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Securities & Investment

Tag: Investment in Egypt

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.

 

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

Egypt real estate – Subpar economic conditions warrant selectivity

Posted on by Marwa Nakhla

HC Brokerage issued their update about Egypt’s real estate sector shedding the light on six main players’ performance following the most recent market dynamics.

  • While sector investment demand benefited from inflation and EGP devaluation fears, currently, it is hurt by lower affordability, cost overruns, and challenging financing

  • We expect further market consolidation following sector conditions and the EGP devaluation; revaluation of assets is currently underway for the acquisition targets

Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “ Soaring inflation is pressuring affordability and leading to cost overruns; in our view: A high inflation environment, causing negative real interest rates, has historically served the Egyptian real estate sector well, as investors usually view it as a safe haven. However, the current macro environment is challenging to the industry, in our view. Cost-inflationary pressures, caused by soaring inflation rates, which averaged 13.8% in 2022, led to cost overruns and pushed developers to resort to receivables securitization more than bank debt, which pressured their operating margins. We expect this to continue into 2023e as we expect inflation to average 21.5%. The Central Bank of Egypt (CBE) raised the key policy rates by 800 bps in 2022, and the EGP devalued by c37% in 2022 and by c18% y-t-d. To fend off dollarization and keep inflation in check, Egyptian public banks issued high-yielding certificates of deposits (CDs), offering an interest rate of as much as 25.0%, and private banks followed suit. In our view, the high-yielding CDs compete with investment in the real estate sector, adversely impacting its pre-sales which only grew by c8% in 9M22 in terms of value, while volume dropped c5% y-o-y for the six developers we track, as opposed to growing by c59% in 2021, which was volume and value-driven. Developers could not extend payment plans further, as previous years’ extended payment plans had already stretched their cash flows, raising concerns about affordability. In 2023e, we expect pre-sales growth to be price-driven.”

Elsaadany added: “Tourism recovery and EGP devaluation lead us to prefer developers with hospitality exposure; while we keep an eye on M&A targets: Given the currency outlook and a recovering tourism sector, as evidenced by higher occupancy rates, we like companies with significant hospitality operations, namely Orascom Development Egypt (ORHD EY) and Talaat Moustafa Group Holding (TMGH EY). Also, in light of a high-interest rate environment, we like developers who have been active in deleveraging their balance sheets and building on their ready-to-move inventory, putting themselves at a cost advantage, like Palm Hills Developments (PHDC EY). The three stocks also enjoy solid fundamentals and decent market liquidity. We believe three of the six companies under our coverage are subject to M&A speculation and/or currently the subject of a potential deal with ORHD’s sale of its subsidiary, Orascom Real Estate (ORE) to SODIC, under study. Also, in our view, MNHD and HELI are the two other developers we believe are most likely to be the subject of a potential acquisition due to their attractive land bank. As a result, the stock prices of ORHD, MNHD, and HELI rallied c20%, c43%, and c18%, respectively, during 2022, implying a value of EGP615/sqm of land for HELI and EGP1,227/sqm for MNHD at the current market prices. Given the outlook on the EGP, we maintain a favorable view on acquisition targets during 2023e despite them offering lower potential returns based on our valuations. The valuations for the deals/potential deals seen by the market ranged from EGP878/sqm—1,192/sqm of undeveloped land. The most recent offer by SODIC to acquire Orascom Real Estate (ORE), a subsidiary of Orascom Development Egypt (ORHD EY), implied a price of EGP878/sqm, or USD45/sqm. In our view, future potential deals should see a significant increase on an EGP basis.”

“The sector challenges are reflected in stock prices which are currently oversold with an average 2023e P/NAV and P/E ratios of 0.34x and 6.08x (excluding HELI), respectively, suggesting that the overselling is excessive, in our view. PHDC and TMGH stocks have not rallied as much as other real estate names despite both companies delivering good results, PHDC initiating a share buyback program, and both stocks paying dividends. PHDC is trading at a 2023e P/NAV of 0.29x, and TMGH is trading at 0.32x, lower than the sector’s average. PHDC offers the highest potential return of c83% and TMGH c57%, while the market assigns a negative value to TMGH’s land bank. Therefore, we maintain our Overweight recommendations for the two stocks.

In our view, an economic pickup, monetary easing, and the development of the mortgage market for the upper-middle segment would be the sector’s key triggers.”, Mariam Elsaadany concluded.

