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Bank of Alexandria saves the day
The HFI and CIBC indices managed to close in the
black adding another 3.8 percent and 4.6 percent to close at 56509.47
and 257.3 respectively. This brings both indices back in the positive
year-to-date territory. Advances still outnumbered declines with
small caps and over-the-counter (OTC) stocks headlining the period’s
performance as most large caps took a back seat. Market trading
was thin, as expected, averaging close to LE 500 million a day.
Also as predicted, the market needed a major positive event, one
that was fulfilled by the sale of Bank of Alexandria (BA). Just
like the sale of the third mobile license in July, the BA deal took
the market by surprise, not because it was unexpected but due to
its magnitude. The date of the deal was announced beforehand; however,
what really grabbed attention was the price tag.
BA is Egypt’s fourth largest public sector bank, with a 7-8
percent market share. It was auctioned to the highest bidder. Italy’s
Sanpaolo IMI Group paid $1.6 billion – six to seven times
the book value. Compared to previous mergers and acquisitions in
the sector, which range between three and four times the book value,
this is quite a hefty price. Moreover, it embodies the government’s
resolve to speed up foreign direct investments.
Market participants see the deal as another vote of confidence for
the government. Sanpaolo sees it as a much-needed regional expansion
to compete with other European banks and gives it access to an underdeveloped
market.
As expected, banking stocks showed up on investors’ radar
screens after being neglected for some time. The banking sector
is consolidating and investors are watching as banks vie for shares
of the under-penetrated market. Banking stocks ended the period
with mixed results. CIB, one of the bidders for BA, closed the period
13.1 percent higher at LE 50.84. Investors deemed CIB’s decision
to pull out early from the BA auction a good strategic decision
as it focuses more on organic growth. Meanwhile, the National Bank
for Development, which was once considered for acquisition by CIB,
advanced 24.3 percent to LE 13.06. NSGB’s stock added 14.5
percent, while Al-Watany Bank of Egypt shed only 1 percent.
Elsewhere, small caps dominated the top performer list with names
like Nile Matches and Rakta showing stellar performances, up 87
percent and 41 percent respectively. By contrast, large caps such
as Al-Ezz Steel Rebars, AMOC and EFG-Hermes Holding closed in the
red, shedding 11.4 percent, 10.4 percent and 10 percent respectively.
If asked nowadays, most market participants would talk about an
expected rally before the end of the year in excess of 25-30 percent.
With non-Arab foreign investors and institutions continuing to be
net buyers in the market, this might actually come true. However,
investors should consider that third-quarter earnings are around
the corner, which means that any major disappointing results could
lead institutions to offload shares. However, one shouldn’t
underestimate the power of retail investors in this market, which
means sentiment is still dominating investment decisions and shouldn’t
be neglected. Finally, over optimism could lead to overconfidence,
a situation investors should watch out for.
ANALYZE THIS
Telecom Egypt
Investors welcomed Telecom Egypt (TE) management’s
decision to increase its stake in Vodafone Egypt by acquiring
all remaining floated shares. The company’s stock pressed
up 36 percent to close the period at LE 16.70. This performance
was due to the fact that TE’s growth story definitely
gets a boost if it has a larger slice of the mobile market.
Moreover, investors wanting to buy the now thinly traded Vodafone
shares will have to do so indirectly through TE. The former
highlights the development of the global telecom scene with
convergence between fixed and mobile operators. Indeed, TE
can join forces with Vodafone, which recently acquired a controlling
stake in Raya Telecom, one of Egypt’s broadband players,
to offer their customers bundled services (fixed, mobile and
broadband). |
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