Post-holiday confidence pushed the market higher in early January, but what goes up must come down, as several bt100 companies found to their chagrin
The stock market left much to be desired this holiday season: The benchmark CASE-30 Index recorded increases of no more than 2% throughout the reporting period with an average turnover of about LE 850 million. The exchange started the reporting period on a weak note around Western Christmas until January came around with a boost of confidence, raising the CASE-30 as much as 5% to stand above 7,000 points. A profit-taking trend set in right after as investors opted to keep their gains and wait to see where the market was headed to next.
The market gained ground at the end of the reporting period with noticeable buying activity in late January on retail-driven stocks from individual investors while institutional investors adopted a wait-and-see attitude towards the market in anticipation of what February might bring.
Overall, CASE gained 10.3% in 2006, which might seem a meager increment compared to the huge growth the market recorded in 2005. Unlike other markets in the region this year though, Egypt's exchange crept up on solid corporate earning growth and improving economic conditions, best illustrated by the growth of foreign direct investments (FDI).
Economic growth is expected to leap in light of the Minister of Finance's proposed draft law to lower property taxes to 10% of the rental value from 46% today, in effect implementing a flat annual tax on all properties including registered and unregistered limited-income housing communities. The move is expected to further encourage property ownership, which will set off a domino-effect boom across several sectors, from real estate to cement and from construction to banking.
Meanwhile, the Cabinet Information and Decision Support Center (IDSC) announced an 8.8% increase in tourist numbers in November 2006 to 803,000 compared to 738,000 recorded in November 2005, while tourist nights spent hit 7.50 million in November 2006 as opposed to 6.86 million in November 2005. Annual tourist arrivals have come in at nine million for 2006.
On a separate note, revenues from the Suez Canal are expected to climb 10% to $3.8 billion (LE 21.67 billion) for 2006, up from $3.457 billion (LE 19.71 billion) the year before.
On the stock market, a boom could be in the offing as CASE management announced plans to establish a commodities exchange, but whether it will be solely a cotton exchange or include other agricultural crops has yet to be decided.
Minister of Trade and Industry Rachid Mohamed Rachid announced plans to liberalize the local grains and sugar markets in 2007 by pushing for a futures market that would encourage local farmers to produce the crops they feel are most profitable. The current system sees the Ministry of Agriculture setting a fixed procurement price for crops such as wheat, corn and sugar to encourage local farmers to produce certain crops and move away from others.
Also on the agenda for 2007 is the launching of a specific exchange for the listing of small- and medium-enterprises (SMEs), creating a new financing platform for startups.
Telecoms
Large-cap Orascom Telecom (OT, bt100 number 1) was the best performing telecom stock during our reporting period, closing 7.46% higher, whereas blue chip subsidiary Mobinil (bt100 number 6, ticker: EMOB) closed just 1.4% higher. OT recorded lackluster trading before the New Year but come 2007 trading on the stock picked up, pushing the stock price from LE 360 to LE 413 by the first week of January.
The OT-Qatar Telecom consortium reportedly remains in the running for India's Hutch Essar (a partnership between global telecom giant Hutchison Telecom International, which is 19.3% owned by Orascom, and India's Essar group). Orascom has also been granted a three-month extension on its interim license for Iraqi subsidiary, Iraqna. The extension for the 2.5 million subscriber-base operator lasts until March 31 under the same conditions as before. OT has invested over $280 million in Iraq since it won the license in October 2003.
The operator is aiming for 100 million subscribers from all its operations by 2009 to become one of the five largest companies worldwide in terms of subscribers. OT had set a year-end target of 50 million subscribers by the end of 2006 (46 million of which it had secured by September 2006) and 70 million for 2007 with substantial increases in the subscriber-base coming from Pakistan, Iraq and Bangladesh, in that order.
Mobinil, on the other hand, is struggling to boost its subscriber base as 2006 closed with the company missing its target of 10 million subscribers. The operator had announced 8.11 million subscribers for the first 10 months of the year. Mobinil has since contracted with Motorola to expand its GSM network to cover Cairo, the Delta, Alexandria and the North Coast region.
The expansion project has also supported Mobinil's network enhancements to offer higher quality services to its customers. Motorola had introduced a number of technologies and services to Mobinil's individual and corporate subscribers including voice and data communication and remote internet access.
In addition, Mobinil and Motorola are working together to increase access to under-served areas in Egypt and "connect the unconnected." Motorola, which won the World GSM Association's Emerging Market Handset Program in 2005 and 2006 to bridge the digital divide for its high quality range of low cost handsets, has teamed up with Mobinil to offer a low cost mobile phone and SIM card package to more than 300,000 subscribers in Egypt so far.
