Written for Business Monthly - July 2022 Issue
MARKET WATCH
An Event-Driven Market
For the second month in a row, the EGX 30 was in the red, whereas the EGX 70 EWI was in the black. During the period May 15 to June 15, the former fell 5.4%, while the latter rose 2.5%. Still, it was not enough for the EGX 70 EWI to wipe off its year-to-date losses, now at 15.1%. Both market indices reect the overall negative sentiment in the market, where trading liquidity has been falling. With foreign investors exiting and individual investors shunning the market altogether, Egyptian stock performance has lately become more of an event-driven play. Merger and acquisition (M&A) activity has risen as valuations decline. Stocks of target companies often react positively to news of an imminent acquisition, but they can easily fall if an acquisition falls through.
For instance, when First Abu Dhabi Bank (FAB) expressed its interest in EFG Hermes Holding (HRHO) at a 21% premium to market price, HRHO’s stock rose as much as 27% in the following weeks. After FAB withdrew its offer, HRHO’s stock fell 39%, well below its pre-announcement price level. More recently, Beltone Financial Holding (BTFH), another non-banking financial service &rm, had two offers. The first was at a 30% premium to the market, while the second bid the price higher by 10 percentage points. Since then, BTFH’s stock rose by as much as 42%. Incidentally, shares of Orascom Financial Holding (OFH), which owns a controlling 58% stake in BTFH, initially lagged before rising as much as 38%. BTFH and OFH stock performances are subject to the finalization of either of the two offers.
Events are not just limited to M&As and could involve other corporate events, such as earnings surprises or bankruptcy. For Ibnsina Pharma (ISPH), it was the latter after media reports of the bankruptcy of a major pharmacy operator with exposure to drug distributors. Although the magnitude of ISPH’s exposure was not quanti&ed in detail, its stock fell during the period by 13.7%, extending its year-to-date loss to 51.4%.
From a macro point of view, investors have been weighing their options. The Central Bank of Egypt (CBE) Monetary Policy Committee’s (MPC) decision to lift benchmark rates by 200 basis points on May 19 has probably had consequences, too. Through the next MPC meeting on June 23, the EGX 30 closed in the red in 19 trading sessions, or 76% of trading days, versus 44% for EGX 70 EWI. With the CBE recently keeping interest rates unchanged, investors have until the next MPC meeting on August 18 to figure out which way the market might go.
STOCK ANALYSIS
Lecico Egypt (LCSW)
Lecico Egypt (LCSW) featured as the top-performing stock during the period, thanks to strong &rst-quarter results. The company managed to eke out a quarterly gain for the first time in three and a half years. Consolidated earnings turned into pro&ts of EGP 29.3 million, after a loss of EGP 16.8 million the previous year. Company management attributed the turn-around to higher demand, higher gross profits, and an FX gain in view of the weaker Egyptian pound. LCSW’s stock rose 43% during the period, turning its year-to-date loss into a gain of 20.5%.