KEY THEMES
Yesterday, the market went through a very violent trading session, with EGX 100 EWI down almost 5%. Both EGX 30 and EGX 70 EWI indices endured heavy losses of 1.2% and 6.3%, respectively. In spite of the market having a couple of stories or trading ideas, the negative dragging factors were overwhelming. They include (1) the overall geopolitical tension atmosphere with Russia’s potential invasion of Ukraine, weighing on risk assets sentiment in general and energy markets in particular, (2) technical dislocations in the local small-cap universe, (3) poor performance by Macro Group Pharmaceuticals [MCRO] post its IPO (down 14% off its IPO price in just two trading sessions), and (4) intensifying margin calls. Post yesterday’s session, EGX 30 is now traded at a 2022e P/E of 6.6x, implying a 15% earnings yield.
Elsewhere, Misr Chemical Industries [MICH] reported its Q2 2021/22 results. The performance in Q2 2021/22 represented a continuation of a remarkable performance, as MICH achieved a bottom line of EGP46mn vs. EGP40mn a year earlier (+15% y/y). The main driver behind such a strong earnings performance y/y is a solid top line of EGP132mn (+8% y/y), coupled with robust margins; GPM came in at 52.6% vs. 45.5% in Q2 2020/21 (+7.1pp y/y). However, the negative takeaway from Q2 2021/22 is the weak sequential performance, as revenues declined q/q by 5%, factoring in weaker sales volumes, pulling back bottom line 8% q/q. MICH has achieved an average monthly bottom line of EGP16mn during H1 2021/22. While we do not expect such a pace to continue, we see MICH achieving a low double-digit annual earnings growth, ending 2021/22 with a bottom line of EGP147mn (+10% y/y). MICH is currently traded at 2021/22e P/E of 5.0x and EV/EBITDA of 2.0x. In view of Q2 2021/22 results, we maintain our rating for MICH at Overweight. We also maintain our 12MPT at EGP13.9/share, offering a 42% upside to yesterday’s closing price. We note that MICH is one of the 15 stocks we picked in our STANDPoint 2022 strategy outlook published on 30 January 2022. For more details, please check out our results commentary note published yesterday.