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Real estate stocks retreat

July 2007
While the market ended the period from May 15 to June 15 on a positive note across the board, most real estate stocks bucked the market trend. The HFI and CIBC indices added 2.7 percent and 3.8 percent to 69130.71 and 347.57 respectively. Most real estate stocks, however, gave up some of their gains as many analysts had expected. Furthermore, Egypt's macroeconomic performance was reaffirmed with Fitch revising its long-term foreign currency outlook from stable to positive.

This period's top gainers list consisted mainly of small-cap stocks that rang up in excess of 40-percent monthly returns. Some large caps such as Orascom Construction Industries (OCI), CIB, NSGB, El-Sewedy Cables, Al-Ezz Steel and EFG-Hermes were also among the gainers. OCI one of the foreign investors' favorites added 6.9 percent to LE 363.56, having reported 52 percent higher net profits of LE 800 million in the first quarter of 2007. The company announced that it won the bid to construct the new Cairo Airport traffic control tower for LE 145 million. Meanwhile, El-Sewedy Cables another favorite of foreign investors jumped 21 percent to LE 65.70, and showed no sign of slowing down.

Elsewhere, fertilizer stocks were in favor triggered by Abraaj Capital 's acquisition of Egyptian Fertilizers Company (EFC), a private nitrogen fertilizer producer, for $1.4 billion or 14 times historical earnings. Trading at a discount to EFC's acquisition price, both the Egyptian Financial & Industrial Company ( EFIC ) and Abu Kir Fertilizer phosphate and nitrogen fertilizer producers soared 20 percent and 17 percent to LE 95.21 and LE 173.40 respectively. Similarly, fertilizer distributor Semad Misr saw its stock advance almost 29 percent to LE 17.66.

In the financial world, the performance of CIB and NSGB, the top two private commercial banks in terms of market cap, was mixed with the former adding 6 percent to LE 63.02 and the latter losing 7 percent to LE 39.88. EFG-Hermes, meanwhile, resurfaced as the market leader in terms of turnover, adding another 12 percent to LE 43.14. The company also revealed that the Abu Dhabi Investment Authority has an 8-percent stake in the company. It also said it plans to penetrate the Qatari market as part of its expansion strategy.

Most real estate stocks, on the other hand, closed in the red, led by Heliopolis Housing & Development (H&D), down 33 percent at LE 413.89, and United H&D, down 30 percent at LE 17.68. Also, El-Shams H&D and Cairo H&D ended the period down 20 percent and 19 percent respectively, while SODIC slipped 14.5 percent to LE 138.36. Development & Engineering Consultancies, Alexandria Real Estate Investment and Nasr City H&D were the exceptions, advancing 57 percent, 25 percent and 7 percent respectively.

Shares of touristic developers also retreated. Egyptian Touristic Resorts continued to slide, down 19 percent to LE 8.06, while Mena for Touristic & Real Estate Investment and Sharm Dreams for Touristic Investment slid 23 percent and 6 percent respectively.

Still, Egypt is among the region's top performing markets so far this year, with corporate earnings showing no sign of weakness. The CMA's decision to lift price limits on the most liquid stocks should improve market efficiency with interest likely to shift back to fundamentally sound stocks.

El-Sewedy Cables
Going public almost a year ago, El-Sewedy Cables (SC) stock only began to come to life recently. SC is poised to benefit from the current real estate boom. The company is receiving more research coverage by market analysts, enlightening investors of the company's core business. More recently, its stock was added to the Dow Jones CASE Egypt Index. The company revealed its plans to establish a transformer plant in 10th of Ramadan City. Its first-quarter results, released in the second half of May, showed net profits grew 53 percent to LE 146.4 million, driven by across-the-board segment revenue growth. Exports represented almost 60 percent of revenues. SC's stock ended this period up 21 percent at LE 65.70, up 56 percent year to date, driven to a good extent by rising interest from foreign investors.

© Business Monthly 2007