Today’s Trading Playbook
KEY THEMES
Just last Thursday, Credit Agricole - Egypt [CIEB] posted its 9M 2021 preliminary figures, generating net earnings of EGP1.2bn (+13% y/y). Such double-digit growth is the product of 1.4% higher net interest income of EGP2.2bn, as well as potentially lower credit provisions during the period. Net lending grew 12% ytd to EGP30bn, against 10% ytd growth in deposits of EGP45.3bn, bringing net loans to deposits ratio higher at 66% vs. 65% in 2020. ROAE is currently at 20%, yet it trades at P/BV of 1.0x.
This reaffirms our call on the banking sector in view of the latest updates on the macro front. The market has long been a fan of small-cap stocks, in addition to highly cyclical names, given the rally in global commodity prices. Come Q4 2021, and many have changed, with liquidity is looking to migrate from the small-cap universe. Also, the decision to hike natural gas prices does extinguish some of the enthusiasm towards many cyclical names. Banks are poised to benefit in such a market setting, given that (1) it is of large- to mid-cap size, (2) the possibilities to revert back to dividend payout as earnings recovery gets healthier, (3) a plenty of provisions booking during 2020-2021, which if not going to be partially reversed would surely mean much more stable credit worthiness, and finally (4) higher inflation expectations globally could insinuate a local monetary policy that is pleasant to banks business model.
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