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STOCK ANALYSIS
Market hits new highs
The period from September 15 to October 15 marked another milestone for Egyptian equities, with market indices recording all-time highs. The HFI ended the period 7.1 percent higher at 78867.30, while the CIBC index added 2.4 percent to 396.85. With international markets put at ease by the Fed rate cut, rational trading prevailed on the part of foreign investors, who continued to be net buyers during this period.
Interestingly enough, last period coincided with Ramadan, usually characterized by low volume and trading activity. But this was no slow month. Indeed, trading was relatively high with an average daily turnover of around LE 875 million. This performance was buoyed by an inflow of funds from foreigners, a trend market participants expect to continue in the short and medium terms.
By far, banks continued to be the market stars for the second period in a row. This time, Alexandria Commercial & Maritime Bank and Suez Canal Bank led the pack, with returns of 60 percent to LE 31.99 and 36 percent to LE 33.91, respectively. The former is thinly traded due to a low free float following the bank’s acquisition by UAE-based Union National Bank. Meanwhile, the latter was perceived as a possible acquisition target. In third place, Housing & Development Bank’s stock was up 22 percent at LE 58.48. It later announced a LE 600 million capital increase. Large-cap banks were also in on the action with NSGB up 12.6 percent to LE 45.05, CIB up 12.8 percent to LE 80.00, and Credit Agricole up 13.4 percent to LE 20.10.
Cement companies took a one-two punch in October. First, on October 4, when 24 firms were short-listed as potential bidders for new licenses to build cement factories or expand existing operations, posing a competitive threat to existing cement producers. And second, when those same existing cement producers were reported to Egypt’s Public Prosecutor on charges of monopolistic practices following a 14-month investigation conducted by the Egyptian Competition Authority. Almost all cement stocks were down for the period with Amreyah Cement and National Cement raking the highest losses, of 14.6 percent and 12.4 percent to close at LE 29.70 and LE 35.43, respectively. However, investors quickly realized that the potential losses incurred by cement companies would be limited to fines ranging between LE 30,000 and LE 10 million, representing only a minute chunk of their profitability. Accordingly, a few exceptions emerged: Misr Beni Suef Cement posted the highest positive performance, up 11.2 percent to LE 138.57; Sinai Cement increased by 2.3 percent to close the period at LE 75.57; and Misr Cement-Qena closed up 1.6 percent at LE 84.73.
Overall, positive performances in major world markets helped shore up foreign investors’ sentiment. All major indices closed the period higher, with the S&P 500 and Japan’s Nikkei-225 ringing the lowest and highest positive returns, of 4.7 percent and 10.4 percent, respectively. Rationally speaking, corporate Egypt’s third-quarter earnings need to live up to investors’ now-higher trading levels. While most analysts expect strong third-quarter results across the board, any weakness in earnings will negatively impact the market, especially if market momentum wanes as a result.
Suez Canal Bank
By definition, mergers and acquisitions (M&A) arbitrageurs often search for and buy into companies that could be possible targets, betting on capital appreciation as the rest of the market starts to buy into the story. Nowadays, shareholders of Suez Canal Bank (SCB) are probably appreciating the role of those arbitrageurs. The stock advanced 36 percent from LE 24.99 to LE 33.91, up a whopping 160 percent year-to-date. The bank has been going through a balance sheet clean-up starting with a capital increase and stricter provisioning policy. According to management, 50 percent of its non-performing loans have been reconciled already. SCB has been using all its profits to build up provisions. With its net loans-to-deposits ratio hovering around 56 percent, SCB could be reemerging with a stronger and more liquid balance sheet. At least investors reevaluating the stock seem to think so.
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