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STOCK ANALYSIS
No reason to be sleepless in Cairo
Large-cap stocks outperformed their small-cap counterparts from November 15 to December 15, though both showed declines. While the EGX 30 index slipped 2.5 percent to 6,483.3, the EGX 70 dropped nearly 12 percent to 672.6. Year-to-date, large caps have gained 41 percent and small caps 39.5 percent. Average daily traded value retreated for the second month in a row, down 7 percent to LE 1 billion, reflecting both generally lower stock prices and volumes. The equity firm Citadel Capital listed its shares on the Egyptian Exchange (EGX), adding more than LE 4 billion to total market capitalization, which exceeds LE 500 billion.
Once again, telecom stocks stepped into the limelight, with the quest by France Telecom (FT) for a controlling stake in the Egyptian Company for Mobile Services (ECMS). The former had its LE 245-per-share purchase offer approved by the Egyptian Financial Supervisory Authority (EFSA). That was 19 percent higher than market price at the time of the announcement. No wonder, then, that ECMS stock was the top performer during this period despite an overall weaker market. It ended 19.8 percent higher at LE 238.04. However, most of this gain came during the last three days of the period.
Gainers for the period included Orascom Construction Industries (OCI) (9 percent), Ezz Steel (5.5 percent) and Telecom Egypt (TE) (4.3 percent). OCI’s stock continues to be driven by foreign investors’ portfolio flows. Against the backdrop of Dubai’s credit woes, OCI’s stock had plummeted to LE 217 by end of November before Credit Suisse raised its target price to LE 288 and Morgan Stanley initiated coverage on the stock with a $60-per-GDR price target (equivalent to LE 330 per share). Meanwhile, Ezz Steel went higher after the company increased its December selling prices by LE 150 per ton to LE 2,950 compared to the previous month. TE managed to trade higher on the France Telecom-Egyptian Company for Mobile Services news, especially that it would be investors’ only exposure to Egyptian telecoms if ECMS is bought by France Telecom.
Companies at risk of being delisted from the EGX by the end of 2009 saw shares slide by double digits. For instance, Alexandria Containers Handling, which is on the “non-compliant” list, does not intend to comply with listing rules. Its stock was down almost 30 percent to LE 76.29. Also, the flip side of the FT-ECMS story left Orascom Telecom (OT) shares down 20 percent to LE 28.04, after a high of LE 32.58 intraday on December 13. On the “out of favor” theme, milling companies’ stocks were all down – from 8 percent (South Cairo & Giza Mills) to 21 percent (North Cairo Mills).
November will probably end up being the worst month of the year: the EGX 30 was down about 16 percent in November. Still, 2009 should be a positive year. Foreign investors, who have been skittish about global markets throughout 2009, showed signs of returning confidence. However, that may have been dented by Dubai’s well-publicized credit woes. Investors may be wary of further sovereign outbreaks in the region, but Egypt is a different story with its well-diversified economy and healthy debt levels.
In The Spotlight
Egyptian Company for Mobile Services (ECMS)
On December 10, the Egyptian Financial Supervisory Authority (EFSA) allowed France Telecom (FT) to submit an obligatory purchase offer for the minority shareholders of the Egyptian Company for Mobile Services (ECMS) at LE 245 per share. Although the decision came late in the day, the Egyptian Exchange canceled all trades executed on December 10 after ECMS stock went as high as LE 214 intraday. The stock had traded between LE 187 and LE 202.25 over the 17 previous sessions. It traded from a low of LE 187.02 on November 19 to a high of LE 242 on December 14. Orascom Telecom (OT), ECMS’s other major shareholder besides FT, has rejected the offer and submitted an appeal to EFSA’s Grievances Committee. That committee’s decision will determine to a great extent if FT’s offer will continue to January 14, as planned.
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