Today’s Trading Playbook
Amr Hussein Elalfy CFA | Head of Research
KEY THEMES
Contrary to what Reuters said last Thursday but matching what Hapi just revealed this morning, Bank ABC has agreed on Friday with BLOM Bank Lebanon to acquire its 99.4% stake in BLOM Bank Egypt for a total consideration of EGP6.7bn for 100%, implying a valuation of 1.42x P/BV. Please see the Top News & Analysis section for more details. This will likely help support banks’ stocks in the short term, especially after the overreaction the market has had post the Central Bank of Egypt’s decision have all banks refrain from distributing any dividends.
Meanwhile, last Thursday, we published our first core coverage note in the New Year, featuring CI Capital Holding [CICH], the second largest investment bank by market cap. We had published another core coverage report on EFG Hermes Holding [HRHO] back on 22 December 2020; HRHO is up 10% since then. We rate CICH, similar to HRHO, as Overweight with a 12M PT of EGP6.0/share, implying a 45% upside. Immediately after we published our note at noon, CICH jumped to end the day up 5% based on its VWAP but up 7% based on its last price. So, why do we like CICH? Sherif El Etr, our non-banking financials analyst, believes CICH is successfully working to smooth out spikes in its top and bottom lines, diversifying its revenue streams. It has expanded its non-banking financial services (NBFS) platform further by setting up ventures focused on consumer finance, mortgage finance, and microfinance to exploit these high-margin segments. Furthermore, CICH’s IB platform, which has been missing a private equity arm, is being substituted for with its merchant banking operations, which essentially serves the same purpose. CICH is expected to monetize its investment in Egypt’s education sector by floating Taaleem, which controls and operates Nahda University in Beni Suef, in an IPO in 2021. Sherif sees more expansions in NBFS would hedge against any headwinds CICH’s IB platform could face amid weak capital markets, which he expects to recover starting 2021. Meanwhile, he expects to see more contribution from the high-margin NBFS very soon.
Positive
CICH
CICH is trading at a 2020e P/E and P/BV of 9.0x and 1.3x, respectively. While the stock has underperformed EGX 30 since its IPO debut mid-2018, it is still some 6% below its IPO price.
Banks
Bank ABC’s acquisition of BLOM Bank Egypt will likely help banks stocks in general recover some of their earlier losses last week.
ORAS
Orascom Construction’s [ORAS] announcement of its involvement in Egypt’s high-speed rail system will help support its growth and should drive its stock higher.