characterized with high trading multiples nature, suggesting potential share price correction from current levels.” Baraka Concluded.

HC: March inflation figures came in slightly higher than our estimates. We expect the CBE to keep interest rates unchanged

Posted on by Marwa Nakhla

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled April 29th and based on Egypt’s current situation, they expect the CBE to keep interest rates unchanged.

Head of macro and financials at HC, Monette Doss commented: “March inflation figures came in slightly higher than our estimates of 4.4% y-o-y and 0.5% m-o-m, which we believe reflects a correction from the previous suppressed levels. Over the rest of 2021, we expect monthly inflation to average 0.9% m-o-m and 6.7% y-o-y accounting for rising international commodity prices and a possible pick-up in economic activity following the successful rollout of the COVID-19 vaccine. We, therefore, expect 2021 inflation to remain within the CBE’s target range of 7% (+/-2%) for 4Q22. Looking at the results of recent government T-bill auctions, we believe that foreign portfolio inflows are gradually regaining momentum as evident in the high coverage and possibly the beginning of a cool-off in yields from accelerated increases witnessed over the last couple of months. In recent auctions, yields on US 10-year T-bonds declined to 1.57% from a high of 1.73% in the beginning of April, which we believe reflected positively on foreign portfolio inflows in Egypt. However, we expect to see upward pressure on US treasury yields with Bloomberg 2021 consensus inflation forecast for the US at 2.6%. Also, monetary tightening in other emerging markets, such as Turkey poses upward pressure on Egypt’s yields. Currently, Turkey offers a yield of 17.2% on 19M treasuries, resulting in a real yield of c4%, on our calculations, given zero taxes and Bloomberg consensus inflation estimate for Turkey at 13.2% over the period. This compares to a real yield of 3.9% on Egypt’s 12M T-bills, on our numbers, given 15% tax rate for US and European investors and our inflation forecast of 7.5% over the next 12 months. That said, we expect the MPC to maintain rates unchanged in its upcoming meeting.”

It is worth mentioning that, in its last meeting on 18 March, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged for the third consecutive time after undertaking cuts of 50 bps twice in its September and October 2020 meetings. Egypt’s annual headline inflation remained unchanged at 4.5% in March, with monthly inflation increasing 0.6% m-o-m compared to an increase of 0.2% in February, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).

How Investor Trends and Behavior Have Permanently Changed Post Pandemic

Posted on by Marwa Nakhla

  • Everyone from small to medium and even enterprise-level organizations have changed forever. The pandemic currently facing the globe has brought a special set of circumstances that have permanently altered the way investors make decisions. This article is all about how investor trends and behavior will shift post-pandemic. Before we dive into some of those new trends, let’s take a look at a few economic sectors that are currently on the rise and which sectors are on the decline.

 

Post-Pandemic Economic Sectors You Want to Pay Attention to

Quaternary activities fall under what’s known as the knowledge sector of the economy. In both emerging markets as well as developed nations, quaternary activities show great potential from an investor’s perspective. Accounting and brokerage firms, mutual fund managers, tax consultants, software developers, statisticians, business intelligence firms, and cybersecurity agencies all have something in common. They are decentralized in nature.

These quaternary activities in the knowledge sector show strong opportunity for investors because they have the ability to be decentralized. Not being connected to any one single economy, location, or governmental organization means they can operate independently. That is a huge advantage and one trend among investors as we head into 2021.

Not All Economic Sectors Are Equal

Unlike quaternary activities in the knowledge sector, investor trends show diminished interest in tertiary activities. However, not all tertiary activities show a decrease in revenue earning potential. More specifically, the retail industry that is composed of retail consumer spending and restaurateurs are particularly vulnerable. Therefore, post-pandemic investing will undoubtedly show a bearish trend in these areas.

New Trends in The 2021 Landscape

Our world is rapidly changing. Certain trends that have emerged at the end of 2020 have now solidified themselves at the beginning of 2021. Let’s take a look at three of the most impactful trends in the business environment changing our world.

