MARKET WATCH: A Paradigm Shift
STOCK ANALYSIS: Arabian Food Industries “Domty” (DOMT)
Written for Business Monthly - May 2022 Issue
MARKET WATCH
A Paradigm Shift
From March 15 to April 15 included almost two weeks in Ramadan, when trading activity usually slows down. However, this time it was a bit different with the market having to react to a surprise decision by the Central Bank of Egypt (CBE). On March 21, the CBE devalued the Egyptian Pound by 14%. Also, the CBE hiked interest rates by 100 basis points. Incidentally, National Bank of Egypt and Banque Misr, the two largest state-owned banks, introduced 18% one-year certificates of deposits.
Granted, investors had to recalibrate their portfolios to overweight stocks that will benefit off higher interest rates and a weaker Egyptian pound. The latter was strong enough to entice fresh GCC investments in a select group of Egyptian stocks. By mid-April, ADQ Holding—a UAE sovereign fund—agreed with the Egyptian government to snatch sizable minority stakes in five leading EGX-listed companies for a total investment just shy of $2 billion. ADQ agreed to acquire namely 17% of CIB (COMI) (up 8.3% during the period), 12.6% of Fawry (FWRY) (down 3.3%), 21.5% of Abu Qir Fertilizers (ABUK) (up 3.1%), 20% of MOPCO (MFPC) (up 9.1%), and 32% of Alexandria Container Handling (ALCN) (up 8.3%). However, the agreement was only made public by April 12, so its impact was not really felt during the period. Thus, EGX 30 rose only 2.5% to 10,679.6, while EGX 70 EWI slipped 2.3% to 1,776.2. Still, both market indices were negative on a year-to-date basis, down 10.6 percent and 19.3%, respectively. During the period, declines continued to outnumber advances, albeit 3 to 2.
The Egyptian stock market seems to have become a playground for mergers and acquisitions (M&A), given its deep discount. Other companies were subject to M&A activity, such as Juhayna Food Industries (JUFO) (up 30.7% during the period), B Investments (BINV) (up 24.1%), and Domty (DOMT) (up 28.7%). Interest came from both GCC and local investors. Qatari Baladna Food Industries, a consumer company listed on Qatar Exchange, revealed it had acquired a 5% stake in JUFO for a total value of EGP285.8 million before raising it to 7.5% later on. Also, on April 4, KSA-based Solutions—a subsidiary of STC—agreed to acquire the entire stake that BINV owns in Giza Systems, valuing the latter at an enterprise value of $145 million. Meanwhile, a day before, DOMT received an offer for up to 90% of its shares at EGP 5.0 a share, a 27% premium.
At such low valuation levels, Egyptian stocks seem to provide both strategic and financial investors with high return on investment. Thus, investors are forced to reconsider their game plans altogether in view of what seems to be a paradigm shift.
STOCK ANALYSIS
Arabian Food Industries “Domty” (DOMT)
On April 3, Arabian Food Industries “Domty” (DOMT) received an offer from Expedition Investments to acquire up to 90% of its shares at EGP 5.0 a share. This implied a 27% premium to the prior day’s closing price. It turned out that DOMT’s chairman and managing director was among the consortium interested in the company. Recently, DOMT’s board of directors cleared the way for Expedition Investments to conduct financial and legal due diligence. DOMT’s share rose 28.7% to close at EGP 4.49.