KEY THEMES
Egypt Aluminum [EGAL] has witnessed strong price movements since last April 2021. We remind you that we mentioned the name back in our Trading Playbook dated 14 April 2021, when the stock was near EGP11.25/share. Since then, EGAL rose to a high of EGP22.48/share, achieving a return of c.99% since our call, before cooling to EGP20.65/share. The justification for such strong run could be viewed in light of higher global aluminum prices, that are currently hovering around USD2,500/ton.
Despite the positive vibes around EGAL, we don’t think the current prices as appealing as before. In fact, we believe EGAL has clearly wondered off to overvaluation territory lately. The foundations on which we base our opinion are (1) Aluminum prices are not supposed to remain that high, if anything, prices may be straight up peaking, and (2) People tend to forget that the cut in electricity prices, which took place in 2020, was targeted to be only for five years, where we believe long term electricity prices will not be sustained at EGP1.01/kWh. Given the aforementioned factors, we don’t encourage buying EGAL at such high levels, deeming the name as “no longer cheap”.