MARKET WATCH — Playing Down Market Fears
MARKET WATCH — Playing Down Market Fears
STOCK ANALYSIS: CIRA Education (CIRA)
Written end of May 2024 for Business Monthly - June 2024 Issue
MARKET WATCH
Like Warren Buffett once said: be fearful when others are greedy, and be greedy only when others are fearful. Well, the market so far seems to be full of fear after it plunged off its mid-March all-time high. The period from Apr. 15 to May 15 saw the market extend its losses into double digits. EGX 30 fell 14.5%, and EGX 70 EWI fell 18.2%, almost wiping out their year-to-date gains. The market’s declines outnumbered advances by a large margin as many stocks pulled back, paring their year-to-date gains. Still, TMG Holding (TMGH, down 14.2%) is the star performer among large caps, up some 144% on a year-to-date basis. Among the gainers during the period were US dollar-denominated stocks, the likes of Maridive & Oil Services (MOIL, up 8.1%) and Faisal Islamic Bank of Egypt (FAITA, up 2%).
But within an overall declining market, there was some major news surrounding certain stocks. For example, the gainers during the period were led by companies impacted by merger and acquisition (M&A) talks, like CIRA Education (CIRA, up 18.9%) which received an offer at a 9% premium to the pre-announcement market price. Also, Taaleem Management Services (TALM, up 9.8%), another education stock, rose in tandem with CIRA news.
On the other end of the spectrum, Qalaa Holdings (CCAP, down 28.6%) witnessed high levels of volatility. It rose to a high of EGP3.21 on May 7 after the company said Citadel Capital Partners, its main shareholder, reached an agreement with international creditors to settle CCAP’s USD231-million debt by paying around 20 cents on the dollar based on the debt principal, which is equivalent to some 12 cents on the dollar when including accrued interest. However, the stock later fell to EGP2.35 after some back-and-forth disclosures further explaining the potential deal and leveling the playing field for all shareholders to participate in this debt settlement which should eventually be converted into equity at a par value of EGP5 a share.
Meanwhile, company earnings continued to flow in with many large-cap stocks reporting strong annual earnings growth, led by banks. CIB (COMI, down 9.7%), Credit Agricole Egypt (CIEB, down 11.2%), and Abu Dhabi Islamic Bank – Egypt (ADIB, down 12.4%) saw their earnings driven by higher net interest income and FX gains. However, these stocks continued to trade at valuation multiples lower than their historical averages despite reporting high return on equity ratios.
On the macro front, the market was broadly expecting the Central Bank of Egypt (CBE) to hold on to its benchmark rates in its third meeting so far in 2024. So, this was not seen as a major event to drive market performance. What seems to be driving the market though is liquidity flows. TMGH was added to the MSCI Emerging Markets index, replacing EFG Holding (HRHO, down 18.3%). Investors usually bet on inflows from one stock to another, but this can create mispricing which will eventually attract bargain hunters.
STOCK ANALYSIS
CIRA Education (CIRA)
CIRA Education (CIRA) is a family-owned business controlled by El-Kalla family (51.2%) through Social Impact Capital Ltd. The rest of the shares are distributed among more than 2,500 other shareholders, led by Sustainable Capital Africa Alpha Fund (7.5%) and Waha Capital Investments (5%). Social Impact Capital Ltd. made an offer to buy between 75-100% of CIRA at EGP14 a share through a capital increase that will be funded by the Public Investment Fund, the Saudi sovereign fund. The offer was made on May 7, but the stock has been on the rise a couple of trading sessions before. Some 58 million shares exchanged hands worth EGP751 million, with the stock ending the period up 18.9%. It traded between a low of EGP10.10 on April 29 and a high of EGP14.89 on May 7, a whopping 47% swing! If successful, CIRA will be voluntarily delisted from the Egyptian Exchange.
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