Yesterday was the start of a trading week with shorter trading hours. The holy month of Ramadan starts tomorrow with the trading day one hour shorter, ending at 1:30 pm CLT. The EGX 30 managed to eke out a small gain after a tumultuous week.
The overall positive sentiment was partly driven by a revaluation sanity check in an industry that has been hyped in the past couple of years, especially with lower interest rates, namely non-banking financial services. GB Auto’s [AUTO] announcement that its subsidiary was selling a 5% stake in its investment vehicle holding two of its micro finance businesses was exactly that revaluation check. This EGP353mn deal implies an attributable equity value of EGP4.4bn to AUTO or more than EGP4 a share vs. a closing price of only EGP3.48 last Thursday. Absent financial KPIs for the deal, we note that this is not the first time AUTO monetizes this investment. It did so back in 2018 when it sold a 20% stake to now-partners DPI Ltd. at an implied valuation of EGP507mn. The valuation gap between the two deals that are only three years apart underlines the huge growth potential inherent in this sector. We note that AUTO has been one of our top picks in our STANDPoint published on 1 February 2021, since which the stock advanced some 6% vs. a 10% pullback by EGX 30 – a full 16 percentage-point outperformance.
On the other hand, the second consecutive negative day for Taaleem Management Services [TALM] may have spooked investors who were looking forward to subscribing to this year’s second IPO, Macro Group Pharmaceuticals [MCRO], which with an estimated size of EGP1.6bn. Some investors blamed TALM’s underperformance (closing near its IPO price two days after its debut) for MCRO’s last-minute decision to shelve its IPO for now. While MCRO cited market conditions to absorb multiple offerings, we think it could very well be lackluster interest in the private placement either on the demand side or the pricing side. MCRO was scheduled to reveal the IPO pricing and its private placement allocation today.