Fundamental Thoughts
Once again, Telecom Egypt [ETEL] is back to the news headlines. This time it has nothing to do with Vodafone Egypt [VODE], its 45%-owned subsidiary, which has been sought after by at least two suitors, namely Qatar Investment Authority (QIA) and ADQ Holding. News reports cited the Egyptian government’s interest to offer a 10% stake in ETEL itself (another source put the stake at between 10-20%). Understandably, the stock reacted negatively to the news, falling 3.7% to close the day at EGP26.76 after hitting an intraday high of EGP28.50 with a high volume of 6.8mn shares changing hands.
In our opinion, we think the market is discounting a “no deal” for a VODE stake sale, which would have brought ETEL cash proceeds close to its own market cap. Indeed, a 10-20% stake sale would be worth EGP4.6-9.1bn, which is equivalent to roughly USD150-300mn, at yesterday’s market price. The point here is that such a sale will only benefit the seller, in this case, the Egyptian government. This means ETEL shareholders will get the short end of the stick, even in the case of a high premium above ETEL’s market price. ETEL shareholders will only benefit directly if ETEL sells a stake in VODE, thus raising cash that can be either (1) distributed in the form of cash dividends (potentially in USD, thus helping the Egyptian government along the way with direly needed USD) or (2) used to pay off outstanding debt. Either way, ETEL shareholders will benefit somehow. Otherwise, they will continue to hold shares in ETEL that is deeply undervalued and will have to wait to realize the full valuation potential of their investment in ETEL.
That said, the sale of a minority stake of 10-20% in ETEL will not likely appeal to an institutional investor unless it has some other sweeteners attached, like a higher voting right in the company’s board or a combo deal with a partial stake in VODE. This is why we think there could be more to this than just a minority stake sale in ETEL.
At any rate, we reiterate our view that ETEL is very cheap in terms of valuation which we had put in at EGP46.7/share.
—Amr Hussein Elalfy, MBA, CFA | Head of Research
Today’s Top News & Analysis
CBE reportedly calls on banks to refrain from/limit dividends in 2023
The EGP falls more than 6% against the US dollar in the black market
Sovereign fund of Egypt expects USD4bn Gulf investments
The New Urban Communities Authority offers a 15% discount for foreign investors
Egyptian Ministry of Agriculture releases amounts of corn and soybeans
Egypt offers to sell 10-20% of Telecom Egypt
Ezz Steel announces new rebar prices for March
GV Developments and TAQA Arabia to cooperate in Tarboul industrial city
PACHIN H1 2022/23: Back in the green
Macro
CBE reportedly calls on banks to refrain from/limit dividends in 2023
The Central Bank of Egypt (CBE) is reportedly advising Egyptian banks to be extremely prudent when it comes to dividends payout in 2023 in order to maintain their capital position and financial soundness. Sources added that the instructions differ from one bank to another depending on each’s capital adequacy. The stronger banks likely to be allowed to distribute limited dividends, while banks with weaker positions will likely be restricted from any dividend distributions. (Masrawy)
The EGP falls more than 6% against the US dollar in the black market
The EGP has weakened by more than 6% against US dollar in the black market over the last week. The EGP traded at about 33.5 to USD yesterday against 31.5 last week. (Bloomberg)
Sovereign fund of Egypt expects USD4bn Gulf investments
The CEO of The Sovereign Fund of Egypt (TSFE) expected Gulf investments worth USD4bn as part of the first package projects. Regarding the pre-IPO fund, he said that the fund has 3 stages, and currently there are 11 companies that will be offered to strategic investors or a public offering or both, adding that between 2 to 3 companies will be offered during the next month. (CNBC Arabia)
The New Urban Communities Authority offers a 15% discount for foreign investors
The New Urban Communities Authority (NUCA) is offering land for foreign investors to buy with three payment options:
• A 15% discount for immediate payment in USD, or
• Installment plan for payment in EGP taking into account the USD/EGP rate at the day of payment and the CBE's borrowing rate
• Installment plan to pay in foreign currency at the USD CDs rate of the state-owned banks. (Al-Mal)
Egyptian Ministry of Agriculture releases amounts of corn and soybeans
Last week, the Egyptian Ministry of Agriculture released 96,000 tons of corn worth USD34.4mn and 41,000 tons of soybeans worth USD30.4mn, in addition to fodder worth USD2.2mn. (Al-Mal)
Corporate
Egypt offers to sell 10-20% of Telecom Egypt
According to sources, Egypt is offering a 10-20% stake of its 80%-owned incumbent Telecom Egypt [ETEL]. (Reuters, Asharq Business: 1, 2)
Ezz Steel announces new rebar prices for March
Ezz Steel [ESRS] raised its factory rebar prices, for the third time in 2023, to reach EGP29,285 (including 14% tax) starting today. This is a 9% increase since the last price increase that occurred 47 days ago (19 January 2023). (Company disclosure)
GV Developments and TAQA Arabia to cooperate in Tarboul industrial city
Real estate developer GV Investments and TAQA Arabia, Qalaa Holding’s [CCAP] subsidiary, signed an agreement to form Tarboul Infra to accelerate the completion of the infrastructure, supply full utilities, and provide clean energy sources for Egypt’s largest industrial smart city in Tarboul, Giza. The aim is to attract investors and provide advanced integrated solutions to support various industries. (Company disclosure)
PACHIN H1 2022/23: Back in the green
Paints & Chemical Industries (PACHIN) [PACH] H1 2022/23 net income came at EGP19.5mn compared to a net loss of EGP12.8mn. Revenues increased by 13.6% y/y to EGP486.4mn, while GPM increased by 8pp y/y to 15.6%. (company disclosure)
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