 

An Emphasis on Remote Operations

As businesses attempt to adapt to a post-pandemic landscape, more and more companies are embracing remote operations. Whether it’s software development, project management, ERP, business intelligence, business development, or anything else, innovative tech allows it to be completed over a remote platform. This includes companies that provide services like telehealth, online meeting platforms, remote sales team building software, and even dating apps. The future is becoming increasingly virtual.

Business Intelligence Becomes Mainstream

Interpreting big data and using that information to arrive at data-driven decisions is not a new industry. However, our post-pandemic landscape is putting a new emphasis on services like Microsoft’s Power BI and business intelligence firms that help interpret big data and convert that raw information into useful formats. Everyone from investors to sales managers utilizes business Intelligence platforms to make more informed, and educated decisions backed by the data.

Finance Becomes Decentralized

Fintech services and cryptocurrencies have shown a trend of becoming increasingly decentralized. Businesses no longer have to rely on central banks and government financing. Investors and other businesses have alternatives that come in the form of decentralized fintech providers, innovative online lenders, trading platforms, and brokerages that leverage a decentralized business model. This is a trend becoming more popular by the day.

Specific Industries You Want to Be A Part of Post Pandemic

A little bit earlier we discussed economic sectors already showing huge potential as we move into a post-pandemic landscape. However, let’s dive a little bit deeper to discuss specific industries within those sectors where investing trends and behaviors show great promise.

CyberSecurity

Now is as good as time as any to hop onto the cybersecurity wave sweeping through the globe. As an investor, entrepreneur, equities broker, or anyone else searching for booming industries, you should be aware of a few things. Cybersecurity is a large industry. Diving into the specifics reveals that the areas of authentication, cloud data protection, and application monitoring are the most lucrative niches within the market.

Education & E-Learning

With brick and mortar schools physically shut down due to pandemic precautions, virtual education and the E-learning industry is on the boom. Countries like China are at the forefront of developing large & powerful enterprise-level organizations focusing on virtual education and E-learning platforms based 100% online.

Global Logistics

International shipping is the lifeblood of every economy. As goods are manufactured around the globe and shipped out across the ocean, fortunes are made and empires are built. It’s been that way for thousands of years. You could say that the global logistics trade is both recession & pandemic proof. The industry never sleeps and investors can count on the ships moving so long as there is oil to fuel them.

The Future Is Largely Unwritten

This article has given you a detailed snapshot of what industries are booming and which economic sectors are most vulnerable. While investor trends and behaviors can leverage that information, the future is largely unwritten. While we may know what a post-pandemic business environment will look like, only time will tell how that directly impacts the free market.

HC updates its estimates for SIDPEC’s target price

Posted on by Marwa Nakhla

Market excitement overdone; Downgrade to UW

  • Polyethylene prices reach all-time highs, but we assume this will be short-lived and has yet to reflect on feedstock costs

  • Polypropylene project shelved; paving the way for the return to dividend distributions, while the potential sale proceeds provide upside risk to valuation 

  • We cut our 2021–24e EBITDA and EPS estimates c21% and c26% respectively, exacerbated by lower sales volumes and a weaker USD, and downgrade to Underweight helped by the recent share price rally

Polyethylene prices quickly recovered, but feedstock could follow suit, not fully translating into margin expansion for SIDPEC: After hitting lows following the pandemic, international polyethylene prices rebounded impressively toward the end of 2020 before reaching all-time highs this month on a series of supply shocks (from the US arctic freeze to an unexpectedly heavy cracker turnaround season in Europe to short supply of containers in Asia and high freight rates), amid robust post-COVID demand. While most estimates point to these levels sustaining through 1H21, long-term prospects have become increasingly difficult to forecast. We assume a return to mid-cycle by the end of next year and only oil price-driven growth thereafter. We also do not expect these high prices to result in a pure windfall for SIDPEC’s earnings in 2021 as this level is likely to put the company’s feedstock formula back into effect, after having fixated at the formula’s implied floor for the better part of last year, on our calculations. Not to mention the risk of ongoing feedstock supply issues, which besides affecting production volumes, could also have further implications on feedstock costs as the imported gas will likely come at substantially higher prices. The company is budgeting for a c23% y-o-y increase in raw material cost per ton, on our base-case calculations. We  therefore opt to maintain the current (suboptimal) utilization rates and local-based gas prices until further clarity about the steadiness of supply from GASCO going forward and the pricing and contribution of the imported quantities, which still translates to significantly better-than-budgeted figures for 2021 and a substantial operational improvement over 2020.

