Mohamed Seddiek
Head of Research
Prime Securities

Mohamed Owais
Sigma Plus Supervisor
Sigma Securities Brokerage

Given Mobinil’s successful issuance of bonds, do you think other listed companies will do the same in 2010? If so, do you foresee a sustained trend?

Mobinil’s bond was successful for three reasons. First, uncertainty about economic recovery discourages investment in equity financing. Second, because Mobinil is a company in a defensive industry, investors foresee cash flows that minimize default worries. Finally, being an investment grade bond “A” with a medium maturity “5Y” at 12.25 percent provides a decent 4 percent spread-to-deposit rate, which is attractive to fund managers. In 2010, listed companies with good credit qualities might follow suit. Beyond 2010, if a recovery progresses interest rates will eventually rebound, making debt financing more costly.

Mobinil’s successful bond issue may lead other listed companies to follow suit if they meet the credit rating requirements. Very few companies can issue bonds not guaranteed by a bank, thus the market appetite will be limited. The trend also may be inhibited by the religious culture of Egypt, which creates an aversion to bonds and other money market instruments. This is evidenced by the fact that the vast majority of bond issues are taken up by corporations and insurance companies, as well as banks.

The food and beverage sector has been booming this year. What would be your advice for investors holding food or beverage stocks? Do you see similar near-term strength for any other sectors?

Food and beverage (F&B) stocks are a natural choice during recessionary times: they don’t experience demand shocks because they serve basic economic functions and, accordingly, outperform cyclical sectors due to their defensive nature, which is reflected in high payout ratios. I would advise holding F&B stocks during 2010, but with lower exposure than 2009. I believe the more we head toward recovery, the more investors should assume some risk and look for cyclical stocks. Building materials, fertilizers and real estate should show some strength about six months before economies recover, reflecting increasing investor confidence.

From a fundamental aspect, it is advisable that investors hold food and beverage stocks. Our internal consumption essentially takes up everything we produce. In fact, we even import many food items. Thus, food and agricultural stocks are a hold in my opinion, so long as they are supported by strong fundamentals. This viewpoint is supported by the perspective of technical analysis, which placed this sector in an accumulation phase during the last year; the coming year may witness strength in that sector. Similar potential can be found in sectors related to food and beverages, such as agriculture and fertilizers.

Orascom Telecom has been one of the most actively traded stocks of 2010. With such volatility, would you advise Orascom stockholders to buy, sell or hold?

Orascom Telecom has been volatile due to the increased, maybe confusing, news flow from Djezzy, Canada and Mobinil. OT is a sound and fundamentally strong asset, yet it has been the case that it enters into risky environments looking for high returns. This always puts it into disputes, be it with regulators or co-investors. It remains a telecom asset with bright long-term prospects. However, it might experience a medium-term overhang due to the negative news flow. Investors should always be aware of it. I would buy it if I am a long-term investor and able to receive risk and distressed performance for a medium period of time.

Orascom’s volatility is temporary. Nonetheless, volatility is a trader’s best friend. So if the priority is short-term gain, the investor should actively trade that volatility and hope it lasts forever. I see Orascom Telecom as substantially below its fair value due to external factors, such as the Algeria tax dispute and the ongoing struggle with France Telecom over Mobinil. Investors not bothered by the volatility should pick a level that meets their risk/return appetite and stay the course after that. This is supported by the fact that OT has been one of the most successful companies and stocks in the history of Egypt, with good leadership and high expansion potential.