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March 2007
The local press screamed about the sky falling in early February, but the bt100 closed the month with a strong performance on the CASE
Prime Minister Ahmed Nazif kicked off his speech at the World Economic Forum in Davos last month by announcing that economic growth would reach 7.5% in 2007, a clear indication that growth takes priority over curbing inflation on the government's agenda. Nazif reinforced this message when he stated that the government could limit inflation to 6-8%. Meanwhile, the Central Bank of Egypt (CBE) Monetary Policy Committee's February 6 meeting left overnight deposit and lending rates at 8.25% and 10.75% respectively. The CBE said that it would continue to monitor all economic developments and factors affecting inflation and would not hesitate to adjust rates in the future to ensure medium-term stability.

Still, with inflation holding steady at an annualized rate of 12.4% in January, the government took a step that should ease pressure on consumers and manufacturers alike with a mid-February presidential decree that cut import duties on 1,114 items by as much as a quarter, reducing the average rate to 6.9% from 9%. Following the reduction, 90% of all items in the tariff schedules will be in a 10%-or-less import duty bracket. Ministry of Finance officials said that the reduction would cut customs revenues by an estimated LE 1.4 billion, a dip they expect will be compensated for by tax revenues from new economic activity.

The current state budget showed a sharp decline in its deficit for the July-October 2006 quarter, dropping to LE 3.8 billion compared with LE 10.2 billion in the same quarter the year before. Officials attributed the improvement to an increase in total revenues to LE 48.2 billion, LE 23.2 billion of which came from taxes.

Macroeconomic data shows that Egypt's annual Suez Canal revenues climbed to $3.82 billion in 2006, the highest since the canal opened in 1869. Egypt's aggregate exports from January to November 2006 increased by 31.3% to LE 71.8 billion from LE 54.7 billion while total imports topped LE 107 billion showing an increase of 2.8%, according to Central Agency for Public Mobilization and Statistics (CAPMAS) figures. Among the highlights from the export statistics: Exports of iron and steel increased by 148%, crude oil exports increased by 74%, and oil product exports increased by 48%. The CBE had announced that Egypt's foreign reserves hit $26.04 billion at the end of December 2006, compared to $24.9 billion in November 2006 and $21.89 billion in December 2005.

The CASE30 was 5% higher at the end of the reporting period at 7,314.34 its highest level recorded for this reporting period, during which its lowest level was 6,545.14.

As for how the bt100 fared? Read on.

Telecoms
Orascom Telecom's (OT, bt100 number 1) extraordinary general meeting (EGM), held late in January, approved a five-for-one stock split, bringing the number of outstanding shares to 1.1 billion with a nominal value of LE 1 compared to a pre-split 220 million shares with a nominal value of LE 5.
OT has also announced that its subsidiary OT Finance planned to issue a $500 million seven-year bond. OT Finance later upped the issue's size to $750 million at a lower yield. The bond will not be callable for three years, and proceeds will be used for general corporate purposes, including the repurchase of shares and capital expenditures. Standard & Poor's (S&P) Ratings Services assigned a rating of B+ long-term corporate credit rating with a stable outlook to the regional mobile operator and OT Finance. S&P also assigned a B- senior unsecured debt rating to the proposed issue due 2014. The bond, which will be managed by Credit Suisse and Citigroup, will yield 7.875-8%, less than guidance of around 8.25%.

Analysts were carefully watching OT stock as Hutchison Telecom shares tumbled to a three-month low after the sale of its controlling stake in India's Hutchison Essar (HE) for $11.1 billion. With OT holding a 19.3% stake in Hutschison Telecom, its shares were expected to falter; however, OT recorded an 11% increase to close the reporting period at LE 433.26. OT could actually benefit from the Essar sale by using the gains to reduce debt, buy out minority stakes or possibly pay an increased dividend.

Vodafone Egypt ( Vodafone , bt100 number 5) released its 3Q FY06/07 financial results ending in December 2006, revealing a 57% increase in net income to LE 674 million ($118 million). Starting at LE 83, Vodafone stock rallied to LE 92 then succumbed to slight profit-taking pressures that left the stock at LE 84 at the end of the period. Telecom Egypt (TE, bt100 number 3), which owns a 44.66% stake in Vodafone , ended the period more than 5% higher at LE 14.59.

Mobinil (bt100 number 6) currently the country's only operator without a 3G license has run into a snag in its negotiations with the National Telecommunication Regulatory Authority (NTRA) on its EDGE services. The NTRA has threatened to take legal action against Mobinil for its use of EDGE technology, which it considers more than 2G and therefore requires a 3G license. Mobinil Chairman Naguib Sawiris has said that he will seek international arbitration to resolve the issue.

