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Market shrugs off earnings reports

The period from January 15 to February 15 showed mixed performance on both the HFI and CIBC indices. The former – which is dominated by large caps – advanced 2.6 percent to 63183.13, whereas the latter – which includes more small-cap stocks – slipped 5.65 percent to 281.51. Despite the mixed performance, due mainly to the underperformance of small caps during the period, Egypt equities were still ahead of their GCC counterparts. While the earnings season seems to have lost its magic on market movements, another wave of corporate actions and news of mergers and acquisitions (M&A) are driving the market.

Indeed, Misr Cement – Qena topped the list of large-cap gainers during the period, with its stock jumping 26.1 percent to LE 71.55 on the back of two competing tender offers. This development pulled other cement stocks higher. Elsewhere in the cement world, South Valley Cement (down 1 percent at LE 43.48) approved a 1-to-1 stock dividend. The company recently revealed that it signed a contract with an international company to construct its first 1.5 million tons per annum cement production line.

In telecoms, local operators reported their financial results. Vodafone Egypt (VE) posted 57 percent higher profits of LE 2 billion in its nine-month results, whereas Mobinil grew its 2006 annual profits by a mere 6 percent to LE 1.5 billion. On the operational front, VE has decided to offer 3G services with the launch of Etisalat Misr, the third operator. It will seek new credit facilities to pay for the LE 3.34 billion license. On the other hand, Mobinil is still awaiting the arbitration ruling to decide whether EDGE technology is 2G or 3G. Both stocks closed slightly lower: VE down 5.5 percent at LE 83 and Mobinil down only 0.5 percent at LE 179.01.

AMOC’s stock was given a cold shoulder despite outstanding results with first-half 2006-07 profits rising 44 percent on 15 percent higher sales of LE 2.2 billion. It closed lower by 0.7 percent at LE 77.91 amid speculation over privatization news.

This period also witnessed some stock split action. Egyptian Company for Touristic Resorts (down 7.2 percent at LE 15.62) announced a 10-for-1 stock split on January 29, whereas Sidpec’s (down 11.7 percent at LE 19.63) 5-for-1 stock split took place on February 11. Meanwhile, EFIC’s (down 11.7 percent at LE 79.28) board of directors approved a 4-for-1 stock split, and Orascom Telecom’s (OT) (up 12 percent at LE 438.05) extraordinary general assembly approved a 5-for-1 stock split. Also, in line with its recent decision, the Capital Market Authority disapproved Electro Cables’ (down 26.5 percent at LE 11.90) 15-for-1 stock split.

Stock splits aside, share buybacks found some followers this period. OT said it would buy back up to 11 million or 5 percent of the company’s outstanding shares from February 6 to March 6 – news that helped advance its stock. Also, Al-Arafa for Investment & Consulting (up 13.3 percent at $1.36) bought back 1.4 million shares in early February, while Al-Ezz Dekheila (up 5.7 percent at LE 985.92) is considering a 5-percent share buyback.

It seems that the market shrugged off earnings announcements and instead continued to react to corporate actions and M&A speculation. Indeed, investors are indifferent over company financials but are rather eager to make a quick buck. With the market undertaking a correction in January – one month earlier than anticipated – two positive indicators still remain: institutions and non-Arab foreigners have been net buyers so far this year.

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