KEY THEMES
We are starting this week afresh after the Central Bank of Egypt (CBE) kept interest rates on hold, in line with our expectations. The Monetary Policy Committee (MPC) cited “price stability” as one of the reasons behind the decision. Most of the market was expecting the decision, with the exception of a couple. This means the decision has mostly been priced in by the market. This leaves room for other stories to take the front seat. Two of these stories are company specific, one about Orascom Investment Holding’s [OIH] spinoff and the other about Raya Holding [RAYA].
OIH will soon be split into two stocks, OIH and Orascom Financial Holding (OFH). We had previously discussed the spinoff back on 28 July 2020, almost 6.5 months ago. Back then OIH was trading at EGP0.411/share. We had made a POSITIVE call on OIH because the market cap of its two listed investments, namely Beltone Financial Holding [BTFH] and Sarwa Capital Holding [SRWA], implied a negative value for the OIH stub (the remaining investments). Indeed, OIH stock returned +37% since our call to close last at EGP0.562/share. At today’s market prices, OIH stub is worth some EGP562mn or EGP0.107/share vs. OFH’s implied EGP2.39bn or EGP0.455/share. With the assumed split ratio of EGP0.11/share for OIH stub and EGP0.31 for OFH, we find that the former (OIH stub) would be overvalued (27% downside potential), whereas the latter (OFH) would be slightly undervalued (10% upside potential). So, assuming the split is made today, we advise current OIH shareholders to sell OIH stub and buy into OFH until the valuation gap closes. We have to note that our calculation assumes the current market prices of OIH, BTFH, and SRWA are fair values, which they are not.
In our STANDPoint note dated 1 February 2021, we had selected 20 long ideas and eight short ones, including RAYA. Unfortunately, it seems that we have just had our GameStop moment (similar to the short squeeze that took place in the U.S. with the GameStop [NYSE: GME] stock. Since our short call, RAYA jumped 33% to EGP29.77/share, more than double our price target. With the absence of any fundamental news to justify such a leap, we highlight that we closed out our short position after it crossed our rule of thumb stop-loss of 20% (i.e. once the stock crossed EGP26.88/share). Meanwhile, rumor in the market has it that RAYA’s value should be commensurate with that of Fawry [FWRY] in view of RAYA’s remaining 75% stake in Aman Holding, a 24% stake of which was sold to National Bank of Egypt (NBE) at EGP500mn. We would argue that the same rationale should be applied for MM Group [MTIE] and B Investments [BINV], two of our 20 long ideas that have 20% and 25% upside potential, respectively.