Today’s Trading Playbook
KEY THEMES
The overall market sentiment continues to be positive, which was buoyed yesterday by Egypt’s improved PMI reading—albeit it still in contractionary mode. Here is our take on June’s reading published minutes ago. With news of USD440mn of inflows injected in Egypt Treasuries, we should see (1) the EGP stabilizing (now back around where it was at the beginning of the year vis-à-vis USD) and (2) EGP yields pulling back if this trend continues—thanks to the recent USD8bn financing from the IMF. Also, with the economy opening up in July, we might see another improvement in PMI readings a month from now. We note that the number of new coronavirus cases fell yesterday to a 6-week low with a lower number of deaths reported, but we have to keep an eye out for any resurgence in figures over the next two weeks to monitor the impact of opening up the economy.
POSITIVE
ETEL: Back in focus, ETEL has two points to keep in mind. First, FWRY’s continued rally (+10% yesterday) is now valuing the e-payment platform at EGP12.6bn—which again as we mentioned yesterday is not to make a judgement call on its fair value, but we want to use this as a measure of other opportunities in the market that should be worth more than the market is attaching to them. ETEL is a case in point with a market cap of only EGP23.3bn. In other words, FWRY is now worth a little bit more than half ETEL. Second, we can split ETEL’s value into two main components (1) operating businesses and (2) investments, the most important of which is Vodafone Egypt [VODE], valued at USD4.4bn in STC’s initial offer. With STC’s own-assigned deadline to make up its mind on VODE following a long due diligence process comes due on 12 July. Whether a deal goes through or not, ETEL’s current price is only valuing its 45% investment in VODE, implicitly assigning zero value to its other operating businesses and other investments. We will also have to wait and see what ETEL’s options are going to be in light of STC’s final offer. ETEL is currently trading at 7.1x LTM earnings.
CLHO: With continued M&A deals in the health care sector (the latest of which is Al-Nada Hospital), CLHO should eventually re-rate from a current market cap of EGP8.3bn (just a tad above USD515mn), given its sheer size and high growth profile. With foreign inflows emerging again in Treasuries, it would be a matter of time until they come back to their favorite stocks (CLHO included).
Now, on to the top news and analysis for the day.