Polypropylene project behind us, potentially resolving a key share price overhang: The company is finalizing an agreement with the Red Sea National Company for Refining and Petrochemicals (RSNCRP) to sell its polypropylene project license and participate in the shareholding of the latter with a 5% stake. We believe this to be the best-case scenario as we had not been fond of the project due to 1) unclear (and significantly changed) economics, 2) disproportionately large size (and risk) compared to SIDPEC, 3) the commitment of the company to hold a 100% stake in the venture, and (4) the unfavourable market perception of the capital increase that would ensue. This deal also reimburses some EGP700m in project license costs (and feasibility studies), previously seen as sunk costs, though unlikely through cash proceeds. This, and improved earnings, should help the company return to paying dividends next year.

Downgrade to Underweight: We lower our 2021–24e EBITDA and EPS estimates c21% and 26% respectively, which translates to a c11% cut to our 12-month target price to EGP8.00/share. Our new target price puts SIDPEC at a 2021e P/E multiple of 8.8x (trading at 11.1x) and implies a negative potential return of 20.2% on the 23 March closing price of EGP10.0/share. Therefore, we downgrade the stock to Underweight from Neutral. In our view, current valuation is stretched, with the stock rallying c45% over the past five months. The market is likely overlooking the potential imminent increase in feedstock costs along the end-product price rally, which is likely to appear as early as 1Q21, in our view.

HC successfully advises Almarai on the acquisition of 100% shares in Bakemart UAE and Bahrain

Posted on by Marwa Nakhla

  • HC Securities & Investments acted as co-advisor to Saudi food giant Almarai on the acquisition of 100% shares in Bakemart UAE and Bahrain in a deal worth AED 93.5 million (USD25.5 million).

The transaction remains subject to obtaining certain mandatory and regulatory approvals including the approval of the General Authority for Competition in the Kingdom of Saudi Arabia, The acquisition will further expand Almarai’s bakery product offering and enhance its contribution to the Kingdom’s food security in line with Saudi Vision 2030.

Established in 1977, Almarai is headquartered in Riyadh, Saudi Arabia and is actively engaged in five categories across the Middle East and North Africa (MENA) region: Dairy, Juice, Bakery, Poultry and Infant Nutrition. Almarai is currently the Middle East’s leading food and beverage manufacturer and distributor – and the world’s largest vertically integrated dairy company.

Mohamed Aburawi, head of investment banking at HC commented: “We are pleased to support Almarai on this important transaction in expanding its bakery business. HC has developed a long term relationship with Almarai for over a decade; back in 2009, HC advised Almarai on the acquisition of 100% of The International Company for Agro Industrial Projects “Beyti” marking its entry to the Egyptian market. This transaction also testifies of the HC’s cross-border execution capabilities, in addition to its ability to offer best-in class advisory services and connect investors with best-of-breed opportunities in the region via its offices in Cairo and Dubai International Financial Centre (DIFC)”

-Ends-

HC Securities & Investment

HC Securities & Investment (HC) is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has leveraged its relationship-driven insights, local and regional market knowledge, 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, online trading and private equity 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 USD 5.9bn. HC Asset Management, , now manages 11 onshore mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP 7bn. 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.

 

For further information, please visit www.hc-si.com or contact Marwa Nakhla, Corporate Communications Supervisor, at mnakhla@hc-si.com

Egypt currently relies on foreign portfolio inflows as a main source for foreign currency, HC expects the CBE to keep interest rates unchanged

Posted on by Marwa Nakhla
  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled March 18th and based on Egypt’s current situation, they expect the CBE to keep interest rates unchanged.