Meanwhile, Raya Holding (Raya, bt100 number 17) closed more than 13% lower at the end of our reporting period despite acquiring an additional 59.5% stake in the C3 call center, bringing its total share to 84.5% with a total acquisition value of LE 27.4 million. Raya is increasing its presence in the Egypt's booming call center sector. C3 is one of the country's largest call centers providing outsourced services to a large client base in Europe, the United States, as well as the local market.
Amid rumors that it is gunning for Saudi Arabia's second fixed-line license, Telecom Egypt (TE, bt100 number 3) closed the period 5.5% lower. The company had tendered 4.31% of its stake in Vodafone Egypt at LE 100 per share to Vodafone Group, leaving stakes at 44.6% and 54.9%, respectively. With 0.44% free float, the stock price tumbled 14.1% to LE 83.03, whereas the TE stock price dropped to LE 13.80.
Banks
The banking sector was unable to escape the profit-taking that swept the market last month. Retail favorite EFG-Hermes (EFG, bt100 number 26), Commercial International Bank (CIB, bt100 number 13) and National Societe Generale Bank (NSGB, bt100 number 23) were in the red at the end of the period, while Al-Watany Bank of Egypt (bt100 number 36, ticker: WATA) closed more than 10% higher.
EFG had announced the transfer of its 1,121,787 treasury stocks to its employees trust as decided by the company's AGM held at the end of November 2005.
Banking favorite CIB closed the reporting period 6.3% lower. Through internal auditing, it was revealed that two CIB branch managers had not been complying with "bank regulations and professional ethics," thereby raising the bank's credit risk. CIB announced that it had effectively handled the problem and there would not be any repercussions on the bank's 2006 earnings, however, the problem did shake investor confidence.
The Capital Market Authority (CMA) has given Export Development Bank of Egypt (EDBE, bt100 number 40) preliminary approval to raise its capital to LE 800 million from LE 600 million. The capital increase will be executed by issuing 20 million shares at a par value of LE 10 per share. The bank was also reported to be considering increasing its facilitated credit to exporters and cutting interest rates to encourage export-oriented industries.
EDBE has developed a plan to increase credit facilities for labor intensive industries that are mainly directed to international markets, since EDBE focuses on financing exports of textiles and the food industries, as well as exports of farm products. The bank expects 25% growth in its new budget for the fiscal year 2006-2007. The bank has also allocated a large chunk of its funds to finance exporters in the textiles industry, including those operating under Qualified Industrial Zones. For non-performing loans, the bank will investigate all cases of loan defaulters to develop a strategy for cleaning up the bank's loan portfolio and to pump more investments into successful projects.
Cement
Even though the Mortgage Finance Authority (MFA) expects mortgage loans to reach LE 4 billion ($699 million) in 2007 compared to LE 1 billion ($175 million) in 2006 in light of the rising number of mortgage providers and the large number of banks expected to grant mortgage finance, the cement and banking sectors performance faltered last month.
Blue chip Suez Cement (bt100 number 11, ticker: SUCE) closed the period almost 5% lower at LE 63.55 even as it was the object of the Abu Dhabi Investment Authority's (ADIA) interest; ADIA acquired board member Hisham Sadiq Al-Sowidi's 7.6% stake, all of which was global depository receipts.
Misr Beni Suef Cement (MBSC, bt100 number 48) was also among the cement sector's poor performers last month, shedding 4% to close at LE 105.98, while Qena Cement (Qena, bt100 number 46) closed the period flat along with Amereya Cement (bt100 number 28, ticker: AMRI).
The market's biggest steel producer, Ezz Steel Rebars (Ezz, bt100 number 9) changed its name to Ezz Steel. The Ezz Group includes Ezz Steel Mills and giant steel producer Ezz Dekheila, also known as Alexandria Iron and Steel. The stock closed our reporting period more than 3% lower at LE 53.19.
Construction mogul Orascom Construction Industries (OCI, bt100 number 2) reined in its losses as it announced that it had been awarded several contracts on the first phase of the third Cairo Metro expansion project, which will stretch over 4.3 kilometers, connecting two major Cairo districts.
OCI was awarded the third line's civil works package as part of a Vinci-Bouygues-Arab Contractors-OCI consortium. The venture's total value is worth 130 million (LE 961 million) with an additional LE 895 million local-currency component.
As part of an AMEC-Spie-OCI-Arab Contractors-Alstom Egypt consortium, the company was awarded an 81 million (LE 600 million) plus LE 303 million contract for the metro line's electromechanical works. OCI was awarded several other contracts pertinent to the third line, with the total value of construction work and building materials supply contract coming to 28.5 million (LE 211 million) plus LE 811 million.
It's only the beginning of the year and so far things are looking good. The market performed well throughout January with expectations soaring high for financial results due to come out within 1Q07. However, we can't be sure yet of what 2007 has in store.
By Fatima El-Saadani
© Business Today Egypt 2007
