MARKET WATCH — The Story of Two Worlds
STOCK ANALYSIS: Memphis Pharmaceuticals (MPCI)
Written end of October 2024 for Business Monthly - November 2024 Issue
MARKET WATCH
The period from September 15 to October 15 was yet another one where the market was split between two worlds, large caps and small caps. The EGX 70 EWI continued to outperform its counterpart the EGX 30 by a large margin for the second period in a row. The former rose 6.7% for the period, while the latter only inched higher by 0.3%. This meant that year-to-date, the EGX 70 EWI is up 38%, while the EGX 30 is up only 23%.
Many of the top performers came from the small caps world, the likes of Sabaa International Pharmaceuticals (SIPC, up 70%) Memphis Pharmaceuticals (MPCI, up 69%), Cairo Educational Services (CAED, up 52%), and MB Engineering (MBEG, up 48%). SIPC and MPCI may have been bid higher on the recent pharmaceutical price hikes, with the latter recently undergoing a capital increase that will reduce its financing expenses. Meanwhile, CAED had no material events to drive its price higher, but MBEG may have been saluted by investors after it moved from the Nilex to the main board on the EGX.
Elsewhere, some large caps were under the limelight for several reasons or the lack thereof. For instance, Elsewedy Electric (SWDY, up 68%) almost doubled from its recent tender offer for no obvious reason, except that the company will take part in the Ras El-Hekma project, which was quite expected six months ago. Another example was Egypt Gas (EGAS, up 62%), which rose despite denying any knowledge of an imminent acquisition by a strategic investor.
Speaking of mergers and acquisitions, the market may have bid some potential target companies higher, mainly in the food and beverages sector. For instance, Domty (DOMT, up 23%) received after the period an acquisition offer for 100% at a steep premium to the market. Other companies within the same sector rose, namely Obour Land Food Industries (OLFI, up 43%), rose on similar market talk.
Another acquisition involved Rameda (RMDA, up 42%) which made its largest-ever medicine acquisition that treats diabetes type 2. RMDA is one of the key beneficiaries of the recent pharmaceuticals price hikes, which also included drug manufacturers like GlaxoSmithKline (BIOC, up 34%) and Nile Pharmaceuticals (NIPH, up 23%), with the latter recently announcing a capital increase similar to MPCI. Also, the country’s leading drug distributor Ibnsina Pharma (ISPH, up 51%) was also bid higher on recent pharmaceuticals price hikes and potential easing by the Central Bank of Egypt (CBE) in the near future.
Still, after the end of this period, the CBE kept interest rates unchanged in its October 17 meeting, as expected. This leaves it with two more meetings by the end of November and December. But with inflation accelerating for two months in a row in August and September, the CBE may push its easing decision to early 2025.
STOCK ANALYSIS
Memphis Pharmaceuticals (MPCI)
In what seems to be a government-led financial restructuring, Memphis Pharmaceuticals (MPCI) – 60% owned by HoldiPharma, the state-owned drug holding company – has recently closed its EGP171.25-million capital increase. Proceeds from this 3-for-1 rights issue were mostly earmarked to settle MPCI’s outstanding debt owed to HoldiPharma in the amount of EGP102.75 million. This will eventually generate around EGP30 million in financing cost savings for MPCI, which would translate into 12% higher net earnings. Since it went ex-right on August 5, MPCI’s stock has risen around 70%. Similarly, the stock rose during the period by 69% from EGP35.64 to EGP60.30.
