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Big Buys, Bigger Sales

November 2006
The market held steady as the government closed deals on Omar Effendi andthe Bank of Alexandria, while Telecom Egypt has upped its stake in Vodafone Egypt

If there's anthing memorable about October 2006, it's the successful privatization of Omar Effendi and Bank of Alexandria (BA) not to belittle the importance of Telecom Egypt (TE, bt100 number 3, ticker: ETEL) increasing its stake in Vodafone Egypt (Vodafone, bt100 number 5; ticker: VODE). After months of waiting for a good offer for the state-owned retailer, 90% of Omar Effendi was sold to Saudi Arabia-based Anwal . In a separate deal, 80% of BA the smallest of the nation's mammoth Big Four state-owned banks was bought by Italy's Sanpaolo Bank for $1.6 billion.

As the privatization success stories rolled in, little attention was paid to Moody's annual report, in which the ratings agency assigned Egypt's government bonds a rating of Baa3 with a negative outlook on its local currency rating and Ba1 with a stable outlook in its foreign currency rating, reflecting the global credit rating company's concerns about the challenges of implementing structural reforms while controlling social discontent.

Some may find it hard to imagine the challenges of structural reform when local and international figures show that Egypt has become an important destination for foreign direct investment (FDI). The latest report from the United Nations Conference on Trade and Development listed Egypt as the second largest recipient of FDI in Africa, growing 160% with inflows worth $5.4 billion in 2005 which comes out to 17% of Africa's total FDI.

The CASE30 Index's 0.5% increase throughout the month of October reflects the market's relatively quiet performance. Though the bourse had its good and bad days, losses on the CASE30 never exceeded 4% throughout this reporting period. While we're counting our blessings and thanking the powers that be that the market did not drop any further, we're not doing so well compared to last year's outstanding October performance, when the CASE30 had a month-on-month jump of 10%. This October's activity also paled in comparison to the turnaround performance the market saw in August 2006, with a 20% month-on-month gain. The same period last year posted a 2.5% loss, so at least we're still coming out slightly ahead.

In the telecom sector, TE led its peers as it gained 13% to close the period at LE 16, much to the pleasure of many a small investor who had bought the stock at the IPO price of LE 14. Since the IPO, TE's shares have lagged as investors cashed out, leaving longer-term shareholders suffering at prices lower than the initial offering.

Comparatively, Vodafone was in the red this month, closing 9% lower at the end of the period. Mobinil (bt100 number 6, ticker: EMOB) recorded an 8% increase, surging at the beginning of October as investors saw TE increasing its Vodafone stake day by day. At the end of the period, Mobinil said it would announce its financial results for 3Q2006 with hopes rising for lucrative profits and improved subscriber statistics.

Orascom Telecom (OT, bt100 number 1, ticker: ORTE) and Raya Holding (Raya, bt100 number 17, ticker: RAYA) followed Vodafone's trend, both down at the end of the reporting period. OT had purchased 1.18 million Mobinil shares 1.2% of the company at the beginning of the reporting period, marking the second attempt to up OT's 16.6% stake in Mobinil after OT had previously announced its willingness to buy 3.5% of free float shares in Mobinil.

After the dust stirred up by the Raya-Vodafone deal had settled, Raya's stock price slipped, possibly due to profit taking. When the news of Vodafone's acquisition of a 51% stake in Raya Telecom broke, investors were encouraged to buy Raya stocks; as the days wore on and TE upped its stake in Vodafone Egypt, their attention turned elsewhere, and it was time to lock in short-term profits and get ready for another opportunity.

In the banking sector, the Commercial International Bank (CIB, bt100 number 13, ticker: COMI) ended the reporting period more than 9% higher at LE 50.22, while National Société Generale Bank (bt100 number 23, ticker: NSGB) jumped more than 16% just before the bourse closed for the long Eid vacation. CIB had been in the race for the very lucrative Bank of Alexandria, but withdrew in the last stage of bidding for reasons it has yet to disclose. It could possibly have to do with CIB's announcement on October 18 that it plans to establish a new bank in Algeria (CIB-Algeria) with several Egyptian and Arab investors.