HC acted as co-advisor to MAC Beverages Ltd and its affiliates (“MBL”) on the sale of their 52.7% stake in Coca Cola Bottling Company of Egypt

Posted on by Marwa Nakhla

  • HC Securities & Investments (“HC”) acted as co-advisor to MAC Beverages Ltd and its affiliates (“MBL”) on the sale of their 52.7% stake in Coca Cola Bottling Company of Egypt (“CCBCE”), as a part of Coca Cola HBC Holdings B.V (“CCH Holdings”) acquisition of 94.7% of total CCBCE’s shares for an agreed total combined purchase price of US$ [427] million, subject to certain adjustments.

The parties of Coca Cola transaction have entered into definitive agreements. The transaction is expected to closing in late Q4 2021, subject to satisfaction of various conditions, including the receipt of certain lenders consents under CCBCE’s existing loan facilities and certain regulatory and other conditions.

Mohamed Aburawi, Head of Investment Banking at HC commented: “We are pleased to support MBL on this landmark transaction. HC has developed a long term relationship with MBL for more than a decade advising MBL on a number of high profile transactions in the F&B and packaging sectors. This transaction testifies of Egypt’s attractiveness as a promising investment destination offering great business opportunities appealing to prominent international strategic investors”

End –

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 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 9 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.

 

Investing In StartUp’s Post Coronavirus

Posted on by Marwa Nakhla

  • Consider your approach to investing in startups before the coronavirus pandemic and consider your strategy now. If you’re taking the same investment strategy, then you know things need to change. The world has changed and the way you invest in startups needs to change also. From an investment standpoint, everything you do should be based on leading the competition. Here are a few strategies and new norms that you should consider to be integral to your new investment strategy and startup philosophy.

 

  • Remote Sales Reps Vs In-house Sales Teams

Sales is the most critical aspect of a company. Some would argue that a startups business process and management team are equally important. However, a recent study concluded that most executives feel customer acquisition and sales strategies are the most important reason why they would invest in a startup. Therefore, adapting your sales strategy to be remote and extremely cost-efficient is a great selling point for both investors and startup founders looking to save money and operate in the new coronavirus landscape.

Think about it. Those startups and even enterprise organizations that successfully leverage remote sales reps over in-house sales consultants will win at the end of the day. They will win in both cost efficiency, agility, adaptability, and longevity. Startups that make sales a remote ordeal, and do it successfully have been known to achieve higher revenues.

A study by 99 Firms concluded that 75% of buyers prefer not to waste time meeting face to face. Why waste time meeting in person when you can conduct a transaction remotely. If buyers and prospects are already accustomed to doing business online and over the phone, it only makes sense that any startup you operate or invest in takes advantage of that.

  • Food & Technology are Recession-Proof

When looking into recession-proof investment options, food & technology always win. If it’s two things that industry analysts around the globe agree on, it’s that the consumer packaged foods industry and tech-based innovations will never be struck too hard by any recession or pandemic. People always have to eat and the world craves new innovation.

The term recession-resistant has been used quite frequently when discussing consumer packaged goods. Our society uses these food items and beverages every day. Take a look around your kitchen and you’ll find a wealth of consumer packaged goods that you consider to be essential. Even in the middle of a pandemic, you’ll still need to buy salt, water, eggs, oatmeal, and a whole host of other consumer packaged food items.

Now let’s talk about technology. You can’t read this article, watch the news, or even buy anything without some form of technology. The world operates at a foundational level with the help of integrated technological devices like smartphones, payment processing platforms, databases, etc. These are tech-based innovations that never go into a recession. Consider this as an investor when trying to keep a healthy portfolio during the coronavirus pandemic.

  • The Lean Startup Model Is Now More Important Than Ever

Harvard business school has coined the term, “The Lean Startup”. It refers to startups and businesses that look at things from an agile and lean perspective. Before dedicating your time, resources, and energy to assuming what the customer wants, get out and ask them directly. Get out and make contact with your customers by asking them, is this solution something you can use, how much would you pay for it, and questions like these. This is more important than ever in a time like the coronavirus pandemic.

Modern business trends and customer’s buying behaviors have forever changed. Therefore, startups that maintain a lean and agile philosophy will be more successful than those that don’t. Whether you are an investor or startup executive, keeping this in mind is critical.

The basic philosophy behind staying lean is never assuming you know what the customer wants. Asking them directly will help you pivot and adapt in the right direction. Take for example a company like McKinsey & Company. They are constantly adapting to the evolving marketplace and innovating new services based on what customers want. It’s one of the reasons why they are the largest consulting firms in the world. Things change every day and unless you ask the customer, how would you know?

Based on our experience and diverse investment portfolio, these are the most important aspects of business startups and investment strategies that need to be considered in this new coronavirus landscape. Don’t hesitate to reach out to our team of expert investment strategists. We’re ready to help you gain a foothold in a pandemic resistant sector.

Egypt’s Banking Sector, Well shielded

Posted on by Marwa Nakhla

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

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

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

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

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

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

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