CI Capital Holding [CICH]: New Expansions = Further Growth
Taking the front seat on the NBFS bandwagon
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CI Capital Holding [CICH]
Egypt / Non-Banking Financials / Core Coverage Report
12M PT EGP6.0 (+51%, as of 14 Jan 2021)
set on 14 Jan 2021
Investment Rating: Overweight | Risk Rating: Medium
Key Insights
The natural evolution of a homegrown investment bank
Prior to its establishment in 2005 as a full-fledged investment bank, CI Capital Holding’s [CICH] brokerage and later on asset management firms were the group’s precursor to the institution it is today. Having added Corplease under its belt through acquisition (a 73% stake in 2016, now 87.4%), CICH worked to smooth out spikes in its top and bottom lines, thanks to better diversification of its revenue streams. More recently, CICH has expanded its non-banking financial services (NBFS) platform further by setting up ventures focused on consumer finance, mortgage finance, and microfinance to exploit these high-margin segments.
Tapping markets late is better than never
CICH is a couple of years late in penetrating segments, such as consumer and mortgage finance. Yet, there is ample room for these segments to grow in this under-served market, hence we believe CICH will eventually see its ventures bear fruit.
A step closer to having a complete IB platform
CICH’s IB platform has been missing a private equity arm, which is substituted for with its merchant banking operations, which essentially serves the same purpose. Recently, CICH has invested in education, a lucrative sector, through Taaleem which it plans to monetize through an IPO in 2021.
Valuation, Investment Thesis, & Risks
Overweight, 12M PT EGP6.0/share (+51%)
Valuing CICH using the residual income model, we reached a fair value of EGP5.2/share and our 12-month target price of EGP6.0/share, hence our Overweight rating. Ever since its IPO back in 2018, CICH’s lowest point was EGP3.25/share (on an adjusted basis) by end of February 2020 (i.e. pre-COVID-19). Later on, CICH was stung by somber investor mood amid COVID-19 hitting a low of EGP1.87/share on 19 March 2020. We expect CICH’s bottom line to grow at a 4-year CAGR of 7%, recording EGP719mn by 2023, driven by expansions in its NBFS platform as well as recovery of Egypt’s capital market.
Investment thesis
More expansions in NBFS would hedge against any headwinds the IB platform could face amid weak capital markets. While Corplease remains a giant player in the leasing sector, Souhoola and CI Mortgage (CICH’s latest ventures) should start contributing more to NBFS platform.
Risks
In view of COVID-19 implications, CICH could be negatively affected by:
•IB Platform: Weak local market recovery, especially with the absence of cross-border presence.
•NBFS Platform: Corplease commands the lion’s share in the platform in terms of top line and bottom line. Hence, profitable diversification is tied to growth in newly added sectors.
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Sherif El Etr
Equity Analyst
T +20 3300 5720