1. Today’s Trading Playbook
Amr Hussein Elalfy CFA, Head of Research
KEY THEMES
The market continues to bet on Egypt’s evolving fintech industry, especially following the outstanding performance of Fawry [FWRY] (+223% ytd). Other players are now keen to hop on the fintech bandwagon in view of investors’ appetite for the industry. Indeed, MM Group [MTIE] and B Investments [BINV] continue to gain traction, having been neglected for so long. This backdrop makes us wonder if the Egyptian government will bring forward its e-Finance IPO, unless it has other plans involving merger and acquisition activities.
POSITIVE
MTIE: As we mentioned yesterday, MM Group [MTIE] has been and continues to be one of our stock picks on the EGX. We believe a rerating of its e-payment platform is long overdue, which could fetch a value north of EGP10/share, according to our valuation. If you would like to receive a copy of our valuation exercise, please drop us an email or talk to your relationship manager.
NEGATIVE
EGAL: Egypt Aluminum [EGAL] has recorded its first net loss in the last 25 years (since 1995/96, the latest financials we have). While not unexpected in view of weak demand, a weak USD, and higher electricity cost, EGAL is in dire need for a strategic action on the part of the Egyptian government. Our proposal is to link the cost of electricity to aluminum prices (similar to the case with some Egyptian nitrogen-based fertilizers producers whose natural gas cost is linked to urea prices). The cost of electricity will need to be set in such a way to ensure a sustainable economic profit for EGAL. We see two reasons why the government must ensure that EGAL is profitable: (1) the government is an EGAL shareholder with a 92%+ stake, so dividend payments will go up its coffers and (2) the government should be able to collect more income taxes off EGAL when it is profitable. Unless the government makes such a strategic move, we would continue to have a negative view on the name.
Now, on to the top news and analysis for the day.