Today’s Trading Playbook
KEY THEMES
Media reports point to March for the potential closure of Arab Investment Bank (aiBank) acquisition by EFG Hermes Holding [HRHO] and The Sovereign Fund of Egypt (TSFE). By way of background, back in June 2020, both HRHO and TSFE revealed their intention to acquire 76% of state-owned aiBank. Once completed, the transaction would leave HRHO and TSFE with respective ownership of 51% and 25% in the bank, while the remainder will be split amongst existing shareholders pro rata.
In our view, we see this potential acquisition providing synergies that would lift HRHO’s exposure and ability to expand geographically, with aiBank’s existing c.30 branches spanning several governorates around Egypt. The move would also enable HRHO to have wider banking access to serve its non-banking financial services (NBFS) segment which the full-fledged financial services firm has been rapidly expanding recently. Post consolidation, the deal would take HRHO’s book value of equity to some EGP17bn. At such magnitude, hopes are for the acquisition to propel HRHO’s ROE into a double-digit territory.
We remind you of our Overweight rating on HRHO, with a 12M PT of EGP17.7/share (ETR +19%). According to our estimates, HRHO is currently traded at 2021 P/E and P/B of 8.5x and 0.77x, respectively, with 2021 ROE projected at 9%.
Positive
HRHO: Hopes of synergies post aiBank’s acquisition.