Ahmed Abd Elnaby
Financial Analyst
A.T. Brokerage

Mike Millar
Regional Director of Research
Naeem Holding

The Egyptian Exchange (EGX) recently announced the delisting of 14 companies. What was the effect of that action and how long do you think it will last?

Delisting these stocks is a step in the right direction to ensure market efficiency. It stops traders from manipulating stock prices by spreading rumors and controlling availability, which causes instability in the market. However, further steps will be necessary to achieve transparency and market efficiency, and the EGX needs to continuously monitor the market to stop any manipulative actions by rogue investors looking to destabilize the market for personal gain.

The effect of delisting is insignificant. These shares were illiquid with low free floats, so it will have virtually no impact on market turnover/volume. The shares were delisted due to non-compliance with EGX listing requirements and were moved to the over-the-counter (OTC) market before being completely delisted from all trading platforms, giving investors who still hold these shares a chance to cash out before the end of January 2010. The fact that the EGX has acted to enforce listing requirements is a plus for market integrity.

How will the problems between Orascom Telecom (OT) and France Telecom over Mobinil affect the stocks of OT and Mobinil? How do you see the overall sector reacting?

Mobinil would benefit if France Telecom (FT) can acquire it. It would have a new board of directors and access to FT’s expertise and resources. An acquisition would be bad news for Orascom Telecom. Throughout the dispute, foreign investors in particular must be wary of price fluctuations in Mobinil and OT stocks. They should increase the risk coefficient known as Beta when mathematically assessing the fair value of the stocks. I believe more investors will reduce the number of OT and Mobinil stocks in their portfolios and replace them with Telecom Egypt stocks.

The courts have just stopped France Telecom’s (FT) latest offer and under Capital Market Authority (CMA) rules FT cannot make another offer for six months. In the immediate aftermath, Mobinil shares could languish amid uncertainty over what will happen next. FT seems keen, if not desperate, to gain control of Mobinil, and there is therefore a possibility of it returning in 2H10 with an equal offer at LE 273. Irrespective of the dispute, Egypt’s mobile sector remains buoyant, though average revenues per user (ARPUs) are suffering from intensified competition. OT looks cheap, both on a fundamental basis and relative to peers. Telecom Egypt is attractive for its strong cash flows.

What will be the best-performing sectors during the first half of 2010?

I believe the best-performing sector will be the food sector. The sector is very defensive in the sense that consumers will continue to buy food no matter what the economic situation is. The second reason is the strength of the subsidies program enforced by the government – the biggest example is bread subsidies. The third reason is that due to the spread of bird flu, poultry companies were given approvals to slaughter chickens above specified quotas.

I think areas such as petrochemicals, fertilizers and building materials will do well as the recovery gathers pace both in Egypt and globally. Better-quality real estate developers may also benefit from renewed confidence. Egypt’s bigger banks outperformed in 2009, so I don’t see them making much headway in 2010, though fundamentally they remain strong. Watch for some smaller stocks in consumer discretionary space as well.