Al Ahly Pharos

Pre-Trading Thoughts

January 28, 2024 Al Ahly Pharos
Al Ahly Pharos
Pre-Trading Thoughts
Show Notes

HDBK| A Blend of Two Sectors Supported by Macro Backdrop

HDBK’s (FV: EGP65.00, OW) real estate segment along with the diversified bank’s investments keep delivering high earnings growth that sometimes compensates for any relative weakness in commercial banking operations. The potential demerger of the stock into banking and real estate could unlock its upside potential.

  • The bank enjoys the highest NIM amongst listed banks hovering around 10%.
  • HDBK is delivering the highest RoE amongst listed banks with RoE of 34% in 2024 and is currently trading at 1.2x P/B24, and 4.2x P/E24, on expected bottom line growth of 20% in 2024, which is higher than peer group average of 17%. 
  • Our FV implies a 38% upside potential to current market price.
  • Egyptian banks trade at low multiples with strong ROEs and positive EPS growth. All listed Egyptian banks fall below emerging markets multiples' trend lines.

ECAP| Lack of Imports and Foreign Currency Shortage Fall in Favor

ECAP (FV: EGP35.56, OW) was able to increase sales and margins in 2023, benefiting from the lack of the imported ceramic tiles, given that the company offers the sole direct substitute for imported products in the local market.

  • The company is increasing production efficiency and capacity by investing in a production line with an investment cost of EUR6.5 million that should begin operating in 1Q24. 
  • With further local currency devaluation and further increases in ECAP’s ASP, we expect ECAP prices to remain competitive compared to imported tiles prices (if available), making it able to capture higher market share.
  • Despite the decline in volumes by 8.2% during 9M23 we witnessed an increase in ASP by 48% YoY in 9M23. We forecast revenues to grow by 22% in 2024 to record EGP3.1 billion. 
  • ECAP stock rose by 61% YoY in 2023, and our FV implies a 40% upside potential to the current market price. 
  • The stock is currently trading at FY24f P/E of 4.8x and EV/EBITDA of 3.7x.

S&P Global expects Egyptian authorities will further devalue the EGP from 31 EGP/USD to a level that is more in line with the parallel market rate. 

President El Sisi issued a decree that will see the government transfer its ownership of a set of ministerial headquarters to the Sovereign Fund of Egypt.

The Finance Ministry plans to list EGP-denominated bonds on the Hong Kong Exchange (HKEX).

Suez Canal revenues declined by 44% YoY in January amounting to USD802 million.

In a recent insight, Fitch Ratings said that "if disruption is sustained throughout 1H24, we estimate a widening the current-account deficit to 3.5% of GDP, from our baseline of 2.7%.

Savers have put away some EGP 471 bn into the newly introduced high-yield CDs from NBE and BM.

 S&P expects Egyptian banks' foreign-currency liquidity positions to continue to deteriorate, pointing to the FX crunch.

Prime Holding is considering increasing its capital by 50%-100% (EGP175-EGP350 million) to implement its expansion plans.

The government is gearing up to launch an international mining tender for three minerals in March.

The FRA approved the reduction of SWDY’s (FV: EGP34.96, OW) paid-in capital from EGP2.17 billion to EGP2.14 billion by cancelling treasury shares in total of 30 million shares.

ESRS (FV: EGP97.02, OW) raised its rebar price, for the fourth time since the beginning of the year, by EGP6,980/ton to EGP55,280/ton as of yesterday, 27 January 2024. Rebars price was increased by c. EGP17k since the beginning of January. 

Red Sea Ports recorded an increase of 7% YoY for goods trading in 2023.