Egypt shares closed on a down note last week as investors shifted to book gain after recent rally.
The benchmark EGX30 index fell 1.28% or 178 points to the level of 13,713.6 points by the end of the week.
The EGX70 index dropped 4.05% to 782.43 points, while the EGX100 index declined 3.59% to 1,744.45 points.
The equal-weighted EGX50 index added 2.53% to 2,449.79 points, with a turnover of EGP 5.5 billion.
About 1.58 billion shares were traded on the EGX30 index at a turnover of EGP 4.3 billion.
Market capitalisation closed at EGP 767.7 billion, losing EGP 3.5 billion on a weekly basis, versus EGP 771.2 billion last week.
The Commercial International Bank – Egypt (CIB) shed 2.11% to EGP 76.22 at a turnover of EGP 515.25 million, as 6.7 million shares were traded.
A research note issued by market Chimp said that banks’ stocks are serving as the main drag for the index.
“In Egypt, a very vital position concerning the banking sector took place as the Central Bank of Egypt (CBE) raised the reserve ratio from 10% to 14%. The reason for such a decision could be the exhaustion of the interest rate tool to curb inflation, so using the reserve ratio as a tool might be a better solution from the central bank’s point of view. However, the banks listed on the Egyptian Exchange have seen notable declines after the decision to raise the reserve ratio. The higher reserve ratios will limit usage of deposits and hence will put a lid in money supply, which may suggest interest rate hikes on the horizon by the end of the year,” the research note said.
Foreign investors were net sellers with EGP 113.3 million, while Arab and Egyptian investors were net buyers with EGP 51.12 million and EGP 62.2 million, respectively.
Meanwhile, Mubasher Trade Research upgraded Cairo Poultry Company’s (CPC) stock from Hold to Buy with the same Moderate Risk rating, with a 12-month price target price at EGP 10.43 per share, according to a recent report.
The research note has applied changes to their valuation model, including “lower selling, general and administrative expenses (SG&A), and updating inflation expectations according to the International Monetary Fund (IMF).”
As a result, “terminal weighted average cost of capital (WACC) declined accordingly due to lower inflation differential and the research firm lowered short-term/working investment ratio since no exceptional cash outflows are expected, and 25% higher number of shares post capital stock dividend.”
CPC’s gross margin recorded 26% in the first nine months of 2017, compared to 30% in the year prior.
Mubasher Trade forecasted CPC’s gross margin to rebound by 2018, as the cost of goods sold (COGS) in 2017 was high on the back of the Egyptian pound flotation.
“We [Mubasher Trade] are not expecting headwinds in the prices of maize or soybean, which CPC imports, so margins should normalize going forward, especially with a more stable Egyptian pound. In addition, the oil price environment is entering a recovery phase,” the research firm said.
CPC’s top line and COGS figures for the nine-month period of 2017 met Mubasher Trade’s estimations on a quarterly and annual basis.
However, the bottom line beat the research firm’s estimates by a large margin on the back of “significantly lower-than-expected SG&A”.
Processing and value-added segments at CPC, mainly in Koki, were reduced in the nine-month period due to the current market slowdown, according to the company guidance and marketing activities, the report added.
CPC’s earnings before interest, tax, depreciation and amortization (EBITDA) and net profit hiked 72% and 113% year-on-year, respectively.
Mubasher Trade has mentioned the same growth factors for CPC of their initial report including, “leading market position that allows a high pass-through ability in the feed and fattening segments, young population coupled with room for growth in per capita consumption.”
“Fast-paced life and the growth of retail market tilts the market towards packaged food, and vertically-integrated business model supports growth across all segments.”
Mubasher Trade noted that CPC may face risks despite the impressive financial performance it has witnessed in the nine-month period.
The key risks involve “foreign exchange market exposure and commodity exposure, competitive pressures from imported poultry and current players in the processing and value-added segments, and chances of disease break-outs.”
