Al Ahly Pharos

Pre-Trading Thoughts

January 09, 2023 Al Ahly Pharos
Al Ahly Pharos
Pre-Trading Thoughts
Show Notes

Pitch: FX-Sensitive Stocks: How high can we fly? Since the market has been over-rewarding FX-sensitive stocks (naturally), it is only logical to ask ourselves the question of how high those stock prices can go. We assume that an FX rate of EGP35-40/USD as an average over the five-year period (2023-2027) and check the impact on fair values. Conclusion: AMOC, ESRS, EGAL, and MFPC (some with high DY too) are still showing better potential for rerating than ALCN, EFIC, SWDY, SKPC, and ABUK.

Key emerging-market equities, currencies, and bonds indices continued to rise last week as some investors anticipate a broad rally in EM assets in 2023, Bloomberg reports, but much will depend on how and when the US Federal Reserve will manage its tightening cycle. 

The EGP had slid to 27.20 against the USD last week with expectations of further weakness this week to control the gap between the official and the black market. 

The EGP/USD exchange rate appreciated in non-deliverable futures contracts for 12 months, to range between EGP30.5-30.9 on January 4, compared to EGP32.6-33.1 on December 14. 

Egypt's Eurobond bond yields have recently declined by up to 300 bps compared to July 2022 levels, with the yield for bonds due in June 2025 falling to 9.1%, compared to 12.1%, and the yield on bonds due in January 2027 falling to 10.56%, compared to 13.95%. 

The newly released 25% certificates of deposit have attracted c.EGP100 bn and the two state banks offering them have secured USD705 mn to meet local demand for hard currency. 

The IMF will hold a virtual press conference on its USD 3 bn financial assistance program with Egypt tomorrow at 4 pm CLT, along with the release of the IMF’s staff report on Egypt. 

Inflation rates will be published by CAPMAS on Tuesday, 10th January. We expect urban annual inflation to record the 20% level YoY, on mounting prices of food items accompanied by the pass-through effect of weaker currency affecting costs of production. 

The Ministry of Electricity intends to start preparing scenarios for calculating the electricity tariff, to be applied starting July 2023, taking into account the exchange rate and cost of generation. Estimates point to increases of 15-40%, based on consumption brackets. 

The Egyptian Natural Gas Holding Company (EGAS) expects to increase Egypt's production of natural gas in 2025. Egypt's production of natural gas amounted to 50 million tons in 2022, out of which exports were 8 million tons at a value of USD 8.4 billion. 

Italy said it wants to build a USD 2.8 bn link that would allow it to import electricity from Egypt; 

GASC has launched an international tender to purchase 30k-60k tons of wheat on a cost and freight basis for February delivery. 

EGX officials are reportedly mulling onboarding the EGX to the Gulf’s Tabadul regional exchange hub, to allow Egyptian and Gulf investors direct access to trading on the EGX and regional bourses through authorized brokers. 

Expectations are pointing at a new increase in steel prices this week, due to the weakness in the local exchange rate.   

Local banks are reviewing their credit portfolios, in light of the recent changes in interest and exchange rates, to assess the formation of precautionary provisions. We believe banks are already well-provisioned, with coverage rates well above 100%. 

COMI is raising capital from EGP29.825 bn to EGP29.990 bn, through listing 16.54 mn shares at par (EGP10) for the ESOP program -tranche III.   

Compass Capital has submitted a non-binding offer to purchase between 51-90% of Pachin for EGP30 per share. Compass’ offer values Pachin at EGP720 million. The company will conclude its fair value study during the coming week, while Pachin will take a final decision in January 2023. 

The CIT sector grew by 16.7% in FY21/22, making