Today’s Trading Playbook
Amr Hussein Elalfy CFA, Head of Research
KEY THEMES
It’s a new week, so we urge you to take a look at our EGX Valuation Multiples report (updated daily) in case you didn’t catch it before. FYI, the latest update is always there under Section #5 below.
Today, we start what should be an eventful week, yet we should not expect much surprises. First, by tomorrow (August 10), we should see how inflation fared in July. Our senior economist Mona Bedeir expects monthly inflation to be higher on the back of hikes in electricity prices effective in July and the pick-up in demand due to seasonality factors related to Eid Al-Adha and reopening the economy. She expects monthly inflation to range between 0.7-0.9% while annual inflation to range between 4.6-4.8%. Second, on August 11 and 12, we have the parliamentary elections for Egypt’s Senate nationwide. Elections have already started for Egyptians living aboard today and runs until tomorrow. Third, by the night of August 12, we should know for sure whether or not EFG Hermes Holding [HRHO] will replace Elsewedy Electric [SWDY] in MSCI Emerging Markets (EM) index, a move that the market has been pricing in over at least the past two months. Fourth, by the evening of August 13, we will know whether the Central Bank of Egypt (CBE) will maintain its stable interest rate policy since mid-March when it surprisingly cut rates by 300bps. Our call is for a “no change” decision due to external vulnerability to capital outflows, a negative NFA position at commercial banks, and pressure on NIR as most FX revenues are still battered by the COVID-19 turmoil, according to Mona.
In other words, we do not expect the market to be impacted to a great extent by any of the above-mentioned four events. This leaves only company-specific events and Q2 earnings report as the main market moving catalyst. We have Domty [DOMT] and Ibnsina Pharma [ISPH], one of our top picks, reporting results on 12 and 13 August. We also have Telecom Egypt [ETEL], incidentally another top pick, reporting its Q2 results on Thursday.
POSITIVE
ETEL: Our call on ETEL had nothing to do with its Vodafone Egypt stake “sale/no sale” decision. We simply believe the stock is deeply undervalued despite the company’s profitability and the huge potential it has to grow further. Just consider this: ETEL is now worth EGP22.2bn, only EGP7.5bn above Fawry’s [FWRY] EGP14.7bn market cap. With 707mn shares, FWRY needs to cross EGP31 a share to be as valuable as ETEL’s 1,707mn shares. Now, can ETEL offer FWRY’s services throughout its vast nationwide network? We think it can, but the question is will it do it? ETEL is yet to jump on the fintech bandwagon, but if it does, its valuation will be totally different — higher of course. ETEL trades at 6.8x P/E and c.40% below book equity.
COMI, EAST: The SWDY/HRHO debate aside, we believe the other two EGX stocks in MSCI EM warrant a closer look, namely CIB [COMI] (9.1x P/E and 1.8x P/BV) and Eastern Co. [EAST] (7.6x P/E). Down 23% apiece, both stocks are undervalued in our view.
Now, on to the top news and analysis for the day.