|
DID SOMEBODY SAY ‘MILLS’?
The period from March 15 to April 15 marked yet another case of small caps outshining large caps. The broad-based CIBC index pressed ahead in full steam, rising yet another 6.2 percent to 575.29, whereas the large-cap-weighted HFI index barely advanced, up 0.1 percent at 99571.87.
The Egyptian equity market is flooded with liquidity looking for a home. While bank rates have risen in the wake of the central bank’s last 50-basis-point hike in policy rates, they are still offering scant returns to investors. Hence, investors see the stock market as offering more bang for the buck. And it isn’t those well-established blue chips with high profitability that are grabbing investors’ attention.
Instead, it’s the milling sector. The sector is an old favorite of mutual funds and local institutions, especially between August and October, when cash dividends get paid out to shareholders of all seven listed milling companies. Upper Egypt Mills and Central Egypt Mills topped them with returns of 147 percent and 105 percent, respectively. Yes, this is in one month!
The other five mills’ stocks averaged a return of 66 percent over the same period. One trader who tried to explain this new trend suggested that “mutual funds and retail speculators pushed the whole sector higher after it had been neglected for quite some time.” On the other hand, some analysts attributed this outstanding performance to rising wheat prices and the recent bread shortage felt throughout Egypt, which has increased interest in the milling sector. Fundamentally speaking, all seven companies reported before-tax earnings that were approximately 85-percent higher in H107-08 ended December 2007 compared to a year earlier.
The textile sector also saw significant gains during the period with stocks advancing by 35 percent on average. Nile Cotton Ginning, up 76 percent, and Arab Polvara, up 45 percent, topped the list of gainers, followed by Arab Cotton Ginning, Kabo and Spinalex, up 27 percent, 18 percent and 9 percent, respectively. Revaluation of these stocks based on their real estate portfolios helped push their prices higher after underperforming compared to the overall market in 2007.
Meanwhile, South Valley Cement was up 39 percent at LE 33.60, thanks to the hype over the cement industry in general and its portfolio investments in the stock market – namely OCI, which advanced 13.8 percent to LE 417.78 (adjusted for the LE 300 cash dividend). Having divested its cement business, OCI is increasingly focused on fertilizers, which are constantly going up in price. This explains why EFIC was also up 38 percent to LE 357.74 during the same period.
Once considered growth equities, Egypt’s telecom stocks are now looked upon as utilities and value stocks. Stable earnings and a scarcity of new developments, especially from Mobinil, made investors shun these stocks during the period. Mobinil was down 10 percent at LE 198.96, whereas its parent company, Orascom Telecom, fared better, though still slipped 5.4 percent to finish at LE 74.67. Meanwhile, Telecom Egypt dropped 9 percent to LE 19.96
Sector rotation continues to dominate overall trading. Investors are frenzied about the upcoming sector that will see money pouring in. In the absence of corporate announcements making the headlines to justify stock price performance, investors have resorted to rumors and hearsay. The jury is still out on whether small-cap stocks are overvalued, but for sure they are becoming a very risky business.
|
IN THE SPOTLIGHT
Nile Cotton Ginning
Nile Cotton Ginning Co. (NCGC) is all about cotton ginning and trading. Right? Wrong! A little while back, a group of astute investors, who smelled bacon in the kitchen and decided to join forces and buy into the company’s almost 53 million shares, began playing on its low single-digit price. Together these investors have gained enough shares for board representation, which has allowed them to persuade management to unlock NCGC’s real estate portfolio.
Recently, Arab investors reportedly acquired a 25-percent stake in NCGC with plans to set up a firm to manage its LE 3 billion portfolio of unused real estate, according to NCGC’s vice chairman. While there could be value in that, the stock’s share price has skyrocketed as investors rush on board with little regard for historical earnings power. The stock is up a whopping 656 percent year-to-date, climbing 76 percent during the March 15-April 15 period to reach LE 39.21.
|
Submit
your comment
Top
|