The $12.6 per share at which BA was sold was evaluated at 6.11 times the book value, impressive compared to other recent private bank sales in which the price averaged only three times book value, according to analysts at Beltone Financial. BA's high valuation is expected to improve the valuation of other banking stocks and to cause a rise in stock prices, as happened when Etisalat won the bid for the third mobile operator license.

The board of directors of the recently created Crédit Agricole Egypt the result of the August merger between Calyon-Egypt and the Egyptian American Bank (bt100 number 37) agreed to reduce issued capital from LE 2.8 billion to LE 1.1 billion, due to a reduction of the banks' goodwill. Crédit Agricole's board also approved the reduction of the par value to LE 4 from LE 10 with the issuance of 480,000 new shares. In other banking news, regional investment bank EFG-Hermes (bt100 number 26, ticker: HRHO) dropped by just under 4% as profit taking continued to put stress on the market and push prices down.

Cement stocks were in the red again this reporting period with the exception of Misr Beni Suef Cement (bt100 number 48, ticker: MBSC), which closed 5.6% higher at LE 110.09. Suez Cement (bt100 number 11, ticker: SUCE), on the other hand was trying to hold steady as profit takers made a quick buck, closing only 3% lower at LE 69.63.

Misr (Qena) Cement (MCQE, bt100 number 46, ticker: MCQE) disclosed that its current output hit 786,000 tons of clinker during 1H06 a utilization rate of 116% compared to the company's total production capacity of 675,000 tons of clinker of which it exported 320,000 tons for $20 million. With the news that MCQE is expecting to pay its last long-term debt installment of LE 413 million this year instead of in 2009 and build a new clinker line with a capacity of 1.5 million tons per year, profit taking is taking its toll on stock price, leaving MCQE almost 4% lower at LE 62.56.

In the construction sector, Ezz Steel Rebars (bt100 number 9, ticker: ESRS) announced 1H06 financial results showing a 90% increase in net profits to LE 496.9 million compared to a net profit of LE 261.4 million the year before. Losses on the stock were slow at the beginning of the reporting period, but by the second week of October, profit takers obviously stepped up efforts to hedge their investments by offloading the stock.

Though much later than other companies, Orascom's construction arm Orascom Construction Industries (OCI, bt100 number 2, ticker: OCIC) announced 1H06 net profits early in October, coming in at LE 1.2 billion compared to LE 89.6 million. To give investors a strong boost of confidence, the company announced it is acquiring 50% in GroupoGLA, Spain's largest independent aggregates and ready-mix concrete producer, for a total 51.3 million (LE 369 million). OCI stock was pretty stable last month as it closed with an increase just under 1%.

Another of Orascom's arms, Orascom Hotels and Development (OHD, bt100 number 32, ticker: ORHD) announced that it had received approval from Swiss authorities to build a tourist resort accommodating 800 guests in the alpine town of Andermatt. OHD has thereby been exempted from Switzerland's "Lex Koller'' law, which regulates land acquisitions by foreigners. The Swiss Justice Ministry said the project is expected to create 2,000 jobs and generate a gross revenue of about $97 million annually.

While there haven't been any substantial events that could shake the market either way, there are expectations for an upcoming boom though nothing like what the market witnessed last year the effects of which should be seen very soon. Meanwhile, the government continues with reforms, chugging away slowly but surely.

Privatization revenues for the nine months ending April 2005 came to LE 2.9 billion four times what the process had reaped in the previous four years. And Egypt's Central Bank has announced that for the 11 months ending June 2006, foreign reserves broke the $20 billion benchmark. All we have to do now is make sure the trickle-down is on and working.

By Fatima El-Saadani

© Business Today Egypt 2006

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