KEY THEMES
Later on tonight, MSCI is scheduled to announce its February 2021 Quarterly Index Review, where we do not expect a change in Egypt’s three stocks in MSCI EM index. Meanwhile, Banque Misr’s intention to acquire 100% of CI Capital Holding [CICH] is neither a surprise to us nor the market, we think. The state-owned bank already has a 24.13% stake in CICH, making it the largest single shareholder of Egypt’s second-largest investment bank. By doing so, Banque Misr would be complementing its non-banking financial services (NBFS) exposure. Banque Misr already owns Misr Capital which is the state-owned bank’s investment banking arm, focused mainly on asset management. Should Banque Misr later on combine both Misr Capital and CICH under one umbrella, it would create synergies within corresponding business lines while adding brokerage to its portfolio of services. What remains to be seen, however, is what the bank would do with its financial leasing arm BM Lease since CICH owns 87.4% of Corplease, the market leader. Whether it would also be combined under CICH or not, Banque Misr would be consolidating the financial leasing business, growing its market share from 17% to c.26.5% (based on 2020’s new contracts value ytd through November 2020). What was a surprise, though, is that the acquisition price offered for CICH (EGP4.7/share), just 13% above Sunday’s close price. The offer values CICH at 1.6x book equity, 10% below our fair value (FV) of EGP5.2/share and 22% below our 12-month price target (12M PT) of EGP6.0/share.
Positive
CICH, HRHO: The offer is positive for CICH, although at a lower-than-expected acquisition premium. The offer should support a re-rating for other NBFS plays, such as EFG Hermes Holding [HRHO] which is trading at only 0.9x book equity, understandably because of its low ROE vis-a-vis CICH’s. Our FV and 12M PT for HRHO are EGP15.4/share and EGP17.7/share, respectively. Both CICH and HRHO’s stocks have risen 15% and 13% since the Core Coverage reports were published on 14 January 2021 and 22 December 2020, respectively.