Egypt likely to extend gains on foreign and Arab investor purchases Valuations remain supportive for equities, YTD returns driven by EPS growth, says EFG Hermes
Analysts expect Egypt shares to keep rallying as foreign investors likely to inject fresh cash hunting for higher yields in cheap stocks. Last week, the market's indices closed in the green zone amid foreign buying and local and Arab selling. The EGX30 benchmark index surged 3.37%, or 476.05 points, to 14,582.22 points, reaching the highest level since September 2017, and up from 14,106.17 points in the week ending 23 November. The EGX70 index climbed 2.96%, from 22.84 points to 785.43 points, while the EGX100 index was up 3.7%, 66.05 points to 1,852.16 points. The equal-weighted EGX50 index went up 2.36% to 2,523 points with a turnover of EGP 4.77bn. The EGX30 index's trading volume amounted to 956 million shares, generating EGP 4.07bn. On a weekly basis, the market capitalisation gained EGP 18.6bn to EGP 789.6bn, compared to EGP 771.03bn the week before, ending 23 November. The Commercial International Bank's (CIB) stock rose 2.35% to EGP 75.34, after a EGP 6.6m exchange with a turnover of EGP 490.8m. Foreign investors were net buyers with EGP 654.8bn, while Arab and local investors were net sellers with EGP 602.7m and EGP 52.1m, respectively. Local investors accounted for 69.6% of the total transactions, while foreign and Arab investors made up 22% and 8.4%, respectively. EGX 30 up 1.67% in November On a monthly basis, the benchmark EGX30 index closed up 1.67% or 239.84 points, climbing to 14,582.22 points for the first time. About EGP 17.25bn were traded on the index in November through 5.2 billion shares. EGX70 index added 1.72% to 795.43 points and the EGX100 index levelled up 4.75% to 1,852.16 points. On the other hand, the equal-weighted EGX50 index slipped 0.39%, or 9.79 points to 2,523 points. Market capitalisation rose 4% or EGP 29.2bn in November, recording its highest level since 2008 at EGP 814.12bn. The heavyweight CIB shed 4.43% of its share price to EGP 75.34 with a turnover of EGP 1.7bn. Egyptian investors were net sellers in November with EGP 2.13bn, while Arab and foreign investors were net buyers with EGP 902.13m and EGP 1.2bn, respectively. Saeed El-Feki, CEO of Osool ESB Securities Brokerage, said that EGX hit record highs in November at 14,600 points on the backdrop of foreign institutional purchasing power that affirm foreign investors' trust in the Egyptian economy despite the terror attacks. The upward trend the EGX saw in November is likely to fade away by the beginning of next week, El-Feki forecast, adding that the EGX may see profit-taking on stocks. He further noted that the EGX30 index may move above its current level over the coming period. The EGX70 index may test resistance at 820 points over the coming sessions if it moved above 800 points, he highlighted. Egypt stocks remain top pick in MENA region A recent report issued by EFG Hermes said that Egypt remains their top pick in MENA as they see a lasting rally – EGX30 at 17,000 for 2018 (+20%). "We believe Egypt is amidst a multi-year rally, supported by broad reforms with multiple catalysts ahead: i) falling interest rates, ii) some EGP appreciation and recovery in real wages, iii) continued recovery in tourism, and iv) and increased gas output," the report said. Egypt has already posted the strongest earnings growth in MENA year to date (YTD) and the report expects this to continue going forward as non-bank earnings recover led by materials and industrials as capacity utilisation picks up, supported by stronger economic growth in 2018. Egypt's market cap to GDP stands at 17% versus an emerging market (EM) weighted average of C70%, which is a clear sign that Egypt offers large potential ahead. The report also noted that IPOs and privatisation efforts could bring more inflows into equities and improve the float size and liquidity in the market. "Egypt's peak market cap to GDP was 100% and, while we are unlikely to see it reach this anytime soon given that many big names delisted, a move closer to MENA and EM averages is likely in the medium-term, in our view. EGX30 has delivered a total return of 22% YTD in USD," the report confirmed. "Assuming no multiple expansion we see a 20% EGP total return in 2018 as highly likely (bringing the EGX30 to 17,000 by end 2018)," it added. Valuations remain supportive for equities Meanwhile, the report also noted that Egypt is trading at 10x 12m forward earnings, which is at a discount to MENA, EM, frontier markets (FM), and Africa (except South Africa), despite offering one of the strongest growth profiles with visible catalysts. The trailling earnings of EGX30 names are up 35% y-o-y in EGP from 2016 levels. "Consensus expects 14% earning per share (EPS) growth for EGX30 in 2018 and 16% in 2019, almost in line with our estimates of 15% and 18% for our Egypt coverage. Actual results so far in 2017 suggest potential upgrades in earnings estimates for 2018," the report added. According to the report, key risks to our Egypt view are weaker-than-expected GDP and earnings growth, high interest rates, and inflation persisting for longer than expected.
