Three Points to Reckon With

May 18, 2023

Fundamental Thoughts

Today, the Central Bank of Egypt’s Monetary Policy Committee (MPC) will decide whether to continue on its latest tightening path or to take a breather. We think it will be the latter, at least for today’s decision, potentially keeping key rates unchanged at 18.25%/19.25% for overnight deposit/lending rates. In its third out of a total of eight meetings scheduled for 2023, the MPC will likely have three points to reckon with, namely:

(1) It usually takes a couple of months to gauge the impact of monetary policy decisions. We think the latest 200bps hike made on 30 March are yet to filter though the economy, so the MPC may opt to wait and see before making a move.

(2) Both headline and core inflation readings in April showed some easing m/m, which alleviates the pressure on the MPC to hike rates further today. Both headline inflation and core inflation slowed from 32.7% and 39.5% in March to 30.6% and 38.6% in April, respectively. We understand that the latest hike in diesel prices will eventually fuel second rounds of inflation, but this will likely be offset by easing inflationary pressures from elsewhere in the CPI basket.

(3) The U.S. Federal Reserve will likely consider pressing the brakes on its strong tightening policy in view of the latest bank failures following recent rate hikes and slowing inflation as seen in its April reading of 4.9% y/y, the lowest in two years.

—Amr Hussein Elalfy, MBA, CFA | Head of Research

Today’s Top News & Analysis

CBE hires Barclays as a financial advisor for United Bank's sale
Egypt expects USD14bn in the tourism sector in FY 2022/23
EGP1.64 trillion estimated investments in FY24
Orascom Construction divests construction chemicals for EGP1.8bn
EGCH preliminary Q3 2022/23: An absolute positive surprise!
MCRO Q1 2023: Net profits slip despite revenue growth
MPCO Q1 2023: Higher revenues and extraordinary net profits

MACRO

CBE hires Barclays as a financial advisor for United Bank's sale

The Central Bank of Egypt (CBE) hired the investment banking arm of Barclays Bank PLC as an international financial advisor for the intended sale of state-owned The United Bank (TUB), along side the local financial advisor CI Capital Holding [CICH]. Earlier, there were talks with the Saudi Public Investment Fund (PIF) to acquire TUB for as much as USD600mn, but negotiations were halted due to a dispute over how the implied FX rate used in the deal. (CBE)

Egypt expects USD14bn in the tourism sector in FY 2022/23

According to Finance Minister, Egypt is expecting USD14bn from the tourism sector in FY 2022/23, compared to USD10.7bn in 2021/22, a growth of 31%, and the stability of the exchange rate of the Egyptian pound against the dollar next December. (Asharq business)

EGP1.64 trillion estimated investments in FY24

According to the Prime Minister, the estimated investments for FY24 amount to EGP1.64tn as the volume of investments increased significantly during the recent period. (Mubasher)

Corporate

Orascom Construction divests construction chemicals for EGP1.8bn

Orascom Construction [ORAS] announced that it has sold its full stake in a construction chemicals subsidiary to Sika, as a part of Sika's global acquisition of MBCC Group. ORAS has sold a 28.25% effective stake in the company for EGP1.8bn or the equivalent of EGP15.4/ORAS share. (company disclosure)

EGCH preliminary Q3 2022/23: An absolute positive surprise!

Egyptian Chemical Industries (Kima) [EGCH] reported its preliminary results for Q3 2022/23. Beating expectations, Kima reported strong earnings growth to EGP501mn, almost 3x q/q. This was on the back of higher revenues of EGP2.3bn, while GPM rebounded again to 49% from 36% in Q2 2022/23. This is a bit surprising given that urea prices declined further in Q3 2022/23, which indicates that Kima might have managed to either reach unprecedented sales volumes and/or export more of its total production. As for 9M 2022/23, there was a 65% y/y growth in revenues to EGP5.1bn which filtered through to a 129% y/y in net income to EGP1.1bn. (Company disclosure)

MCRO Q1 2023: Net profits slip despite revenue growth

Macro Group Pharmaceuticals’ [MCRO] Q1 2023 net profits dropped by 69% y/y to EGP9mn, despite a 15% y/y increase in revenues to EGP155mn. Meanwhile, the gross profit margin decreased to 74% (-3.4pp y/y). The weak net profits can be attributable to:

· Higher SG&A-to-revenues ratio of 53% (+5pp y/y).

· Booking provisions of EGP7mn vs. a reversal of EGP0.96mn last year.

· Higher finance cost of EGP14.6mn (+525% y/y).

· Higher effective tax rate of 36% vs. 23% a year before. (Company disclosure)

MPCO Q1 2023: Higher revenues and extraordinary net profits

Mansoura Poultry [MPCO] reported Q1 2023 net profits of EGP23mn (+329% y/y) on higher revenues of EGP93mn (+77% y/y) due to its new fattening activity, recording EGP27mn. Meanwhile, the gross profit margin increased by 6pp y/y to 27%. (Company disclosure)