KEY THEMES
Last Wednesday, we mentioned in our Trading Playbook dated 5 January 2022 that Telecom Egypt [ETEL] is poised to benefit indirectly from Ebtikar’s IPO which is planned for this year. We stated our case relying on the fact that Vodafone Egypt [VODE] was supposed to acquire 20% of both Masary and TBE Egypt for Payment Solutions & Services (Bee) through capital increase. Given that Ebtikar raised its stake in TBE Egypt for Payment Solutions & Services (Bee) from 60% to 99.9% through a share swap into Ebtikar shares acquisition, we hypothesized that VODE could be included in such deal. However, after we communicated with MM Group [MTIE], we learned that VODE’s targeted stake in both of Masary and Bee is yet to take place, pending some regulatory approvals. Hence, VODE will not own shares at Ebtikar, but rather, it targets to remain a direct shareholder with a 20% at both of Masary and Bee. However, this takes nothing from our view regarding ETEL given its (1) strong earnings generation, (2) holding a strategic stake in Egypt's number one mobile operator, VODE, (3) being the sole telecom infrastructure player within the country, and (4) its indirect exposure to Egypt’s Fintech sector.
Speaking of which, a new bill to regulate Fintech obtained final approval from the House of Representatives on Wednesday, granting the FRA the primary role of supervision over Fintech activities. According to the new law, the FRA will have power over licensing and corporate governance. On a separate note, other activities like Robo-advisory, nano-finance, and (tech-enabled) consumer finance will also fall under the umbrella of the aforementioned law.
Fintech remains the most obvious policy tool to achieve proper financial inclusion in Egypt’s economy. Just last week, the CBE announced that mobile wallet use has surged drastically, with total value of transactions rising by160% y/y to EGP233bn during 2021.
While valuation for EGX-listed Fintech players is a bit tricky, we think it’s fairly normal, given the distinctive business model aspects which Fintech brings to the table. In this regard, we think that IPOing new Fintech names, with active regulatory environment will help increase the visibility of what names will hold deep value over the long run.