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STOCK PICKING IS KEY
For the second period in a row, large-cap stocks were the superstar of the market’s outstanding performance. The best stock award goes to... well, there’s more than one. The period from November 15 to December 15 again saw large caps outperform small ones. The HFI index closed 6.6 percent higher at 88494.01, having hit another lifetime high of 90771.12 on December 9. The broader CIBC index slipped another 0.7 percent to 387.98.
The HFI and CASE 30 – the main, market cap weighted indices – continued to record lifetime highs, led mainly by two blue chips: Orascom Telecom (OT) and Orascom Construction Industries (OCI). The stocks jumped 15.9 percent and 9.5 percent to LE 89.72 and LE 542.16, respectively. The former sold its full stake in Hutchison Telecommunications International Ltd. (HTIL) cashing in around $600 million in return (net of all expenses) and divested its Iraqi operations to competitor MTC-Atheer for $1.2 billion. The latter sold its cement operations, representing 71 percent of its EBITDA, to Lafarge of France in a $14.9 billion deal, including the assumption of $2 billion of debt. Both companies, sitting on piles of cash, are now looking for other investment opportunities. OT is eyeing markets with high growth potential, mostly in Asia, while OCI is changing its business model to energy-based industries, such as natural gas-based fertilizers. This explains the hike in fertilizer stock prices such as Abu Kir Fertilizers and EFIC, both considered acquisition targets. These fertilizer stocks advanced 7.4 percent and 4.6 percent to LE 174.96 and LE 147.24, respectively.
The banking sector was also in favor with foreign interest, particularly CIB and Credit Agricole – Egypt (CAE) stocks. Merger talks between CIB and Arab African International Bank are yet to be concluded, so investors are still on the sidelines. On the other hand, CAE began reporting robust profits in 2007 after recording a one-off item related to settlement of the employee fund deficit of Egyptian American Bank, which it acquired in 2006. CIB stock advanced 11.9 percent to LE 85.92, whereas CAE stock increased 11.2 percent to LE 26.25.
Meanwhile, real estate stocks continue to attract attention as evident in the acquisition offer for Nasr City Housing & Development by a UAE-based real estate developer for LE 70/share, around 11 percent higher than market price then. While Beltone Capital – the company’s major shareholder – opted to reject that offer, the stock advanced 15.9 percent to LE 65.24, approaching the offer price. Similarly, Heliopolis Housing & Development pressed ahead by 10.6 percent to LE 556.90.
Elsewhere, the small-cap world was dominated by shipping and container handling stocks. Canal Shipping Agencies topped them all, almost doubling in price from LE 13.61 to LE 26.78 unsupported by any material events. Also, Alexandria Containers Handling and United Arab Shipping shot up 88 percent and 28 percent to LE 212.46 and LE 9.69, respectively. Meanwhile, Egyptian Electric Cables saw its stock dwindle – post stock split and calling for a 112-percent rights issue – to LE 1.53, 14 percent lower on an adjusted basis.
While the broad market is still full of steam, investors are becoming even pickier with their bets. Both large and small cap stocks have their own followers who know them well. The former is favored by foreigners and institutions at large, while the latter is the retail investors’ favorite, especially those that can be easily manipulated. For all investors, 2007 is over and their eyes are now set on 2008.
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Analyze This
Talaat Moustafa Group Holding
The long-awaited IPO of Talaat Moustafa Group (TMG) Holding gave the company a market value of LE 27.6 billion, adding around 5 percent to total market capitalization. TMG Holding’s LE 3.8 billion private placement was covered 17 times at a price of LE 11.6/share, translating into an IPO price of LE 11/share for the public tranche, already present at a 5-percent discount off the private placement price, which was covered 41 times, implying an allocation rate of only 2.4 percent. Days before trading, TMG Holding announced preliminary net profits of LE 1,142.4 million in the 10 months ended October 31, 2007, an annualized price-earnings ratio of 16 times. The stock, which started trading on November 28 with a range of LE 13 to 15.50, closed at LE 13.58, 23 percent higher than the IPO price. Total traded value on the first day was LE 1.7 billion and later averaged LE 150 million in daily turnover.
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