Pharos Research has initiated its coverage of Export Development Bank of Egypt (EBE) with an "Overweight" recommendation, and assigned the stock a fair value (FV) evaluation of EGP 24.52 per share. The research firm said in a report that it has based its valuation on a set of key assumptions that underpin the growth potential for the bank. Pharos stated that the first reason behind the valuation is "the forecasted revival in corporate lending momentum starting fiscal year (FY) 2018, to boost lending growth to a compound annual growth rate (CAGR) of 27% between FY 2018 and FY 2022." "Strengthening retail lending to constitute around 15% to 20% of the bank's loan portfolio, from the current 2%, over the forecast horizon to compensate for the projected net interest margin (NIM) compression," the firm indicated as the second reason. "Third, faster pickup in non-interest income fuelled by the potential pickup in lending activity," Pharos explained. The report also highlighted the key upside triggers to the valuation as the amendment of the bank's regulation that restricts foreign investors from owning the stock leading to a boost in the stock's liquidity. This comes in addition to the stronger pickup in exports which accelerates the growth potential for the bank's key client segment, as well as the faster than forecasted pickup in non-interest income and capital expenditure lending, and the higher exposure to retail financing to maintain resilient margins. On the other hand, the main downside risks are the higher than forecasted nonperforming loans (NPLs) that are leading to higher provisions, and the slower-than-expected pickup in foreign direct investment (FDI) and capital expenditure financing. The bank mainly focuses on exporters, as around 74% of the bank's loan portfolio is assigned to exporters with minimal exposure to the retail sector. The extraordinary general meeting (EGM) of the bank recently approved raising the authorised capital to EGP 5 billion from EGP 2 billion. The bank's profits amounted to EGP 381.3 million from July 2016 to March 2017, compared to EGP 302.13 million in the same period in the year earlier. The bank approved the planning budget for FY 2017/2018 and aims to achieve EGP 654 million in net profits in the estimated budget of FY 2017/2018, compared to EGP 438.8 million expected in the year before.
