Today’s Trading Playbook
KEY THEMES
Egypt’s lower current account deficit in Q3 FY20 is good news for the Egyptian pound (EGP) which has already been strengthening lately (+1.7% since its high in June) with foreign inflows back in Egypt local debt market. Also yesterday, Fitch affirmed Egypt’s rating at B+ with a stable outlook. All these factors should alleviate any short-term pressures on the EGP and should put a lid on Treasury yields—another positive for the government budget. Against this backdrop, we prefer to reduce exposure to export-driven stocks and USD-linked earners.
POSITIVE
OIH: Yesterday, Orascom Investment Holding [OIH] revealed its plans to spin off its financial services business (namely its 29.15% stake in Sarwa Capital Holding [SRWA] and 74.55% stake in Beltone Financial Holding [BTFH]) into Orascom Financial Holding (OFH), leaving OIH to house nine companies operating in diversified sectors. Stocks of OIH (+8.1%), SRWA (+9.5%), and BTFH (+4.5%) were all up yesterday on the news. Two takeaways from this
(1) We calculate that OIH’s current market cap of EGP2.16bn implies a negative value close to EGP50mn for those nine companies that will continue to be owned by OIH post-demerger. In other words, OIH is currently cheaper than the sum of its investments in SRWA (EGP1.29bn) and BTFH (EGP0.85bn) at current market caps, if we assume the market is right.
(2) The proposed split is 74% for OFH and 26% for the new OIH, so at OIH’s current market cap, OFH’s market cap would be 28% below the market value of its investments. Thus, we see this market mispricing between the sum and its parts as the key catalyst for a post-demerger OFH.
By way of background, 8.5 years ago Orascom Telecom Holding (OTH) split into two entities: Global Telecom Holding (GTH) and OIH—then Orascom Telecom, Media, & Technology (OTMT). OTH’s EGMs approving the demerger had taken place on 14 April and 23 October 2011, but the spin-off only took place on 22 January 2012, i.e. three months later. Media reports suggest that this demerger will be finalized by November (three months as well).
CANA, EXPA, COMI: Three stocks in the banking sector that we picked lately were up yesterday, namely CIB [COMI], Canal Suez Bank [CANA], and Export Development Bank of Egypt [EXPA]. EXPA hit a 52-week high of EGP11.56 intraday yesterday. Keeping tabs of our bank stock picks, EXPA is up 28% since we picked it on 5 July, while CANA is down 2% over the same period. Meanwhile, COMI is down 4% since we picked it on 14 July. All three stocks continue to be our top picks in the sector.
Now, on to the top news and analysis for the day.