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Stock Analysis
An Indian summer
The period from July 15 to August 15 was the second
in a row to see the market advance towards the levels witnessed
back in mid-May. Both the HFI and CIBC indices ended the period
with double-digit returns, up 11.2 percent and 15.2 percent at 50543.3
and 227.1 respectively. Advances led declines by 11 to 2, a seven-month
record.
During this period, many companies announced second-quarter results
to investors in general and shareholders in specific. Overall, Egyptian
firms stayed the course with the results confirming the growth witnessed
in the first quarter with only a few exceptions.
Still, the market bellwether, EFG-Hermes, made headlines with Abraaj
Capital offering to acquire a maximum of 25 percent of the company
following a proposed capital increase at LE 30 per share, the average
share price over the previous three months. Although this acquisition
price is not at a premium above market price, the stock responded
positively to the news, especially following the board’s approval.
This alliance indicates further regional growth down the road. By
August 15, the stock had shot up 32 percent for the period to reach
LE 41.25. A day later, EFG-Hermes announced its second-quarter earnings,
posting LE 150 million in profits, 28 percent lower than the first
quarter and slightly lower than market expectations, which hovered
around LE 175 million.
Meanwhile, Egypt Kuwait Holding Company, another retail favorite
trading in US dollars, announced a capital increase through a 10-percent
stock dividend. The stock came back from behind and broke the $2
psychological barrier to end the period up 33 percent at $2.57.
Ironically, the spark witnessed in mobile stocks in the wake of
Etisalat securing the third mobile license for a whopping LE 16.7
billion faded. Stocks of both Mobinil and Vodafone Egypt cooled
off and stabilized at prices slightly above their pre-auction levels.
Mobinil released its results failing to match Vodafone Egypt in
terms of revenues for the fourth quarter in a row and adding far
fewer subscribers than anticipated. The stock added only 1.8 percent
to LE 139.81. By contrast, Vodafone Egypt reported strong results
on all fronts, but its stock only managed to advance 3.8 percent
to LE 83.98.
Telecom Egypt did not announce its first-half results till August
15, when it reported 7-percent higher profits. The stock advanced
only 6.6 percent to LE 12.34. Another company reporting its first-half
results was Raya Holding, which is yet to prove its ability to sustain
bottom-line growth, leading management to rethink its strategy in
certain lines of business. Nevertheless, the stock was up 14.7 percent
for the period at LE 11.75.
On a different note, over-the-counter stocks were on fire this period,
with AIC topping them all with a 101-percent return, from LE 1.55
to LE 3.12; followed by IEEC, up 53 percent at LE 7.68; and Lakah
Group, up 49 percent at LE 1.28. Brokers are scratching their heads
as to why.
It has indeed been an Indian summer and investors along with Egyptian
equities seem to have been affected by it. Whether or not the market
will continue to rise will depend to a large extent on how retail
investors behave. Nevertheless, the fact that non-Arab foreign investors
continue to be net buyers is in itself assuring. The question then
becomes who has the power to move the market.
ANALYSE THIS
With analysts’ coverage extending to include Arab Cotton
Ginning (ACG), the market now has some visibility on ACG’s
market niche, operations, growth drivers as well as embedded
risks. Having been a retail investor favorite for quite some
time now, ACG is probably looking to balance its shareholders’
list to include institutions. After all, institutional investors
want to ensure they invest in what they understand. In mid-July,
management denied rumors around the sale of a stake in the
company to Gulf investors. This came following the strategic
alliance with Amwal Al-Khaleej of Saudi Arabia to create a
textiles group diversified across the supply chain to be known
as Amwal Al-Arabeya. It’s worth noting that ACG will
own 43 percent in that new entity, which will be eyeing investments
in the textiles sector on the local and regional fronts. |
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