MARKET WATCH: A year to forget
STOCK ANALYSIS: GB Auto (AUTO)
Written for Business Monthly - January 2022 Issue
A year to forget
As usual, we gauge the market’s performance from mid-month, and during the period from Nov. 15 to Dec. 15, we witnessed continued divergence between the EGX 30 and EGX 70 EWI. The former rose 1.1%, extending its year-to-date gain to 7.2%, whereas the latter fell 0.8%, widening its year-to-date losses to 1.5 %. Ironically, the number of advances and declines were even during the period. On average, gainers during the period rose 13%, while losers fell 11%.
In hindsight, 2021 will go down in the history of the Egyptian Exchange as quite extraordinary. Not only was the stock market impacted by global events, but it also fell victim to local events that further exacerbated the situation.
Globally, headwinds from global supply chain bottlenecks and ever-lasting accommodative monetary policies meant the global economy was struggling to emerge from the COVID-19 pandemic. Then came Omicron, a new COVID-19 variant. That raised the level of uncertainty worldwide as investors began to speculate whether it would result in full economic lockdowns similar to what we experienced with the onset of COVID-19 and what they might mean in terms of economic growth.
Locally, the Egyptian stock market performance in 2021 was a mixed bag. On the one hand, the EGX 70 EWI, once a high-flying performer, succumbed to the pressure of unwinding margin-trading positions after small-cap stocks began to plummet. But, on the other hand, the EGX 30 mustered some courage after a long lull to eke out a single-digit year-to-date gain, driven mainly by CIB (COMI).
Narrowing down specific stock performance, a couple of names stand out. Egyptian Iron & Steel (IRON) rose 76% during the period after a plan to change its land designation from industrial to residential was revealed. However, since the company is facing liquidation, trading in the name was limited to only two days a week. Also, Heliopolis Housing & Development (HELI) rose 57% as the investors bid the stock higher on moves to unlock its intrinsic value by monetizing some of its landholdings. Meanwhile, speculators swarmed into the stock on renewed interest in this long-overlooked name. Elsewhere, GB Auto (AUTO) rose 25% during the period after the company began executing its previously announced plan to buy back 20 million treasury shares.
Despite it all, investors can look forward to the New Year, hopeful that a slew of initial public offerings will bring more liquidity into the market. Otherwise, the market would face the risk of remaining in the doldrums for yet another year.
GB Auto (AUTO)
GB Auto (AUTO) reported net earnings of EGP 1.3 billion in the nine months ending Sept. 30. The stock was trading at a low single-digit price-to-earnings multiple of only four. Perhaps that is why the company decided to buy back 20 million treasury shares, representing 1.8% of its outstanding shares and 4.5% of its free float. The stock rose 24.7% during the period, with 55.7 million shares changing hands worth EGP 248 million.