Amid the debate over the service, the price war between Vodafone and Mobinil continues and the latter's stock dipped 1.4% to LE 180 by the end of the reporting period. Regional investment bank Beltone Financial, meanwhile, downgraded its view on Mobinil in the wake of the news.

Banking
Compared to the rest of the banking sector, Al-Watany Bank of Egypt (Al-Watany, bt100 number 36) mirrored the CASE30, closing 5% higher at the end of the reporting period. Investors are waiting to see the bank's financial results, scheduled to be disclosed mid-March.
Commercial International Bank (CIB, bt100 number 13) announced net profits worth LE 868 million for 2006 compared to LE 610 million recorded the year before, a 42.3% increase. The stock was under selling pressure before the earnings announcement, after which its performance improved, closing the reporting period 2% higher at LE 55.13.

Regional investment bank EFG-Hermes (EFG, bt100 number 26) received Capital Market Authority (CMA) approval to execute margin trading early on in the reporting period, but that news did little to appease investors who offloaded the stock, driving it as much as 17% lower. Towards the end of the period, with its earnings announcement just around the corner, EFG's stock performance improved, closing the period only 5% lower at LE 37.74. The company reported a more than two-fold increase in net profits after tax and minority interest to LE 701.9 million. Net profits excluding net income from Banque Audi increased 42.4% to LE 498.6 million, compared to 2005.

The company's board of directors approved a management recommendation to appoint a non-executive chairman to the board, in line with the company's management strategy of adhering to the best practices relating to corporate governance issues and in line with the imminent CMA regulations requiring the separation between the chairmanship and the executive management.

National Société Generale Bank (NSGB, bt100 number 23) is set to announce its 2006 financial earnings results at the beginning of March. In anticipation of the results, the bank's stock gained 3% through the reporting period to close at LE 42.95.

Construction
In February, Ezz Steel Rebars (ESRS, bt100 number 9) held an EGM to discuss increasing its issued capital by 50 million shares at fair value based on the two-month average closing price through a secondary offering; the capital increase will finance expansions, namely building a new electric furnace and a new factory. The company, whose name will be changed to Al Ezz Steel as per the assembly's decision, has a current issued capital of LE 911.6 million distributed over 182,312,274 shares.
Ezz Steel, which is 76.9% owned by Ezz Industrial Group, had also called for the EGM to approve a global offering of shares and General Deposit Receipts (GDRs) which would be worth three ordinary shares each and listed on the London Stock Exchange. Citigroup and EFG-Hermes have been appointed global managers, lead arrangers and bookrunners for the issue, while HSBC has been appointed assistant arranger.

El-Ezz National Iron and Steel (bt100 number 4), which is 50% owned by ESRS, announced it was considering a share buyback program which, if executed, will see the company buy back almost 5% of its issued capital.

Orascom Construction Industries (OCI, bt100 number 2) announced the launch of a new steel fabrication plant in Algeria at an investment cost of $18 million. The new plant will provide "a complete range of products including structured steel products, pressure vessels, industrial tanks and plate work primarily for industrial clients including the oil and gas industry," the company's official statement said.

With a total capacity of 12,000 tons per year, the new plant in northwest Algeria raises the group's steel fabrication capacity to approximately 67,000 tons per annum. Analysts have attributed the expansionary move to the real estate and construction boom across the region, which has led to a strong demand for steel fabrication services, among other building material products. OCI stock closed 8% higher at the end of our reporting period, at LE 286.

Cement
Takeover activity is heating up in the cement sector as some of the local players are embarking on expansion plans and as European companies seek local clinker-producing opportunities to get around environmental restrictions back home that hinder their production.
Spain-based Cimpor Inversiones, which owns Cimpor Egypt Cement Company, has submitted an offer to fully acquire Misr Cement (Qena, bt100 number 46) at LE 67 per share. Cimpor Egypt already owns 2.8% of Qena. The bid coincides with plans for expanding Qena's clinker production capacity.

Sinai Cement (SCEM, bt100 number 45) and Misr Beni Suef Cement (MBSC, bt100 number 48) are other examples of cement companies that might be takeover targets in the near future as they also have expansion plans. With the announcement, Qena closed our reporting period more than 30% higher at LE 76.78; MBSC also benefited from the anticipation, closing 7% higher at LE 114.44.

Qena released FY06 results at the end of January that showed a 90.4% increase in its net profits from LE 123.8 million in 2005 to LE 235.7 million. Sales increased from 1.68 million tons in 2005 to 1.71 million tons last year.

Upon the announcement of the bid on February 11, official Ministry of Investment sources were quoted in the local daily financial paper Al-Alam Al-Youm denying the public sector's intentions to sell its stakes in Egyptian cement companies. Public-sector banks and insurance companies collectively own around 42% of Qena.

By Fatima El-Saadani

© Business Today Egypt 2007

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