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EFG Hermes Holding [HRHO]
Egypt / Non-Banking Financials / Q4 2021 Results
12M PT: EGP20.0 (+10%)
set on 24 March 2022
Investment Rating: Neutral | Risk Rating: Medium
Specular turnaround in recurring earnings
EFG Hermes Holding [HRHO] reported a net profit of EGP402mn (-14% y/y, +13% q/q) in Q4 2021. This was mainly due to a high comparable base in the year-ago quarter, coupled with holding & treasury activities revenues, which halved y/y on reported realized and unrealized losses on investments/seed capital. Group operating revenues during the quarter recorded EGP2.0bn (+19% y/y, +70% q/q). The quarter witnessed the consolidation of its 51%-owned aiBank during the last two months of 2021. Hence, aiBank contributed only EGP38mn to HRHO’s bottom line in 2021, counting in only November and December. From an annual perspective, HRHO’s bottom line grew to EGP1.5bn (+12% y/y) on 12% growth in total group revenues to EGP6.1bn. Furthermore, opex growth was slower at 9% y/y due to lower other operating expenses. If we were to normalize for the one-offs witnessed in 2020, HRHO’s bottom line would have been higher 51% y/y in 2021. That said, TTM ROAE came in at c.10%.
IB platform growth muted by lower treasury operations revenues
Already past COVID-19 consequences, the IB platform (ex-private equity and treasury operations) saw very positive indicators during the quarter versus the year-ago quarter:
• Brokerage saw revenues growing 28% y/y to EGP419mn in Q4 2021 on the back of higher executions value of USD23.9bn (+63% q/q) on higher executions in Abu Dhabi, Dubai, and Kuwait—a clear sign of recovery in the business.
• Investment banking concluded 15 transactions, up from nine transactions in Q3 2021, with a total value of USD3.8bn. This drove revenues higher to EGP184mn (+48% y/y).
• Asset management’s AUMs grew to EGP23.5bn (+23% y/y), while revenues surged to EGP262mn (+31% y/y) in Q4 2021. Revenue growth was due to higher management and incentive fees.
NBFS growth accelerates: Non-banking financial services (NBFS) platform showed a stellar growth with its financing portfolio surging to EGP12.1bn (+29% y/y).
• Leasing activities contributed the most (39%) to the platform’s portfolio, ending Q4 2021 with a leasing portfolio of EGP4.7bn (excluding securitized portfolio principal amount of EGP748mn). HRHO’s leasing had a market share of 10.4% of new contracts in 2021, ranked as the third largest by market share. Leasing reported a top line of EGP67mn in Q4 2021 (+20% y/y).
• Microfinance (Tanmeyah) contributed 30% to the platform’s portfolio to EGP3.7bn—the highest since inception. Tanmeyah reported a top line of EGP372mn in Q4 2021 (+25% y/y).
Consumer finance (ValU) outstanding portfolio reached EGP1.9bn (+118% y/y). ValU’s revenues grew to EGP84mn in Q4 2021 (+89% y/y), underlining the segment’s growth potential. The segment had a market share of 23.8%, ranked as second in 2021.
Factoring activities more than doubled its outstanding portfolio q/q in Q4 2021, closing the year with a portfolio of EGP1.9bn (+132% y/y). Top line for the segment grew to EGP27mn (+152% y/y).
Commercial banking (aiBank) performance only covered a short period during 2021 (namely November and December), with net earnings of EGP38mn, implying a slim annualized ROE of 5%. We think it is still too early to judge aiBank’s profitability, given that it is still subject to various restructuring efforts. Regardless, the bank’s geographical presence will definitely help HRHO’s NBFS activities while undertaking better integration amongst its different business lines.
12MPT raised to EGP20.0/share, rating cut to Neutral
2021 results (ex-one-offs) clearly show HRHO standing on concrete grounds with growth backed by solid operations. HRHO is currently trading at a TTM P/E of 12x and a P/BV of 1.0x. In view of 2021 results, which came more or less in line with our estimates (79% of our 2021e bottom-line estimate), we will revise our forecast accordingly. For now, we raise our 12MPT to EGP20.0/share (from EGP14.8/share) to account for a 75% probability of success of First Abu Dhabi Bank’s (FAB) attempted acquisition of HRHO at an FX-adjusted EGP22/share (USD1.2/share offer adjusted for the new USD/EGP FX rate). With an upside of 10%, we cut our investment rating from Overweight to Neutral.
Research Team