Today’s Trading Playbook
Amr Hussein Elalfy CFA | Head of Research
KEY THEMES
Yesterday, the market seems to have come back to its senses somewhat. Advances almost matched declines, but both EGX 30 (+0.7%) and EGX 70 EWI (+0.3%) managed to eke out small gains for the day. As expected, local retail investors (net sellers of EGP25mn) continued to de-leverage after Monday’s sharp decline squeezed them and may have triggered some margin calls. Ironically, local institutions were also net sellers (EGP32mn), while foreign institutions were net buyers for a change (EGP53mn). High-beta stocks like Ezz Steel [ESRS] led the gainers, and consumer names like Juhayna Food Industries [JUFO] and GB Auto [AUTO] were in favor. Last Sunday, we had picked AUTO as one of the ten stocks in the market that are worth looking at.
Meanwhile, and as the market was paring its Monday losses yesterday, we issued our core coverage note on EFG Hermes Holding [HRHO], yet another stock that we had picked first back on 16 July 2020 along with 18 other EGX-listed stocks. HRHO was our only non-banking financial stock at the time that we liked. Since then, the stock is up 8% from EGP13.03 to last close at EGP14.10 yesterday, having hit an intraday high of EGP15.53 on 26 July 2020 (a 19% return in just five trading days). Now, our 12-month price target (12M PT) is set at EGP17.7/share, leaving some 25% more to go from these levels. So, why do we like HRHO? Sherif El Etr, equity analyst, explains how HRHO is embarking on a three-pronged strategy, expanding its (1) traditional investment banking platform to include (2) non-banking financial services (NBFS) as well as (3) commercial banking which is expected sometime in Q1 2021 with the acquisition of a 51% stake in state-owned bank Arab Investment Bank (aiBank). By doing so, HRHO is seeking for a better utilization of its equity base. Having been generating low single-digit ROEs in the past, HRHO is now addressing this issue with high-margin businesses, like NBFS. Indeed, HRHO’s wide array of services includes microfinance, leasing, factoring, and consumer finance. All these businesses are still in the early stages of their lifetimes within an industry in the growth stage.
Positive
HRHO: Please read our core coverage report here.