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MARKET WATCH
Once upon a time, there was an IPO...
The broad-based HFI Index and the broader CIBC Index advanced
only 2.5 percent and 8.7 percent to close at 50750.32 and 208.58,
respectively, in the period from October 15 to November 15. Advances
continued to outnumber declines, albeit by a smaller ratio of 2.5-to-1.
Yet, small caps were once again back in favor although this is probably
due to a slightly different reason. Telecom Egypt (TE), the country’s
monopoly fixed-line operator, was rumored to be preparing for an
IPO for the second time in five years!
TE had previously attempted to go public in October 2000 when the
world’s capital markets turned sour, leading the government
to shelve the idea. This time, however, the scene is set for TE
to make the most out of capital markets. Relative valuation metrics
are close to their highs, at least on the Egyptian bourse.
This translates into quick profits for investors who plan to get
into TE’s IPO. It also explains why the Egyptian market was
slowing down towards the end of this period.
As seen in the previous three major IPOs this year, investors –
mainly investment funds – began liquidating parts of their
holdings to be ready for TE once its prospectus is out. Investment
funds are more inclined to do one of two things: either to secure
availability of funds by selling part of their investments or to
opt to maintain a certain mix in the telecom sector, be it mobile
or fixed.
As such, IEEC jumped 81 percent to £E 12.79, also partially
due to expectation of yet another sale of another stake in the company
by the government. Meanwhile, Egypt Kuwait Holding Company posted
good nine-month results versus a year ago pushing its share price
53 percent higher to close at $5.34.
Elsewhere, the largest two private banks in Egypt have posted their
nine-month results. CIB, the number one bank so far, posted a 28.5-percent
increase in net income of £E 449 million, whereas NSGB, the
runner-up, followed through with a 78-percent increase in net income
of £E 311 million. Both banks’ shares showed mixed performance
as the former slipped 12 percent to £E 53.16 while the latter
stabilized at £E 71.23.
For others, this period was also payback time, namely for milling
companies with dividend yields ranging from 7 percent to 11 percent.
However, not all the companies that paid out cash dividends saw
their shares fall. Indeed, shares of Central Egypt Mills, North
Cairo Mills and South Cairo & Giza Mills all firmed higher.
Interestingly enough, both Mobinil and Vodafone posted their quarter
results ending September with higher year-on-year profits. Yet,
the two mobile operators saw their shares drop by 8 percent and
2 percent to £E 187.24 and £E 91.73, respectively. Meanwhile,
OT shares remained stagnant at the £E 600 level. It’s
worth noting that Naguib Sawiris, OT’s chairman, has indicated
his readiness to take on Orange’s stake in Mobinil, stating,
“I’d rather be alone!”
In general, the market continued to climb steadily until around
half way through this period when investors began taking money off
the table to get ready for TE’s IPO. Some market participants
believe that the overall up-trend will resume once again after the
finalization of the IPO. It might seem like déjà vu
for some investors, yet others are afraid the dream might be ending.
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Mobinil
This period was an extraordinary one for Mobinil. To begin
with, Osman Sultan, the company’s president and CEO,
resigned seeking other opportunities outside Egypt. Replacing
him is Alex Shalaby, previously Orascom Telecom (OT)’s
executive vice president. At the same time, Mobinil announced
its third-quarter results on November 9, which were perceived
by analysts as positive. Thirdly, the company’s chairman
was quoted as wanting to be alone in Mobinil. However, this
statement was later clarified as being a theoretical one.
Although one would think such news would stabilize, if not
push, the company’s shares higher, the price was trending
lower even after this period closed. While Mobinil’s
stock slipped 8 percent to £E 187.24 by November 15,
the stock slipped even lower again as investors reduce their
exposure to telecom in light of TE’s upcoming IPO.
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