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Entering into in a cruising mode

The market continued to advance higher during the period from August 15 to September 15. The HFI and CIBC indices closed 7.7 percent and 8.4 percent higher, at 54428.40 and 246.1 respectively, with advances outnumbering declines 3 to 1. Small caps and over-the-counter stocks were leading in terms of performance with large caps coming back in favor towards the end of the period.

Movement during this period resulted from corporate news that took the market by surprise. For instance, Vodafone Egypt (VFE) announced that it would acquire 51 percent of Raya Telecom, a Raya Holding subsidiary, for LE 104 million. While unexpected, this transaction could potentially benefit both companies. On the one hand, Raya Holding will benefit by deconsolidating Raya Telecom and thus removing the capital-intensive expenditures and depreciation expense off its financials. It will also use much of the LE 104 million generated from the acquisition to increase its stake in a call center company and expand its retail chains in Algeria and Egypt.

On the other hand, VFE seems to have made the conscious decision to become a fully integrated communications provider. Indeed, Raya Telecom’s businesses complement VFE’s products and services, especially when bidding for the international gateway license by the end of 2006. Raya Holding shares closed 23 percent higher at LE 14.49 while VFE shares were almost unchanged at LE 84.27.

Right before the VFE-Raya Telecom announcement, Orascom Telecom Holding (OT) had revealed that it was calling off its talks with Raya Holding to acquire shares in the same line of business. Nevertheless, OT shares closed 17 percent higher at LE 312.64. It is worth noting that during this period OT reported 11 percent higher net profits of $174 million in its second-quarter results on a sequential basis due to subscriber growth and expanding margins.

Another piece of news that caused movement in the market was related to Nasr City Housing & Development, which saw its stock advance 27 percent to LE 91.68. News that the company had managed to settle an old dispute around a plot of land it owns positively impacted its stock performance. Also in real estate, SODIC’s shares shot up 30 percent to LE 121.69 following news of a capital increase and a partnership with a regional developer to execute new projects in Egypt.

Meanwhile, as is traditional for this time of the year, the milling sector came back in favor with the shares of all seven listed companies closing in the black with positive performances ranging from 1 to 7 percent. Milling companies usually hold their general meetings around these days and approve dividends.

In hindsight, the market does not seem to clearly convey the message of where it’s heading. Indeed, it seems that the market has entered into a cruising mode over the past month or so. However, all indicators are still positive. Corporate results are living up to the expected healthy growth and at times exceeding expectations. It’s worth noting that non-Arab foreign investors are still net buyers in the market, indicating a potential accumulation on their side. Also, the percentage of institutional investors is slowly increasing. Trading during the month of Ramadan will probably be thin. It will likely take one or two major positive events to give the market a boost and a clear direction for the medium term.

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