Head of macro and financials at HC, Monette Doss commented: “February inflation figures came in lower than our estimates of 4.9% y-o-y and 0.5% m-o-m, which we believe reflects suppressed consumer demand currently. Over the rest of 2021, we expect monthly inflation to average 0.8% m-o-m and 6.4% y-o-y accounting for possible domestic price shocks following the recent commodity price rally and possible recovery in consumer confidence following the successful rollout of the COVID-19 vaccine. Our numbers rule out domestic gasoline price increases since the current market price reflects a Brent price of USD61/barrel (as estimated in the FY20/21 government budget). We estimate FY20/21e average Brent price at USD54/barrel, as it averaged USD44/barrel in 1H20/21 while Bloomberg consensus estimates for 2H20/21 come at USD62/barrel. We, therefore, expect 2021 inflation to remain within the CBE’s target range of 7% (+/-2%) for 4Q22. On the external position front, however, we believe that Egypt currently relies on foreign portfolio inflows as a main source for foreign currency given slashed tourism revenue and low exportation activity. Hence, with treasury yield hikes in the USA as well as different emerging markets such as Turkey, we believe that the CBE has limited room to undertake further interest rate cuts in its upcoming meeting. We believe that global interest rate hikes reflected in a decline in average monthly portfolio inflows in Egyptian treasuries to USD1.25bn during January and February from USD2.29bn in 2H20. We, accordingly, expect the MPC to keep rates unchanged in its upcoming meeting. That said, we note that Egyptian 12M treasuries currently offer a real yield of 5.1% (given a nominal yield of 13.3%, 15% tax rate on treasuries’ income for American and European investors and our 2021e average inflation forecast of c6%) which is higher than Turkey’s real yield of 2.0% (given nominal yield of 15.7% on 14M treasuries, zero tax rate, and Bloomberg 2021 inflation forecast of 13.7%).”

It is worth mentioning that, in its last meeting on 4 February, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged for the second consecutive time after undertaking cuts of 50 bps twice in its September and November 2020 meetings. Egypt’s annual headline inflation accelerated to 4.5% in February from 4.3% in the previous month, with monthly inflation increasing 0.2% m-o-m reversing a decline of 0.4% m-o-m in January, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).

HC is positive on the Egyptian economy… Shifting to higher-beta stocks

Posted on by Marwa Nakhla

  • HC Securities and Investment Research Department released its latest report about Egypt’s macro economy. They assured that they are positive on the Egyptian economy, which fared better-than-expected in light of COVID-19, on IMF and government supports.

  • Private sector pickup materializing on monetary easing, moderate inflation, and stable EGP
  • We are positive on the Egyptian economy, which fared better-than-expected in light of COVID-19, on IMF and government supports
  • We are bullish on real estate, financials, and select industrial and consumer names, filtering through to 9 high-conviction picks

HC’s research team explained: “Our 2021e macro assumptions entail moderate inflation, stable EGP, and further 100 bps policy rate cuts: Despite COVID-19 concerns, we are bullish on the Egyptian economy in 2021 following a total 400 bps policy rate cuts in 2020, our expected 100 bps rate cut in 2021, inflation moderating to an average c7%, and EGP stability, in our view. Starting July 2020, the Egyptian government eased COVID-19 restrictive measures, highlighting its unwillingness to impose any curfews or lockdowns during a second pandemic wave. Despite this, the health system remained under control, which has helped Egypt to record positive GDP growth of 3.6% in FY19/20, while the IMF estimated all MENA countries to record negative GDP growth in 2020.  While the FY19/20 GDP growth was supported by a 5.4% growth in final consumption (public 7.2% vs. 5.2% private), we expect an FY20/21e GDP growth of 2.8%, supported by 6.2% growth in total investments (public 7.0% vs. 5.6% private). We expect slashed tourism receipts to result in a wider current account deficit of c4% of GDP in FY20/21e from c3% in FY19/20 despite Egypt recording an oil trade balance surplus in FY20/21e, and worker remittances increasing c10% y-o-y in FY20/21e, on our estimates. That said, Egypt’s carry trade remains appealing, offering a 12M positive real interest rate of 4.1%, on our calculations. We hence see robust portfolio inflows, which–together with Eurobond issuances and the IMF loans –should finance Egypt’s debt repayment and help the BOP reverse to a surplus of USD1.70bn in FY20/21e, from a deficit of USD8.59bn in FY19/20, in our view.”

