EFG Hermes Holding [HRHO]: Rating Cut on Withdrawal of FAB’s Bid
Reverting back to our baseline 12MPT of EGP14.8/share
EFG Hermes Holding [HRHO]
Egypt / Non-Banking Financials / Withdrawal of FAB’s Bid
12M PT: EGP14.8 (-23%)
set on 14 Apr 2022
Investment Rating: Underweight | Risk Rating: Medium
Withdrawal of FAB’s bid to pressure the stock short term
Early this morning, First Abu Dhabi Bank [ADX: FAB] decided to withdraw its non-binding offer for a potential cash acquisition of EFG Hermes Holding [HRHO] at EGP19/share. This alone will pressure the stock price lower over the short term, having risen by 23% since the offer was first submitted on 9 February. As of this writing, the stock is already down c.20%. This brings back to memory when QInvest’s agreement to acquire HRHO’s investment banking business 10 years expired with no deal after one year. However, this time it only took just over two months to come to a similar conclusion: no deal!
Reinstituting our baseline 12MPT of EGP14.8/share, rating cut to Underweight
Following the execution of ADQ’s acquisition of sizable minority stakes in five EGX-listed companies, the market was looking forward to a revisit of FAB’s EGP19/share bid in view of a weaker EGP. Indeed, the market was expecting FAB to up its bid to around EGP22/share. In our note dated 24 March 2022, we had raised our 12MPT to EGP20.0/share (from EGP14.8/share) to account for a 75% probability of success of FAB’s attempted acquisition of HRHO at an FX-adjusted EGP22/share (USD1.2/share offer adjusted for the new USD/EGP FX rate). In view of FAB’s withdrawal of its bid, we are reverting back to our baseline 12-month price target (12MPT) of EGP14.8/share. Since HRHO has risen by some 23% since the offer was first announced in anticipation of an imminent deal, we see further downside in the stock (some 23% to our 12MPT off yesterday’s close), hence we cut our investment rating further from Neutral to Underweight.
HRHO’s investment case still intact
While HRHO’s stock performance has recently been event-driven with the FAB acquisition, we reiterate our view that HRHO’s different platforms, be it investment banking, non-banking financial services, or recently-added commercial banking, are all standing on solid grounds. Just days ago, HRHO was involved in Dubai Electricity & Water Authority’s [DFM: DEWA] USD6.1bn IPO, the largest in the region since Aramco’s [KSA: 2222]. This underlines HRHO’s regional outreach beyond Egypt’s border as it continues to grow its NBFS businesses and work on a turnaround story for its 51%-owned aiBank.
Research Team