Egyptian Stocks Leap; EFG-Hermes Predicts 20% Upside in 2018

CAIRO (Capital Markets in Africa) – Egypt’s main stock benchmark, the EGX 30, gains 2.2% to 14,534.67 as of 12:30pm in Cairo, the steepest intraday advance since March 2. EFG-Hermes sees local market as being in the middle of “a multi-year rally“ supported by broad reforms with multiple catalysts ahead. EGX 30 has 20% upside through the end of 2018, strategist Mohamad Al Hajj writes in a note.

• Index rises to the highest level in dollar terms since the country removed restrictions on the Egyptian pound last year, aimed to help end a shortage of hard currency
  • At the highest value on record in pounds
  • Up 18% this year in local currency; 20% in dollar terms
• 28 stocks rise, one falls, one unchanged
  • CIB +3.1%; ElSewedy +6.5%; EFG-Hermes +2.6%; Talaat Moustafa +2.8%; Ezz Steel +4.7%
• Possible future catalysts, according to Hajj:
  • Falling interest rates
  • Some Egyptian pound appreciation and recovery in real wages
  • Continued recovery in tourism
  • Increased gas output
• Says Egyptian cos. posted the strongest earnings growth in Middle East North Africa this year, “and we expect this will continue going forward”
  • Non-banks’ earnings to recover “led by materials and industrials as capacity utilization picks up, supported by stronger economic growth in 2018”
  • “IPOs and privatization efforts could bring more inflows into equities and improve the float size and liquidity in the market”
• Valuations seem to remain supportive for equities, with YTD returns driven by earnings per share growth
  • Expects EPS growth for EGX 30 of 15% in 2018 and 18% in 2019
• EFG-Hermes overweight on materials, selective real-estate names, consumers; underweight banks, telcos, consumer discretionary; neutral on industrials
  • Eastern Tobacco saw as “high conviction buy, not only on fundamentals but also given MSCI/FTSE catalyst”