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Bank stocks... again
It was déjà vu for bank stocks, which led the market
higher from August 15 to September 15. The HFI and CIBC index added
3 percent and 6.6 percent to 73616.39 and 387.42, respectively.
As might be deduced from such performances, small-cap bank stocks
led their large-cap counterparts. Re-emerging interest in banks
could be attributed to risk arbitrage activities as investors racing
to possible mergers and acquisitions (M&A) target bank stocks.
In the leading position, both the Egyptian pound- and US dollar-denominated
issues of Faisal Islamic Bank advanced 55.5 percent and 57.8 percent
to LE 63.09 and $10.26, respectively. Housing & Development
Bank came in second, advancing 42.8 percent to LE 48.14 post its
latest 10-percent stock dividend. Suez Canal Bank joined the pack
with a return of 39.5 percent to close at LE 24.99. Meanwhile, National
Bank for Development (NBD) jumped 36.4 percent to LE 28.92. NBD’s
extraordinary general meeting had approved a rights issue to increase
the bank’s capital from LE 281.9 million to LE 1 billion and
a name change to Abu Dhabi Islamic Bank – Egypt.
Elsewhere, the market was also buoyed by positive news from Orascom
Telecom’s (OT) strong second-quarter results, securing a partnership
with Korek Telecom in Iraq and announcing a share buyback plan.
This last development attracted foreign investors back to the stock
and helped shore it up to end the period down only 7 percent at
LE 69.52 after dropping as low as LE 62.71 on August 21, a 16-percent
drop.
Still within telecoms, competition seems to be intensifying not
only between all three local mobile operators but with the fixed
line operator as well. Telecom Egypt has announced a 70-percent
reduction on installation fees till the end of December to attract
new customers, whereas Mobinil reduced the prices of its prepaid
recharge card by 15 percent to match Etisalat Misr’s offer.
Alternatively, Vodafone Egypt propped up its prepaid recharge airtime
by an additional 15 percent while maintaining the same price. Shares
of TE and Mobinil closed 4 percent and 9 percent higher at LE 17.63
and LE 190.43, respectively. Also, Vodafone Egypt saw its shares
advance by 8 percent to LE 90.20 on minimal volume as it prepares
to be delisted voluntarily.
Another market bellwether, Orascom Construction Industries (OCI),
announced during the period that it will expand south with a $440
million new cement plant in South Africa. This complements the company’s
expansion in cement over the last three months, which included Syria
and North Korea. Expected to come on line in 2010, the South African
plant should expand OCI’s total annual cement capacities to
44 million tons.
In addition, the government announced that the GDP real growth rate
has reached 7.1 percent, up from 6.8 percent a year ago, with foreign
direct investments growing to $11 billion versus $6.1 billion. Hence,
the macroeconomic picture is still promising. On the equity market
front, Egypt’s corporates have very minimal exposure to the
US sub-prime mortgage debacle, hence profits should not be dented
in any way. Better yet, non-Arab foreign investors were net buyers
during this period, changing course from the previous period. With
the Fed easing US interest rates by 50 basis points, the world was
put at ease, suggesting more rational trading on the part of foreign
investors – at least for the time being.
ANALYZE THIS
Orascom Telecom Holding
Having been beleaguered with a wave of negative news, Orascom Telecom
(OT) stock was buoyed by positive developments. OT had dropped out
of the Iraqi mobile license auction, losing its license. Analysts
had put up the value of OT’s Iraqna at between 6 and 7 percent
of its value. Accordingly, losing that license would have meant
a similar drop in value. Yet, OT managed to preserve its foothold
in Iraq. Not only did it succeed at sealing a deal with Korek Telecom,
the Kurdish mobile operator and the third winner in that auction,
but it agreed to hold a 70-percent equity interest in the new venture.
Also, OT reported strong second-quarter results with net profits
of $827 million (including a one-time capital gain of $708 million
related to its stake in HTIL) versus $174 million a year ago. It
also announced its share buyback plan of up to 25 million shares
(or 5 million global depository receipts) over the next 12 months.
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