Pharos Research has initiated coverage on Egypt Free Shops' setting stock value (FV) at EGP 7.09 per share, with an "Overweight" recommendation. Tourist arrivals surged 51% year-on-year during the first five months of 2017, and the increase is "going forward", which will positively affect Egypt Free Shops' revenues, the research firm said in a report released last week. The research firm expects Egypt to benefit from the revival of the local tourism segment and forecasts that tourist arrivals will grow, "especially if Russia lifted the travel ban," noting that earlier this year, "the UK flagged Egypt as a safe destination for potential UK tourists." Egypt Free Shops' recently opened new branch in Maadi will help increase "accessibility to potential customers," Pharos said. Other branches near Libya and Palestine could be forced to close due to the ongoing tension in the region for the past six years, in addition to the current unstable political situation. Pharos attributed the drop in tourism revenues to "the volatile security situation in Egypt", which might affect Egypt Free Shops' revenues. Meanwhile, the research firm has maintained the fair value (FV) of Delta Sugar at EGP 36.43 per share, with an "Overweight" recommendation. Delta Sugar's revenues rose 78.7% quarter-on-quarter and 95.9% year-on-year in the second quarter of 2017. Volume recovery grew 5.6% year-on-year during Q2 2017, and Pharos updated the volume decline to 20.8%, which is higher than its forecasted decline of 36.8%. "Delta Sugar is trading at a price-earnings ratio (P/E) of 6.5x and 7.1x for 2017 and 2018, respectively," Pharos Research said, adding that "comparative valuation implies that [the stock] should be priced at EGP 44.70/share." Pharos noted that the firm's stock is facing some obstacles due to the drop in international sugar prices, which will lower Delta Sugar's prices and depreciate the Egyptian pound, as well as profit margins. The report added, "Moreover, sugar producers in Egypt have been focusing on exports to obtain foreign currency, while the government is taxing sugar exporters EGP 3,000 per metric tonne to incentivise them to sell locally instead, in order to close the current supply gap," the research company concluded.
