Egypt is the economy with the most catalysts for growth in the region: Beltone Financial

Fears of heightened competition, increased prices, and unexpected weakness in local currency

Beltone Financial Investment said in its MENA Macro & Strategy 2020 that among their coverages in Egypt, Saudi Arabia, Kuwait, and the UAE, Egypt is the economy with the most catalysts for growth in private consumption heading into 2020.
Based on Beltone's view, the Central Bank of Egypt (CBE) is likely to cut interest rates by a total of 300 basis points (bps) in 2020. This, together with expected muted inflation and another round of wage increases, should stimulate private consumption. Beltone analysts believe that consumers are likely to increase spending on discretion items.
Beltone analysts expect Edita food industries to benefit, and it is headed to report solid 2020 revenues and core earnings growth of 16% year over year (YoY) and 28% YoY respectively buoyed by strong volume growth by 15% YoY as consumption picks up, swinging toward discretionary items.
While Domty's Bakery segments are likely to benefit also, as part of its medium-term strategy to diversify into 50/50 producer of staples and snacks, which should increase capacity to 1m pieces per day by the first quarter (1Q) 2020 from 260,000 currently. They expect Domty to report solid 2020 revenues and core earnings growth of 21% and 79% YoY respectively.
They also continue to favour Cairo for Investment and Real Estate Development (CIRA) supported by capacity addition with estimated fair value of EGP 15.40/share and current market price at EGP 12.99/share.
While according to Beltone's expectations, Eastern Tobacco's price will increase by July 2020 with fair value at EGP 24.20/share and current market price at EGP 15.92/share.
MM group for Industry and International Trade will also be supported by solid operational and financial outlooks in 2020 amid confirmed valuation for e-payment with fair value of EGP 14.40/share, while current market price is EGP 10.43/share.
EFG Hermes analysts, in their latest year book, said 2019 in Egypt was a challenging year for consumer sector, but they expect to see recovery in revenues and margins, especially with tamer inflationary pressure with top picks at Juhayna and CIRA.
Moreover, Pharos Holding said in their latest book Equity and Strategy 2020, that the consumer sector is a key beneficiary of macroeconomic trends as inflation decelerates, the Egyptian Pound (EGP) appreciates, interest rates fall, and fiscal consolidation ends.
Pharos analysts believe that volume growth in 2020 will be driven by the expansion of high margin products that could shield overall margins and improve profitability, due to existing market maturity and tight competition. On the other side, they expect that companies will not raise prices beyond the commodities/raw materials prices increase in order to maintain margins. Avoiding further pressure on volumes and any further appreciation in EGP will partially offset the increase in raw materials prices.
Finally, Pharos team believe that the challenges facing the market could be increased competition which may squeeze and hinder potential margins, spike commodity and raw materials prices, and unexpectedly weaken local currency. On the other hand, they also expect margins to gradually improve as purchasing power gradually recovers with the introduction of new products that change the revenue mix in favour of margins at Edita, CIRA, and Eastern Tobacco.