HC’s analysts concluded: “Against this macro backdrop, we stick to 9 high-conviction picks in real estate, financials, and select industrial and consumer names, based on which we present our proposed equity investment portfolio with the highest risk-adjusted return: Considering our macro view, we prefer sectors benefiting from a low-interest-rate environment, pent-up demand, stable EGP, private consumption recovery and a pickup in private investment. These criteria lead us to pick stocks in real estate, financials, and select industrial and consumer names. Last year we preferred stocks with limited downside risk. However, going into 2021e and in light of our economic view, we currently recommend shifting to higher beta stocks and stick to 9 high-conviction picks. Our picks are Orascom Construction in the industrial sector, Eastern Company, and GB Auto in the consumer sector, Commercial International Bank, Abu Dhabi Islamic Bank Egypt and EFG Hermes Holding in the financial industry, and TMG Holding, SODIC and Orascom Development Egypt in the real estate sector.”

HC Increases its 12M TP for CI Capital by c19% to EGP5.47/share

Posted on by Marwa Nakhla

HC Increases its 12M TP for CI Capital by c19% to EGP5.47/share, The firm Capitalizes on NBFS impressive growth

  • HC Brokerage recently updated the market on CI Capital and their NBFS impressive growth. HC stated that it increases its 12M TP for CI Capital by c19% to EGP5.47/share on lower COE and maintain the OW rating.

  • We expect monetary easing and private sector pickup to support leasing and investment banking operations, while financial inclusion should benefit microfinance loan growth
  • CI Capital is currently a target of acquisition by Banque Misr. We expect synergies from this deal to have positive spillover effects on the company’s different operations
  • We increase our 12M TP for CI Capital by c19% to EGP5.47/share on lower COE and maintain our OW rating.

Monette Doss, head of macro and financials commented: “We expect 2020e–25e consolidated net profit CAGR of c20% on NBFS growth and improved stock market activity from last year’s troughs: Monetary easing, including 400 bps policy rate cuts in 2020, reflected positively on Corplease’s operations with its net leasing portfolio growing by c56% y-o-y in 9M20, exceeding our earlier estimate by c19%. However, the company’s net interest margin (NIM) declined to 4.6% in 9M20 from 5.5% in 2019. Going forward, we expect the company’s net leasing portfolio to grow at a 2020e–25e CAGR of c24%, maintaining an average leverage of 6.1x, as it tends to securitize c45% of its new annual bookings and expect its NIM to average 4.4%. We raise our provisions estimates over our forecast period to account for higher-than-expected net leasing portfolio growth, and accordingly downward revise our leasing 2021e–24e net earnings estimates by c8%. The company’s microfinance arm, Reefy, managed to outpace the c20% y-o-y sector growth in 9M20, growing its loan book c35% y-o-y to EGP849m and increasing its market share to 4.8%, from 4.2% in 2019, based on our calculations. As we move forward, we expect the government’s financial inclusion efforts to reflect positively on microfinance loan growth, and hence estimate Reefy’s loans to grow at a 2020e–25e CAGR of c26%, outpacing sector growth of c17% over the same period, while we expect NIM to gradually decline to c31% by 2025e from c41% in 2020e. We mostly maintain our previous 2021e–24e net earnings estimates for Reefy. The impact of COVID-19 on emerging stock markets in 2020, worsened by the EGX30 underperforming other markets and dropping c22% y-o-y, has negatively reflected on CI Capital’s investment banking operations with net revenue declining by c27% y-o-y in 9M20. Accordingly, we downward revise our IB 2021e–24e net earnings estimates by c33%, however, we expect it to grow at a 2020e–25e CAGR of c36%, coming from a low base.”

