KEY THEMES
The Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) maintained interest rates in its meeting last Thursday as widely expected by the market and in line with our view. This means no change on the macro level.
One level down, we believe the consumer staples sector in Egypt deserves a re-rating, especially in light of the recent acquisition of Atyab by Agthia Group [ADX: AGTHIA] which came in at a premium to average EGX-listed peers’ multiples. Please see our TAKEStock for more details.
Meanwhile, the continuous fall in the price of iron ore, now the worst performing commodity in 2021 ytd, is a medium-term positive for steel makers, including Ezz Steel [ESRS]. We think this will help support ESRS's margins and provide a stretch to its cash spreads. As a way of background, iron ore prices started to fall notably in August on the back of China’s steel output curb, as part of the Chinese government de-carbonization efforts, forcing steel mills to operate at low utilization rates, resulting in weaker steel output in H2 2021.
POSITIVE
Consumer Staples, ESRS: Arabian Food Industries "Domty" [DOMT], Cairo Poultry [POUL], Edita Food Industries [EFID], Juhayna Food Industries [JUFO], and Obour Land Food Industries [OLFI]. We think ESRS can benefit in the medium term off the fall of iron prices.