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Stock Analysis
The small caps are talking
With the third-quarter earnings season drawing
to a close, investors are left perplexed. Positive macroeconomic
indicators and strong earnings have not led to an overall capital
appreciation in the CASE 30 index. On the other hand, small caps
continue to lead in terms of performance, while large caps have
moved sideways.
“It does not make sense, yet it’s true,” one trader
said in reference to the top performer list over the past month,
when the HFI index advanced a mere 1.9 percent to 57601.31. By contrast,
the CIBC index was up a staggering 10.3 percent to 283.70, the highest
year-to-date return amongst all local indices (up 16.9 percent).
This gap between both market indices can be attributed to their
respective constituents. The CIBC index is dominated by small caps
while the HFI index is dominated by large caps. The strong performance
of the small caps compared to the large ones explains the discrepancy
between the two indices.
The period from October 15 to November 15 had at least five small-cap
stocks – Ceramics & Porcelain, United Arab Shipping, ICON,
Almaco and Extracted Oils – recording triple-digit growth
rates.
Kabo continued to be the most actively traded stock in terms of
volume, while EFG-Hermes Holding led on the turnover front. The
former – which reported net losses of LE 4 million in its
nine-month results compared to a net profit of LE 2.4 million last
year – advanced 45 percent to LE 3.35, while the latter –
which reported 173 percent higher profits of LE 510 million over
the same period – added only 1.3 percent to LE 39.77. As one
market participant put it, “[small-cap] stocks make their
investors more money than the companies themselves.”
Meanwhile, CIB reported a 37-percent profit increase of LE 615 million
in its third-quarter results and its stock added another 6.2 percent
to LE 54. Also, Mobinil came in with better than expected third-quarter
results, yet its stock stabilized at LE 160.93. Not to be left out,
Vodafone Egypt (VE) advanced 3.8 percent to LE 97.65 on very thin
volumes but piggy backing on Vodafone Group’s purchase of
an additional 4.9 percent of VE at LE 100 a share.
Interesting to note is Olympic Group’s quiet comeback, yet
its stock price slipped 1.9 percent to LE 53. The company reported
78 percent higher net profits of LE 181 million and 41 percent higher
revenues, which could be an indicator that positive macroeconomic
figures are filtering down to the middle class.
Meanwhile, Arab Cotton Ginning stock increased by 1.7 percent to
LE 12.03 after reporting a net profit in its first-quarter results
ended September 2006. This seasonal business usually sees its first-quarter
results in the red, but this time, profits put it in the black.
Fertilizer and steel stocks were in the red as EFIC and Al-Ezz Steel
Rebars retreated by 2.8 percent and 4.2 percent to LE 69.99 and
LE 57.41, respectively. Also, Nasr City Housing & Development
stocks fell by 8 percent to LE 77.21 by November 15 before a consortium
led by Beltone Capital and Orascom Hotels & Development offered
to acquire 100 percent of the company at LE 90 a share. Nasr City
H&D stock shot up 14 percent in two days to trade only 4 percent
shy of the tender offer price.
At a time when investors are seeking sound market advice, the market
itself does not seem to make sense. Irrational behavior is here
once again in certain stocks. Rational investors are advised to
stay away from volatile small caps that fluctuate inexplicably.
ANALYZE THIS
United Arab Shipping
As an example of small-cap stocks taking over this period,
United Arab Shipping has appreciated a whopping 149 percent
from LE 14.85 on October 15 to LE 36.96 on November 15. The
stock closed almost 5 percent higher on each of the 19 sessions
during the period with an average daily volume of 20,000 shares.
Traded volume was as low as 1,100 and as high as 126,700.
With 3.8 million shares listed on the CASE, the company’s
market capitalization more than doubled reaching LE 140 million,
up from LE 56 million only a month ago. Financially, the company
reported a net loss of LE 24.6 million in FY 2005-06 ending
in June with revenues of LE 12.6 million, but 3 percent lower
than a year ago. It reported bottom line losses of LE 5.4
million in its first quarter of the following year on top-line
revenues of LE 3.2 million. |
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