KEY THEMES
The M&A action is finally moving to the pharma sector. Back in October and July, we had talked about how the pharma sector is undervalued with a few turnaround stories that we saw in the past period, such as Nile Pharma [NIPH] and Memphis Pharma [MPCI]. At the time, we stated that any news of potential M&A activity in the industry could lead to a re-rating of listed stocks. The triple bidding festival on GlaxoSmithKline Egypt [BIOC] is beginning to look very interesting. At one hand, the deal could lead to a re-rating in a sector in much need for M&A actions. On the other hand, with Rameda [RMDA] joining the race, the market may soon start to price in the potential inorganic growth from such an acquisition, if completed.
Elsewhere, Egyptian Chemical Industries [EGCH] issued a statement regarding its planned EGP2bn capital increase, allowing its creditors to use their debt balance in the capital increase. The two important reasons for this capital increase are: (1) hefty tax arrears of c.EGP915mn and (2) technical issues in the urea factory, which caused the factory to stop since last October for a period expected to be six months. We believe the outlook for EGCH’s capital increase post a previous attempt in 2018 is blurry, especially when the company is expected to see net losses in excess of EGP1bn in 2020/21.
PosItive
Pharma: We could see a re-rating of EGX-listed pharma stock, depending of course on the implied valuation for BIOC.
NEGATIVE
MCQE: Misr Cement – Qena’s [MCQE] budget implies a forward P/E ratio of 55x.