Today’s Trading Playbook
KEY THEMES
Up over 29% so far in 2020, gold has yet proven to be a must-have investment in investors’ portfolios. What has driven the gold’s positive performance in 2020 so far? On one hand, investors prefer to avoid stock market volatility by parking their funds in precious metals, mainly the yellow one: gold. On the other hand, the recent U.S. dollar weakening often means higher prices of commodities that are priced in the greenback. At such volatile times, investors rush to gold for safety. A “gold rush” is when a new discovery of gold brings an onrush of miners seeking their fortune. Major gold rushes took place in the 19th century across the world, most notably in the United States. Nowadays in Egypt, there is a new type of rush: the fintech rush. Investors are seeking their fortune in newfound businesses built on the fintech concept.
NEGATIVE
FWRY: Let’s start today with the negative section. A case in point (for such a fintech rush) is Fawry [FWRY] which is up 118% ytd. The e-payment outfit that went public last August saw its market cap jump from EGP4.6bn to EGP12bn in just less than a year. Yesterday, some of FWRY’s existing shareholders that were part of the company prior to its IPO decided to offload between 10-13% of their holdings at FWRY after agreeing to a 180-day lock-up period concerning their remaining stakes. Please read the news below. We believe the sale would be perceived negatively by the market. So, until FWRY churns out earnings growth that can justify its high-flying valuation, we would rather stay away from the name for the time being.
POSITIVE
SWDY, HRHO: Both Elsewedy Electric [SWDY] (+3.5% d/d) and EFG Hermes Holding [HRHO]
(-3.9% d/d) have fallen prey to the MSCI rebalancing masquerade, where investors (or better identified as traders) bid up prices of stocks set to join an MSCI index and hammer prices of other stocks expected to be ditched off that same MSCI index. This has been the case over the past few weeks, where traders bet on SWDY’s removal off MSCI EM index by selling it off. On the other hand, other traders bet on HRHO’s inclusion to MSCI EM index by loading up on it. As ridiculous as this may sound, it does create opportunities with new entry and exit points for removed and added stocks, respectively. Regardless of the direction of flows into these two stocks (SWDY and HRHO), we continue to have them as part of our 19-stock top picks (please take another look at them here).
MICH: Misr Chemical Industries’ [MICH] preliminary earnings reached EGP64mn, but we remind you that its 9M 2019/20 (ended 31 March 2020) bottom line was only EGP28mn. This implies that Q4 2019/20 bottom line recorded around EGP36mn (56% of full-year earnings). We believe the reason is higher demand for MICH products instigated by the pandemic, especially chlorine and sodium hypochlorite. Replication of Q4 2019/20 performance in 2020/21 is not completely a sure thing, yet with the company benefitting off the recent cut in electricity prices (-8% or EGP0.10/kWh) in 2020/21, we should see a further boost to operating performance. MICH trades at 2019/20 P/E of 6.9x.
Now, on to the top news and analysis for the day.