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Stock Analysis
To split or not to split?
For the CASE 30, the Cairo & Alexandria Stock Exchanges’
in-house index, 2006 is the fifth year in a row to show a positive
performance. Standing out amongst its Arab counterparts, the CASE
30 was the only positive performer in 2006, with a 10.3-percent
return. Private indices HFI and CIBC also ended the year on a positive
note with 10.7-percent and 19.8-percent returns respectively.
The period from December 15 to January 15 saw a continuation of
last period’s large-cap rally towards year-end. The HFI closed
4.3 percent up at 61583.95, while the CIBC Index added 2.5 percent
to close at 298.36.
The period witnessed the only initial public offering (IPO) issue
in 2006 with public subscription, Al-Arafa for Investment &
Consulting, which unlike the private subscription IPOs of El Sewedy
Cables and Al Naeem Holding, was open to the general public. Al-Arafa
first traded on December 24, closing the day at $1.28, 12 percent
higher than its IPO price of $1.14. The IPO was 4.5 times oversubscribed,
but its popularity could not keep its price up. By the beginning
of 2007, the stock began to slide, closing the period at $1.20,
just 5.3 percent higher than its IPO price.
Elsewhere, the real estate sector is still hot. Listed companies
with interest in the sector made headlines with their plans to benefit
from the current real estate boom. Al Naeem Holding, for example,
announced that it has formed a consortium with National Bank of
Egypt (NBE) and Saudi Arabia’s Al-Ola to establish a company
for urban development with a paid-in capital of LE 5 billion. Another
dollar-priced stock, it ended the period 5.6 percent higher at $1.69.
Nile Matches also benefited from the real estate boom as the Holding
Company for Chemical Industries sold a parcel of land owned by Nile
Matches for more than LE 45 million to cover part of its debt.
Nevertheless, stock splits seem to be the hottest topic on investors’
minds. A number of companies have either had stock splits or announced
their intention to do so. For instance, Upper Egypt Contracting’s
board approved a 10-for-1 stock split in late December. Also, EFIC
was set to discuss an 8-for-1 stock split as of press time.
And it’s not just the small caps splitting stocks; a couple
of large caps have made similar moves. Orascom Telecom Holding (OTH)
is eyeing a 5-for-1 stock split, while Sidi Kerir Petrochemicals
approved a similar split with talks of another 1-for-1 stock split
to follow.
It’s a new year and with it come new fads in the Egyptian
bourse. With the earnings season about to begin in early February,
it was interesting to find that stock split announcements resulted
in stock price appreciation. Theoretically, companies’ values
should not be affected by stock splits, yet with retail participation
running at around 75 percent in terms of market turnover, stock
split stories artificially inflated mainly small-cap stock prices.
Sooner or later, earnings releases will put some sense to these
new-high stock prices.
ANALYZE THIS
Egyptian Company for Tourism Resorts
Egyptian Company for Tourism Resorts (ECTR) is among the
stocks to benefit from the recent real estate boom. The company,
which has developed a resort in Sahl Hashish south of Hurghada
on the Red Sea, announced in December that it sold 1.5 million
square meters of land for $32.5 million to Jordan’s
Shaheen Group. Last November, its board of directors approved
a 10-for-1 stock split, which was later approved by the company’
extraordinary general assembly. The split came into effect
on January 29. More recently, the management briefly highlighted
its plan to purchase more land for tourism development, a
move that will require a capital increase pending full 2006
financial results. It’s worth noting that ECTR reported
profits of LE 88.2 million in the first nine months of 2006,
an 188-percent increase over the same period the year before.
Its share price ended the period 47 percent higher at LE 168.26.
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