Today’s Trading Playbook
Amr Hussein Elalfy CFA | Head of Research
KEY THEMES
The transaction related to MOPCO [MFPC] was executed yesterday on the EGX to the dismay of investors who were penciling in an implied stock price much higher than the EGP49.19/share that we saw yesterday (1 & 2). This is more than 50% below the EGP105/share that the transaction initially implied. While the breakdown of the whole USD540mn deal is not that clear, yesterday’s execution price of c.USD185mn implies a settlement amount of USD355mn. But let’s look at the bright side. (1) There will be no litigation against MFPC in the future. (2) Market consensus still believes MFPC is worth much more than its market price (current consensus is EGP83.7/share), even after the rise in the stock price over the past couple of weeks. (3) Market consensus will likely be upgraded to remove any arbitration-related provisions that were previously accounted for. That said, MFPC is still cheap, trading at only 7x LTM earnings.
Meanwhile, as this eventful year draws to an end, we issued our core coverage note on Elsewedy Electric [SWDY] yesterday, one more stock that we had picked first back on 16 July 2020 along with 18 other EGX-listed stocks. SWDY was the only industrials stock we had picked back then. We rate the stock as Overweight with a 12M PT of EGP12.7/share, implying a 40%+ upside. So, why do we like SWDY? Dina Abdelbadie, our industrials analyst, believes the worst is already behind after the COVID-19 outbreak impacted SWDY’s performance early in the year on lockdown pressure locally and globally as well as shorter working hours. Yet, hopes for a good quarter in the end of the year still live on. Also, SWDY is an integrated energy solutions provider, offering several energy products, including cables, which have their use in the turnkey segment, and power generation parts, e.g. transformers and meters, boasting a strong brand locally as well as globally. She also sees growth potential opening up for SWDY which is on the lookout for value-accretive acquisitions across its business lines. With a net cash position of EGP18mn by end of Q3 2020, SWDY has the room for additional leverage if a suitable opportunity arises.
Positive
SWDY: Please read our core coverage report here.
NEUTRAL
MFPC: We believe any short-term pressure resulting from the lower-than-thought deal-implied share price will be offset by a better visibility in the long term.