MARKET WATCH: Going to the Moon?
STOCK ANALYSIS: Egyptian Real Estate Consortium (AREH)
Written for Business Monthly - October 2022 Issue
MARKET WATCH
Going to the Moon?
For the EGX 30, the period from Aug. 15 to Sept. 15 was volatile in terms of performance. The market bellwether ended the period up 1.7%, above the 10,000 mark, after it was almost unchanged for two weeks. On the other hand, the EGX 70 EWI trended upward with higher lows and higher highs—a positive technical formation, albeit in a very short timeframe. Some stocks began to behave like memes as if they were going to the moon! Such stock performances are inexplicable for outsiders who attempt to draw up scenarios to justify where certain companies are trading on any single day. Still, some anomalies bafe investors. The top gainers’ list primarily included small-cap names often connected with speculators. For instance, the top gainer was Real Estate Egyptian Consortium (AREH), which skyrocketed 106% in just a month. Another example was Beltone Financial Holding (BTFH). After a 56% stake in the company was sold to U.A.E.-based Chimera for EGP 1.485 a share just two months before, the stock ended the period up 75% at EGP 3.53 a share, 138% above the acquisition price. Ironically, neither AREH nor BTFH reported a profit in the last 12-month period. BTFH was the second-best stock on the EGX on a year-to-date basis, up 128%, surpassed only by another high-year, namely Lecico Egypt (LCSW), which was up 215% year-to-date. LCSW was up 23% during the period. After having eked out a net income in its first-quarter results, LCSW fell back in the red in the second quarter. As for other trends in the market, mergers and acquisitions continue to be the only fundamentals-based catalyst that can move the needle for a stock. For instance, after SODIC (OCDI) expressed interest in fully acquiring Madinet Nasr Housing & Development (MNHD), the latter’s stock rallied to a high of EGP 3.42 recorded at the end of August. Such a performance came despite MNHD’s shareholders voting a “no go” for SODIC’s due diligence of the company as they hoped that a white knight would come along and pay what they think is the right price. However, after the period ended, SODIC revealed its interest in MNHD is no longer an open subject with other targets under consideration. Elsewhere, Arabian Food Industries (DOMT) rose 15%. The mandatory tender offer submitted by an investment rm led by DOMT’s founders was revised by 10% to EGP 5.50 a share. That followed a study claiming the stock’s fair value was around EGP 6.90 a share, still 25% above the revised offer price. All of the above indicate severe market dislocations, but whether capitulation is behind us is anybody’s guess.
STOCK ANALYSIS
Egyptian Real Estate Consortium (AREH)
In mid-June, the market regulator suspended trading on Egyptian Real Estate Consortium (AREH) stock, subject to addressing its inquiries concerning its rise. With no response, the suspension lasted nearly two months. By mid-August, the same market regulator, with new leadership, resumed trading on AREH, but with a daily price limit of plus or minus 5%. In late August, AREH hired an independent adviser to value the company. Since resuming trading, AREH’s stock hit the upper price limit (plus 5%) on 16 of the 21 days it traded, rising by 106%.