KEY THEMES
It’s the day after yet another spinoff in the history of Orascom Telecom Holding [ORTE] in just over nine years. Yes, remember that name that was once the market bellwether? Early 2012, ORTE was split into Global Telecom Holding [GTHE] and Orascom Telecom, Media, & Technology [OTMT] which was later renamed to the one we knew as Orascom Investment Holding [OIH]. Today, we will welcome a new stock to the non-banking financial services (NBFS) sector with Orascom Financial Holding [OFH] trading on the EGX for the first time after its demerger from OIH. As per the spinoff math, OIH’s per-share par value of EGP0.42 will be split into EGP0.31/share for OFH and EGP0.11/share for post-spinoff OIH leaving it with nine legacy businesses. Based on the split ratio, OFH’s opening price today is set at EGP0.478/share (c.74% of OIH’s closing price of EGP0.647/share at end of 10 February). Hence, OIH’s opening price is set at EGP0.169/share (the remaining c.26%).
OFH’s new corporate structure will now include stakes in Beltone Financial Holding [BTFH] (74.55%) and Sarwa Capital Holding [SRWA] (29.25%) in addition to some EGP74mn due from related parties, which when discounted for a year at a cost of equity (COE) of 18% would be worth some EGP62mn. Please see the table for more details.
OFH’s mandate is to expand its NBFS services in the future. We continue to be bullish on the NBFS sector and hence more bullish on OFH vis-à-vis OIH. Adjusted to the market values of its BTFH and SRWA stakes and the discounted due from related parties, we believe OIH is worth EGP0.183/share (+8%), while OFH is worth EGP0.464/share (-3%).
NEUTRAL
OFH, OIH: The above calculation suggests that investors long OIH should sell OFH and buy more OIH, while new investors should buy OIH. However, the picture is not that crystal clear for the following:
(1) For OFH, we believe it’s where all the action will be, starting with a clean slate and zero leverage. OFH will likely go on an acquisition spree within the NBFS space, potentially raising capital through debt or equity. However, in the short term, we could see some pressure if OIH’s GDR holders opt to sell off their OFH local shares for cash.
(2) For OIH, we believe it will be a wild card (a call option) on however the story in North Korea will unfold. On the other hand, the risk is if a totally unrelated investment (à la Nile Sugar back in 2019) is thrown on its balance sheet at unreasonable valuation levels.
Thus, we believe today’s split is a short-term neutral on both stocks, but in the long run we see higher potential in OFH.