It is the earnings season, with listed companies in Egypt revealing their key performance indicators for the first quarter of 2019 ending on 31 March. The first three months of the year have witnessed a reduction in interest rates, the pound gaining some strength, and emerging markets recovering from last year's slump with Egypt in many cases outperforming its peers. These factors have affected stock market transactions and have advantages or disadvantages for listed companies. Looking at the profits realised by 116 listed companies, those which reported their results until 22 May, overall earnings increased by 10 per cent during the first quarter of 2019 compared to the same period last year, said Shuaa Capital, a consultancy. Telecom Egypt registered a whopping 109 per cent jump in its net profits during the quarter to realise LE1.6 billion and contributing largely to the overall earnings growth of the market as a whole. The results were backed by almost LE680 million investment income from Vodafone Egypt, which is 45 per cent owned by Telecom Egypt. The company also realised forex gains as it repaid dollar-denominated debt at a lower price thanks to a recovery in the pound. Telecom Egypt is the fixed line monopoly provider in Egypt and is also the main provider of telecommunications infrastructure and is thus benefiting from the digital transformation plans adopted by the government. For example, it distributed 613,000 data SIMs in just four days to grade 10 students who are required to use tablets in their final exams starting this school year. These new subscribers helped push the company's mobile network subscribers to 4.2 million. Excluding Telecom Egypt's results, aggregate earnings would still have grown by five per cent when compared with the same quarter of 2018 thanks to the good performance of the banks. The Commercial International Bank (CIB) and the Qatar National Bank Al-Ahly (QNBA) contributed largely to the overall earnings growth. According to Shuaa, the overall profits of 13 listed banks in Egypt came in at LE9 billion compared to LE7 billion a year earlier, with CIB seeing a 31 per cent increase to LE2.4 billion and QNBA seeing a 26 per cent gain to reach LE2.02 billion. Egypt's banking sector has been a prime beneficiary of the government's economic reform programme starting in November 2016. “Aggressive monetary tightening, fiscal consolidation, higher oil prices, and weakening consumer purchasing power have all enabled the banks to funnel ample liquidity into high-yielding, yet low-risk, government debt securities,” stated a Shuaa note. For the CIB, income from government treasuries accounted for 55 per cent of profits compared to 44 per cent a quarter earlier. However, the decision to tax treasury bills profits separately has made these appealing investments more costly, and thus the CIB limited its purchases to only 50 per cent of overall assets compared to 54 per cent before. The drop in interest rates by the Central Bank of Egypt (CBE) by one per cent affected deposits, which grew by only three per cent. The CIB constitutes more than 30 per cent of Egypt's key stock exchange index the EGX30 and is the only Egyptian stock that continues to reserve a spot in the Morgan Stanley (MSCI) SCI Emerging Markets Index.
OTHER STARS: Another telecommunication sector star is Global Telecom Holdings (GTH), previously known as Orascom Telecom Holdings, with a 60 per cent growth in its net profits during the quarter. Most of the company's activities and thus revenues come from abroad, as it operates the Djezzy network in Algeria, Mobilink in Pakistan, and Sheba Telecom in Bangladesh. GTH, originally formed by IT business tycoon Naguib Sawiris, is now 55 per cent owned by Veon, an Amsterdam-based telecom operator. In Pakistan, the company reported a six per cent increase in the number of subscribers. “Despite a competitive market in Pakistan, particularly in data and social network offers, revenue growth came mainly due to taxes collected from customers by mobile operators, which provided the whole market with additional revenue growth,” it said. Intense price competition, however, has put a lid on revenues growth in Algeria. The company's sales figures shrank by 11 per cent despite a five per cent increase in the number of subscribers driven by successful commercial offers. Both the number of subscribers and revenues witnessed increases in Bangladesh. Unlike the banks, the real-estate sector in Egypt has not benefited much from the reform programme, as the floatation of the pound has led to an increase in the prices of building materials, with raw components mainly imported. This has inflated costs for real-estate developers. Added to relatively weakened demand on new units due to the deterioration of purchasing power, this has shaved significant earnings from the real-estate companies. The 20 most actively traded listed companies during the first quarter included six construction companies. Three out of these reported a decline in profits, the highest of which was Heliopolis Housing with a 67 per cent drop, followed by SODIC at 24 per cent and Orascom Construction at six per cent. Developers are adopting new techniques to cater to the weakening demand, including flexible payment terms with payment plans now extending to six to ten years, compared with three to five years prior to the devaluation, and 0 to 15 per cent down-payments versus the previous 20 to 30 per cent. The Talaat Mustafa Group bucked the trend with a 50 per cent increase in its sales at its gated community Madinaty. This was the main contributor to its sales figures. The group invests and participates in companies within different business sectors, such as real estate, hotels and hospitality, construction and housing. It owns and operates a number of hotels in Egypt, including the Four Seasons Nile Plaza in Cairo, the Four Seasons Sharm El-Sheikh and the Four Seasons San Stefano Hotel in Alexandria. In its report on a number of listed cement companies, Pharos, a consultancy, noted that “on a quarterly basis, the top line was either flat for companies that export or declined for companies in Upper Egypt and close to the army's new plant in Beni Sweif.” Oversupply in the market has weighed on the profits of the cement companies. Al-Arish Cement doubled its production at its Al-Arish plant to 6.4 million tons in late 2017 before the army launched a plant with a capacity of 13.3 million tons in Beni Sweif in late 2018. While total market capacity is now around 83 million tons, demand was merely 53 million tons. According to Shuaa, of the 16 cement companies in the market, only four reported higher sales volumes, two of which are listed in the most actively traded index namely. These two are Misr Cement-Qena and Sinai Cement. “In an oversupplied competitive market with companies selling a hardly differentiated commodity, prices were pressured. Average market prices were 15 per cent lower, slipping to LE828 per ton,” it said, adding that many cement companies had sold cement at a discount to the market average price.
