Today’s Trading Playbook
Amr Hussein Elalfy CFA, Head of Research
KEY THEMES
We started this week with a call on large caps which have been lagging so far in 2020. Indeed, EGX 30 rose 2.6% over the last four trading sessions. We believe the remainder of the year will witness a recovery in large caps in general, especially as foreign investors come back to the market. While we call for taking a closer look at the laggards so far in EGX 30 constituents, we continue to monitor catalysts from company-specific events. Please see below for a sample. Also, please check our Chart of the Day, for a run of how all EGX 30 current constituents performed since the flotation of the Egyptian pound through 26 August 2020 (almost three years and 10 months), to know which stocks have been lagging behind.
POSITIVE
MTIE: MM Group [MTIE] (18.7x LTM P/E), although up 24% in the last six trading sessions, is still down 9% for the year. We pencil in a 30% upside from current levels. We believe MTIE’s non-banking financial services (NBFS) platform has room to re-rate further, offsetting its consumer business which has been negatively impacted so far in 2020 from COVID-19. The value of MTIE’s NBFS platform is yet to be unlocked, be it through growth in its underlying operating companies or through listing subsidiaries on the EGX.
HRHO, AUTO: Both EFG Hermes Holding [HRHO] (-16% ytd, 9.8x LTM P/E, 0.8x P/BV) and GB Auto [AUTO] (-23% ytd, 18.9x LTM P/E, 0.8x P/BV) have exposure to the industry indirectly through different arms. The finalization of their acquisition of the life insurer Tokio Marine Egypt Family Takaful (please read the news below) marks a new era for both companies, tapping into this underpenetrated sector in Egypt. Meanwhile, HRHO is still undergoing its due diligence of Arab Investment Bank (aiBank), which would add yet another line of business to its enterprise, offering full-fledged financial services ranging from capital markets to NBFS and insurance to commercial banking.
ORAS: Yesterday morning, Orascom Construction [ORAS] (-27% ytd) reported its Q2 2020 financials which were hurt, as expected, by COVID-19 and recent lockdowns. Net earnings fell 69% y/y and 61% q/q to USD9.8mn, pressured by losses (vs. profits a year ago) incurred by BESIX, albeit narrower when compared to Q1 2020. Although revenues were almost flat at USD791mn, gross profit margin decreased to 9% vs. 12%, weighed down by weaker MENA figures and despite stable U.S. margins, nearly halving EBITDA margin of 6.8% vs. 12.1%. ORAS’s consolidated backlog stood at USD5.4bn (+18% y/y) as new awards hit USD725mn in Q2 2020 (-22% y/y, +21% q/q). While ORAS jumped 6% yesterday, the stock is still cheap based on multiples. ORAS is now traded at an LTM P/E of 5.7x (7.7x annualized earnings) and an LTM EV/EBITDA of 1.2x (1.3x annualized EBITDA). Net cash rose to USD309mn in Q2 2020, representing 58% of market cap. We continue to have ORAS as one of our stock picks in the industrials sector. The stock is now up more than 11% since we first included it in our top picks on 16 July 2020. At 2x EV/EBITDA, ORAS could be worth EGP91/share, still offering at least a 25% upside.