A recent report issued by Pharos Research has expected Suez Canal Bank to see a significant turnaround in asset quality during 2018, noting that the bank may consider a capital increase over the coming period, pointing out that the bank's capital is above the Central Bank of Egypt's (CBE) minimum. The research firm has updated their fair value (FV) for Suez Canal Bank at EGP 18.50. Suez Canal Bank posted a slight increase in its profits for the first three months of 2018, compared to a year ago. The Egypt-based lender generated a profit of EGP 115.3m in the three-month period ending March 2018, up from EGP 112.4m in Q1 2017. The EGX-listed bank's net income fell to EGP 204.11m in Q1 2018 from EGP 242.12m in the comparative period of 2017. Suez Canal Bank has been able to achieve significant profits during 2017 after years of zero bottom-line to cover the gap between non-performing loans and provisions, Pharos Research highlighted. The research company projected that 2018 will be another positive year for the bank, due to the magnitude of net profit that might beat expectations. Lending growth is expected to increase to EGP 2.407m in 2022, versus EGP 1.068m in 2017, the report indicated. "Accordingly, we assume interest income to operating income to gather pace over our forecast horizon," Pharos noted. The bank may consider a capital increase over the coming period, Pharos said, pointing out that the bank's capital is above the Central Bank of Egypt's (CBE) minimum. Meanwhile, another report issued by Beltone Financial has expected Porto Group sales to come in EGP 3.4bn 2018 and EGP 3.8bn next year from existing projects. The research firm has initiated its coverage for Porto Group with a FV of EGP 0.44 per share, with a Buy rating. Sales expected for 2017 likely to reach EGP 2.8bn, with an increase of 33% year-over-year. The research firm also expects a three-year earnings compound annual growth rate (CAGR) of 56% and an average dividend payout ratio of 50%. Beltone's valuation for Porto Heliopolis adds EGP 0.06-0.07 per share to its FV estimation, an additional upside of 14% to 16%. Porto Heliopolis is located close to Cairo Airport and between two fully developed areas in Egypt, namely Nasr City and Heliopolis, where almost no competition exists. "We highlight this project as the main trigger to boost sales after 2019, as we believe the inventory available for sale should be mostly sold by that time," the report noted, adding, "we expect most of the launched inventory in the existing projects to be finalised in two to three years; hence, we foresee no growth starting in 2020 unless new projects are launched." Other regional projects, such as Porto Dead Sea and Porto Agadir, are key value additions to the current FV once more guidance is provided. Interest rate cuts will be another trigger, as more liquidity should be driven into the sector. Beltone Financial expects gross profit margin to reach 40% in 2020 from 32% in 2017. Egyptian expats, who earn their income in foreign currency, have become a target client for developers post floatation, as they find real estate now cheaper by at least 50%, the report highlighted. Meanwhile, Pharos Research has maintained its fair value (FV) of Al Baraka Bank's stock at EGP 16.50, with an Overweight recommendation. The valuation is based on a set of key assumptions that underpin the growth potential for the bank, according to a note issued last week. "Forecasted improvement in corporate financing momentum, as the investment climate in Egypt revives starting, a faster pickup in non-funded income fuelled by the potential pickup in financing activity," were the main factors in the research company's valuation. Meanwhile, a recent technical report issued by Markets Chimp said that EFG Hermes' current stock price could still have an uptrend despite current correction in the share's price. “The weekly chart of EFG Hermes Holding reveals that even though the stock is in a severe correction or retracement phase since the beginning of the current year, the long or major trend is still up,” the research firm said in a note. The investment bank announced the opening of a new headquarters in New York under the name EFG Hermes USA Inc. The Egyptian financial services firm received the necessary licenses to conduct its business operations in the US as of 1 September, the company said in a filing to the Egyptian Exchange.
