Today’s Trading Playbook
Amr Hussein Elalfy CFA | Head of Research
KEY THEMES
Yesterday, it was revealed that the Central Bank of Egypt (CBE) has directed all Egyptian banks to refrain from distributing any cash dividends, be it from their annual profits or retained earnings. The CBE cited COVID-19 repercussions locally and globally and the potential impact on the economy. Such a move is said to be supportive of banks’ capital bases. However, the market reaction was quite negative overall as investors punished bank stocks for the absence of dividends. But the issue here is not skipping a year without dividends as investors were not sure how long this directive will be effective for. However, we believe the impact to be short term in nature and impacting a select group of banks, namely large-cap banks and generous dividend payers. As for small-cap banks, they were not expected to be paying dividends in the first place as they shore up their equity to meet the CBE’s minimum EGP5bn capital requirement. In the longer term, however, retaining profits should create higher value for shareholders as we should see higher-than-expected growth going forward, especially for banks that are able to generate ROEs in excess of 18-20%. Speaking of which, QNB Alahli [QNBA] just reported its full-year 2020 results yesterday, providing a glimpse of hope for an overall recovery in banks’ results post-COVID-19. Please see our quick take on the results in the news section below.
NEUTRAL
Small-cap banks: Abu Dhabi Islamic Bank Egypt [ADIB], Export Development Bank of Egypt [EXPA], and Suez Canal Bank [CANA].
NEGATIVE
Large-cap banks and high dividend payers: Al Baraka Bank Egypt [SAUD], CIB [COMI], Credit Agricole Egypt [CIEB], Faisal Islamic Bank of Egypt [FAIT], Housing & Development Bank [HDBK], and QNBA.