MARKET WATCH: The FX Effect
MARKET WATCH: The FX Effect
STOCK ANALYSIS: Misr Hotels (MHOT)
Written for Business Monthly - September 2023 Issue
MARKET WATCH
The period from July 15 through Aug. 15 saw the main market indices extend year-to-date gains. The EGX 30 rose 3.6% (23.1% for the year), and the EGX 70 EWI 6.2% (29.9%). Advances outnumbered declines by two to one. Market performance was unscathed by the Central Bank of Egypt’s (CBE) surprise 1% rate hike Aug. 3.
Since then, both indices added 3% apiece. Investors probably took the rate hike as a cue for continued high inflation, which they can hedge by taking long stock positions. However, two other themes played out during the period, namely FX-linked plays and earnings-related stories.
Rising local gold prices contributed to a higher U.S. dollar exchange rate of about EGP 42. So it was no surprise to see strong performers led by stocks of companies that are beneficiaries of a stronger U.S. dollar. For instance, tourism-related stocks like Sharm Dreams for Tourism Investment (SDTI) and Misr Hotels (MHOT) rose 43% and 41%, respectively. Also, export-oriented stocks like Lecico Egypt (LCSW), Alexandria Containers Handling (ALCN), and Raya Contact Center (RACC) rose 34.5%, 19.3% and 17.6%, respectively.
Meanwhile, strong earnings reports helped drive other stocks. Housing & Development Bank (HDBK, up 12.4%) extended its year-to-date gain to 32.5% after second-quarter earnings doubled year-on-year on strong net interest income growth, registering an unprecedented ROAE of 59%. Nonetheless, the stock was trading near its book value. Also, Juhayna Food Industries (JUFO, up 14.6%) reported 24% higher year-on-year earnings during the second quarter on double-digit revenue growth despite a slightly lower gross profit margin.
As for the laggards, they were led by TAQA Arabia (TAQA, down 29%), the latest company to list on EGX. The stock ended the period at EGP 9 a share, which aligns with the independent financial adviser’s fair value set before the stock began trading. Its second-quarter earnings fell 11% sequentially on higher finance costs and despite slightly higher revenue. Still, this left TAQA trading at a relatively high price-to-earnings ratio north of 20 times. Also, Beltone Financial Holding (BTFH, down 11.2%), the late high-flier, succumbed to pressure as recent news of its interest in acquiring a digital bank license and a microfinance business did not help.
With summer ending, investors will likely take shelter in stocks that are both inflation and FX hedges.
STOCK ANALYSIS
Misr Hotels (MHOT)
Misr Hotels’ (MHOT) stock what its ticker spelled: hot! It rose a staggering 41%, with 167,000 shares worth EGP 21 million changing hands, extending its year-to-date gain to an eye-watering 163%. The company’s market cap stood at EGP 5.4 billion. With earnings of EGP 820 million (up 134% year-on-year) on 86% higher revenues and a hefty FX gain, the stock is trading at mid-single digits with a price-to-earnings ratio of 6.5 times. Excluding the FX gain, the stock would have traded at a not-so-demanding 10 times earnings.
