Today’s Trading Playbook
Amr Hussein Elalfy CFA | Head of Research
KEY THEMES
The traditional way investors identify mispriced securities is to simply compare market price vs. fair value. However, another way is to study upcoming spinoffs to determine how the post-spinoff entities will be priced vs. their respective fair values. In Egypt, there are a few spinoffs that are expected to take place within the coming period, namely Pioneers Holding [PIOH], Orascom Investment Holding [OIH], and Egyptian Iron & Steel [IRON]. We have tracked the performance of recent spinoffs before in here. IRON just announced yesterday how it intends to split the company into two, one owning the steelmaking business and the land bank (90% of the par value) and the other owning the mines and quarries (only 10% of the par value). With the split usually done at book value, investors can benefit of this mispricing whether they are already long the stock or not. If they are long, they can simply sell the higher priced stock and reinvest the proceeds into the lower priced stock. If they are not long the stock, they can buy directly into the lower priced stock post-spinoff. We have seen such a strategy pay off when Arab Cotton Ginning Co. [ACGC] was split back in 2018 with Arab Co. for Asset Management & Development [ACAMD] outperforming its parent company’s stock. Similarly, we think investors can find a “de-merger” arbitrage opportunity in IRON post-spinoff given the proposed split ratio.
POSITIVE
ISPH: Ibnsina Pharma’s [ISPH] decision to call off its acquisition of the mobile app Elagi Tech should release some of the pressure off the stock seen over the past couple of weeks.