Starting 25 May 2021, investors have been seeing some heavy trading on Beltone Financial Holding [BTFH], bidding its price higher from EGP2.16 to EGP3.54 (+64% in just eight sessions). The surge in BTFH price raises a couple of questions regarding what value the majority owner Orascom Financial Holding [OFH] (now with a 70.1% stake) is getting from it. We looked at OFH’s investments in BTFH as well as Contact Financial Holding [CNFN] which also witnessed a price increase of 10% over the same period, and valued both investments through (1) current market pricing (market cap) and (2) our back-of-the-envelope valuation.
BTFH
What happened: In 2020, OFH had increased its stake in BTFH to 74.5% from 70.0%. OFH’s cost of total shares acquired was EGP2.71/BTFH share. On 1 June 2021, OFH sold 20mn shares (a 4.5% stake) of BTFH at an average price of EGP3.58/BTFH share, garnering an estimated gain of EGP17.4mn. Thus, we believe OFH would not sell its BTFH shares at a level below EGP2.71/BTFH share.
Valuation: We looked at BTFH with respect to our valuation of EGP754mn for CICH’s investment banking platform. We discounted CICH’s valuation by 20% given the company’s larger market share in brokerage and better investment banking track record. We arrived at a value of EGP603mn for BTFH’s investment banking (IB) platform. Recently, BTFH also started establishing its own non-banking financial services (NBFS) platform. However, since it is yet to show major contribution to revenues and profits, we valued it at book at end of Q1 2021 or EGP71mn. This sums up to a total valuation of EGP675mn for BTFH (implying a P/BV of 1.2x). Hence, equity value attributed to OFH stands at EGP473mn (EGP1.51/BTFH share, EGP0.09/OFH share).
CNFN
What happened: Since its acquisition of CNFN stake, OFH’s cost basis is now EGP4.58/share. Thus, we believe OFH would not sell its CNFN shares at a level below EGP4.58/CNFN share.
Valuation: We valued CNFN (29.24% owned by OFH) based on a justified price/book of 1.8x (given an ROAE of 17%, a terminal growth rate of 10%, and a cost of equity of 14%), reaching a value of EGP3.9bn (based on Q1 2021 book value). Hence, equity value attributed to OFH amounts to EGP1.1bn (EGP3.22/CNFN share, EGP0.22/OFH share).
OFH
Valuation: In reaching our valuation, we factored in our OFH valuation the EGP72mn proceeds, resulting from the 4.5% stake sale of BTFH last week. Also, we added the proceeds from Victoire Holding of USD4.1mn (EGP74mn) to our valuation. On one hand, OFH would be worth EGP0.33/OFH share based on a justified P/BV multiple method, which is in line with its market price. However, OFH could be worth EGP0.51/OFH share based on the current market cap of its investments (BTFH and CNFN). Thus, while OFH’s downside is limited (0%), it has a huge upside of +52%, which makes it worth taking the risk.