“The IPO of CI Capital’s 16.5%-owned education arm, Taaleem Management Services, to possibly occur in 1Q21:  We positively perceive the company’s direct investment in the education sector through its 16.5%-owned Taaleem Management Services as the sector enjoys high growth potential. On Thursday, the company announced that it submitted its registration application to Egypt’s Financial Regulatory Authority (FRA) to list its shares on the Egyptian Exchange (EGX) through an initial public offering (IPO). The offering consists of a secondary sale of shares by Sphinx Obelisk of up to 358m ordinary shares on the EGX, representing up to 49% of its share capital post completion of the offering. Taaleem owns and operates Nahda University in Beni Suef with two campuses in the governorate, and a total capacity of just over 11,000 students and more than 6,270 enrolled students for the academic year 2020/2021. The university consists of 8 faculties and is planning to add three more faculties over the next three years, subject to obtaining regulatory approvals, which will increase its student capacity by c27%. Additionally, Taaleem entered into a joint venture with Palm Hills Developments (PHDC EY) to set up a higher education university in West Cairo, pending regulatory approvals, with a potential capacity of 9,160 students controlled and managed by Taaleem. CI Capital influences the decisions of Taaleem’s board of directors. We value Taaleem at an equity value of EGP4.42bn, implying EGP728m for CI Capital’s share.” Monette Doss added.

“Seeking expansion in NBFS, Banque Misr submits an MTO for up to 90% of CI Capital at EGP4.70/share: Banque Misr has submitted a mandatory tender offer (MTO), approved by Egypt’s Financial Regulatory Authority (FRA), to acquire up to a 90% stake in CI Capital at EGP4.70/share, seeking a minimum stake of 51% of the total company’s shares, while reserving its right to execute a lower number of shares, if it chooses to, according to the MTO circular published on Friday. The offer will run from today and until the end of the 11 March trading session. Banque Misr intends to keep the minimum regulatory free float requirement of 10% of its shares to maintain its listing on the EGX. Currently, the bank owns a 24.7% stake in CI Capital, while the acquisition will increase its exposure to the highly profitable NBFS sector, in our view. We believe the transaction could result in significant synergies between the two entities, including providing cheaper funding to CI Capital’s NBFS operations and benefiting investment banking operations.” Monette Doss continued.

HC’s head of macro and financials concluded: “We increase our 12M TP for CI Capital by c19% to EGP5.47/share, largely on lower COE, and maintain our Overweight rating: We value the company using a Sum-of-the-part (SOTP) methodology, and use an excess return model for its core operations, valuing its consumer finance and mortgage greenfield investments at equity book value. We value its financial investment in Palm Hills Developments at a market value of EGP141m and use a DCF methodology to value Taaleem applying a beta of 1.00. We decrease our cost of equity to an average of 16.7% from 17.5% previously, on a lower-than-previously expected risk-free rate. Individually, we value CI Capital’s Corplease at EGP2.42/share (c17% higher than our previous estimate), putting the business at a 2021e P/E multiple of 7.3x. For microfinance, we value Reefy at EGP1.15/share (c28% higher than our previous estimate), putting the business at a 2021e P/E multiple of 8.70x. We value the investment bank at EGP0.91/share (c1% lower than our previous estimate). We add the equity book value of its mortgage and consumer finance greenfield investments and its financial investment in Palm Hills Developments of EGP0.26/share. We value Taaleem at EGP0.73/share (c3% higher than our previous estimate), putting the business at 2021e EV/EBITDA of 11.1x, 2.11x its acquisition value. The NBFS platform makes up c65% of the stock’s total equity value, the investment bank c17%, Taaleem c13%, with equity investments accounting for the remaining c5%. These sum up to a 12-month target price of EGP5.47/share, implying a potential return of c20% on the 11 February closing price of EGP4.54/share. We, therefore, maintain our Overweight rating on CI Capital. Our 12-month TP of EGP5.47/share puts the stock at a 2021e P/E multiple of 9.77x and a P/B multiple of 1.51x, while it is trading at 2021e P/E and P/B multiples of 8.12x and 1.26x, respectively.”

HC Brokerage stepped in 2021 with a new branch in Alexandria

Posted on by Marwa Nakhla

  • HC Brokerage stepped in 2021 with a new branch in Alexandria. Hassan Choucri: “Our expansion plan aims at providing services to retail in light of the high potential for investment growth in the stock market.”

