MARKET WATCH: Free at Last
STOCK ANALYSIS: Telecom Egypt (ETEL)
Written for Business Monthly - December 2022 Issue
MARKET WATCH
Free at Last
The Central Bank of Egypt (CBE) finally pulled the trigger on Oct. 27, when it floated the Egyptian pound for the second time this year. This time was different from 2016 because the CBE vowed to maintain a durably flexible exchange rate regime, the exact meaning of which will be known in time. The decision came following a three-day economic conference on Oct. 23-25 at the New Administrative Capital, where the government, industry veterans, and economy experts discussed and debated the way forward for the economy. The number one subject was the value of the Egyptian pound. It was said an overvalued pound would impede both foreign and domestic investment.
On the same day, the CBE hiked interest rates by 200 basis points, pushing the overnight deposit and lending rates to 13.25% and 14.25%, respectively, for a total of 500 basis points year-to-date. Prior to Oct. 27, both EGX 30 and EGX 70 EWI had risen only 7.1% and 3.4%, but after they jumped an additional 15% and 3.2%, respectively. For the whole Oct. 15-Nov. 15 period the EGX 30 rose 23.2% to 12,137 (almost a two-year high), whereas the EGX 70 EWI rose only 6.8% to 2,297. Year-to-date, both indices were back in the black, up 1.6% and 4.3%. Advances beat declines during the period by a ratio of 5 to 2.
In terms of stocks, performance was led by shares that should benefit from a stronger U.S. dollar (i.e., a weaker pound). Egypt Aluminum (EGAL, up 66%), Misr Chemicals (MICH, up 27%), and Abu Qir Fertilizers (ABUK) all rose as their revenues are linked to the U.S. dollar, hence investors should expect their financials to reflect this starting with fourth-quarter results. Meanwhile, Elsewedy Electric (SWDY) was up 16% and Oriental Weavers Carpet (ORWE) was up 15%. Also, Pyramisa Hotels (PHTV, up 105%) and Misr Hotels (MHOT, up 27%) rose in view of a tourism industry recovery. Similarly, CIB (COMI, up 38%) and Faisal Islamic Bank of Egypt (FAIT, up 14%) rose as the two banks typically benefit from a weaker Egyptian pound thanks to a revaluation of their foreign-currency assets. Elsewhere, M&A activity continued to have an impact on stock performance. PACHIN (PACH, up 45%) received another bid from a U.A.E.-based firm called National Paints Holding for 100% of the company at EGP 29 a share. That was 70% higher than the market and 60% higher than the bid by Sipes, which pulled its offer.
Investors might have bid Egyptian stocks higher after the float of the currency. Interestingly, however, the market index was still down 0.9% in U.S. dollar terms by the end of the period.
STOCK ANALYSIS
Telecom Egypt (ETEL)
Telecom Egypt (ETEL) rose 27% during the period to EGP 21.54, hitting a high of EGP 21.96. The country’s fixed-line incumbent has been rumored to be in discussions with the Qataris to divest a 20% stake in Vodafone Egypt. Telecom Egypt, which owns 45% of Vodafone Egypt—the country’s largest mobile operator —has reported solid operating results with double-digit revenue growth for the past six years. During the period, the stock traded 34.4 million shares, 10% of the company’s free float worth some EGP 665 million.
