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MARKET WATCH

War’s end, sound results ignite market

Just as traders were beginning to grow accustomed to a perennial bear market, replete with plunging stock prices and wary investors, the economy suddenly pulled a volte-face.

Of course, the new Gulf war had a lot to do with it. In fact, the stock market’s performance during the period – from March 13 to April 15 – was largely a reflection of developments taking place in Iraq.
Over the course of the 32 days in question, the broad-based Hermes Financial Index (HFI) surged 21.09 percent to 7011.09, while the broader and less volatile CIBC Index lept 7.40 percent to 67.94.

The period also saw several companies release their financial statements for fiscal year 2002, shedding light on what investors can expect in the year ahead.

In terms of mergers and acquisitions, too, the period witnessed several significant developments.
The cement sector again found itself in the spotlight when Vicat of France went head-to-head with Orascom Construction Industries’ subsidiary Egyptian Cement Company (ECC) over the acquisition of Sinai Cement’s 10 million share capital increase. Sinai’s general assembly voted in favor of Vicat’s offer, despite its being 12 percent lower than the ECC offer, at £E 15 per share.

Sinai shares inched up 4 percent, to £E 10.31, on the news.

But aside from its vain attempt at acquisition, OCI proved a star, recording 20-percent growth in FY02 profits to reach £E 363.9 million, up from £E 303.8 million the previous year. Consolidated revenues jumped 20.5 percent to £E 2,910.8 million, while OCI’s EBITDA margin slid from 32.1 percent to 27.4 percent.

The company’s exceptional performance had little trouble finding admirers on the stock market, who helped bid its shares up 38 percent for the period, to £E 39.37. The jump was helped by market hopes that the construction giant might soon secure lucrative reconstruction contracts in post-war Iraq.

In another major acquisition, US-based Kraft Foods acquired almost 100 percent of Egypt’s Family Nutrition company (see story, page 32) in a deal valued at £E 446.3 million. At around the same time, the distributor for Hostess products in Egypt, International Food Company, was at the center of a bidding war between Rational International and Edita.

Elsewhere, Albert Pesticides of Egypt began eyeing a 16.7-percent stake in Kafr El-Zayat for Pesticides, which had reported net profits of £E 4.4 million in the six months ended December 31, 2002.

Suez Cement, meanwhile, denied that it was negotiating with a strategic investor to sell its stake in Torah Cement, while the latter corroborated the story by denying it had received any tender offers.

Both companies reported lower profits in FY02: Suez Cement’s un-audited unconsolidated net profit fell 70.4 percent to £E 49.2 million over the previous year, while Torah Cement reported a dramatic drop in its bottom line from £E 100.7 million in FY01 to £E 5.4 million in FY02.

Nevertheless, both Suez and Torah saw their shares increase by 16.5 percent and 10.8 percent over the period, to close at £E 41.85 and £E 23.16 respectively.

Another cement company, Misr Cement (Qena), also did well, reporting £E 56.8 million in net profits in its first operational year – its shares inched up 6.7 percent to £E 9.67.

As for MobiNil, the market bellwether delivered an outstanding performance, along with its parent company, Orascom Telecom Holding (OTH), skyrocketing 30 percent and 53 percent respectively, to £E 43.75 and £E 20.92.

Additionally, in mid-March, the Telecom Regulatory Authority approved a new tariff structure for MobiNil and archrival Vodafone Egypt. By the end of the period, the market was still waiting for first-quarter results from MobiNil and FY02 results from OTH.

In the banking sector, FY02 financials were dismal for the most part. Some banks’ financials showed lower profits, while others recorded no profits at all. The Central Bank of Egypt (CBE), meanwhile, appeared anxious that banks might not be able to meet their minimum capital requirements. Indeed, the CBE issued a directive instructing several banks not to distribute any cash dividends on their FY02 financials.

Al-Watany Bank’s shares fell 6.71 percent to £E 7.65 ahead of the release of its FY02 results which recorded nil profits. No wonder, then, that Nile Rating downgraded the bank’s standing in early April.

Export Development Bank, meanwhile, saw its shares stabilize at £E 13.08, after reporting a 5.2-percent decline in its nine-month profits.

Overall, as hostilities in Iraq wound to a close, the reemergence of buying activity – both locally and internationally – added vigor to a long moribund market.

While the market is still too volatile to show any direction, the solid showings by several companies – like OCI’s 52-week highs – are certainly cause for optimism.

Amr H. El-Alfy, MBA
Assistant Manager, Commercial International Brokerage Co. (CIBC)

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