HC Brokerage launched its new branch in Alexandria, to provide various services in the fields of securities trading, and online trading to the potential investors of this active governorate and the surrounding areas, after obtaining the necessary licenses from the Financial Regulatory Authority, to reach eight branches across the two capitals, Delta and Upper Egypt.

The opening of the new branch comes within the framework of the company’s commitment to being present in uncovered areas who do not have access to investment services and financial advisories throughout the country. HC targets promising areas in terms of investment opportunities and appetite. The past period, particularly during the coronavirus outbreak, proved that these expansions led to great successes across Upper Egypt and the Delta region.

Hassan Choucri, Managing Director of HC Brokerage, said that the opening of the Alexandria branch is a continuation of the company’s efforts to expand in the governorates of Egypt, especially the Delta region. The Egyptian stock market witnessed a significant number of retail investors who acquired a significant share of trading volumes. Due to this current market trend, in addition to the company’s positive outlook for 2021 performance, the decision to offer much needed retail financial services proved feasible in the presence of latent opportunities for investment growth.

He added: “The company plans to add other governorates to the bundle of branches of HC Brokerage in the Delta and Upper Egypt, we are encouraged by the expected improvement in the Egyptian economy’s performance in 2021 and thus the performance of the capital market, despite the crisis of the coronavirus outbreak. We are also encouraged by the pay-off of our efforts.” HC tripled its market share in the retail sector from 0.5% at the end of 2015 to reach 1.5% at the end of 2020, and the company has also jumped from the 55th rank by retail trading volume to the 19th over the same period.”

Choucri stressed that the Egyptian capital market is expected to receive greater interest from foreign investors in 2021, whether in Egyptian treasuries – as their real returns are attractive compared to other markets – or in stocks. With regards to stocks, the pricing declines witnessed in the Egyptian capital market remained greater than other markets. Moreover, it is expected that the Egyptian economy will be the only economy in the region that will record growth, according to the estimation of many international entities, including the World Bank.

 

HC Perceives upward interest rate pressures, CBE to keep interest rates unchanged

Posted on by Marwa Nakhla

  • HC Securities & Investment shared their expectations on the likely outcome of the MPC meeting scheduled February 4th and based on Egypt’s current situation, they Perceive upward interest rate pressures and expect the CBE to keep interest rates unchanged.

Head of macro and financials at HC, Monette Doss commented: “We expect January inflation to come in at 5.2%, near the lower end of the CBE’s new target range of 7% (+/-2%) for 4Q22. We, however, perceive upward interest rate pressures as was manifested in rising yields and relatively weaker coverage in the last government T-bill and T-bond auctions. In this regard, we note that Egyptian treasuries are now facing higher competition from Turkey which increased its policy rates by 200 bps on 24 December, taking its 15M treasuries to 15.97% up from an implied rate of 10.66% previously. Given Bloomberg estimates for 2021 inflation in Turkey at 12.2%, the Turkish treasuries now offer 3.8% real return similar to Egypt’s real return of 3.8% (given Egypt’s 12M yields at 12.99%, 15% tax rate for American and European investors and our 2021e inflation forecast of 7.2%). On a different front, banking sector liquidity, as indicated by the CBE’s deposit auctions, declined to represent c11% of total local currency deposits in November from c13% in October. We also believe that currently, the high-risk business environment poses upward interest rate pressures. Even though the Egyptian economy has shown high resilience in absorbing the repercussions of the pandemic, global uncertainty had its toll on different sectors in Egypt especially tourism and export-related sectors increasing their risk and also posing interest rate pressures, in our view. That said, we expect the MPC to keep rates unchanged in its upcoming meeting on 4 February.”

 

It is worth mentioning that, in its last meeting on 24 December, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided to keep rates unchanged after undertaking cuts of 50 bps twice in its September and November meetings. Egypt’s annual headline inflation decelerated to 5.4% in December from 5.7% in the previous month, with monthly inflation decreasing 0.4% m-o-m compared to an increase of 0.8% m-o-m in November, according to data published by the Central Agency for Public Mobilization and Statistics (CAPMAS).