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Volume I—Issue 4 July–September 2010 EGYPT QUARTERLY MARKET REVIEW Table of Contents Egypt’s Economic Highlights….…………………………………….……….1 Corporate News…………………..……………………………………….…2 Stock Fundamentals………………………………………………………….3 Feature Story: Egypt’s Beltone, Pioneers Merger Scrapped……………….…..4 Egypt’s Economic Highlights A. Real GDP Growth Real GDP growth (market prices) during July-March 2009 /2010 was driven by the resilience of both private and public consumption growth, recording 3.8 percent and 4.4 percent respectively. Total investment spending also increased by 1.4 percent. On the other hand both exports and imports of goods and services have declined by 3.9 percent and 7.7 percent respectively. From a sectoral perspective, Growth was led by manufacturing (5.0 percent growth, 15.7 percent of GDP), wholesale and retail trade (6.2 percent growth, 10.8 percent of GDP), construction (13.7 percent growth, 5.1 percent of GDP), and tourism (12.0 percent growth, 4.4 percent of GDP). B. Fiscal Performance The recent increase in fiscal revenues items comes from the step up in revenues from taxes on goods and services, recording an increase of 14.9 percent, leveling LE 9.8 billion compared to LE 8.6 billion during July-August last year. Total expenditures increased during July-August 2010/2011 by 10.5 percent, recording LE 52.3 billion compared to LE 47.4 billion last year. C. Domestic Debt Profile Gross domestic debt of the general government amounts to LE 733.5 billion (61.2 percent of GDP) at end of June 2010, compared to some LE 615.9 billion (59.3 percent of GDP) at end of June last year. Also, net domestic debt of the general government reached some LE 574.2 billion (47.9 percent of GDP). The increase in general government debt at end of June 2010 was driven by the increase in consolidated budget sector debt, in addition to the increase in consolidated debt of the National Investment Bank by nearly LE 17.7 billion amounting to LE 168.7 billion at end of June 2010. D. Monetary Developments Total liquidity has increased by 0.6 percent during July 2010, registering LE 922.6 billion, compared to 2.4 percent at the end of the previous month to LE 917.5 billion. Moreover, year-on-year growth in M2 at end of July 2010 stabilized at 10.4 percent, compared to June 2010. E .Prices CBE decided to keep its overnight deposit and lending rates unchanged- for the eighth time in a row- during the Monetary Policy Committee meeting on September 16th, 2010. The overnight deposit and lending rates currently stand at 8.25 and 9.75 percent respectively. MPC is considering the risk of possible second-round effect shocks related to food items that can have an impact on other prices. F. External Sector With respect to the External Sector, the Balance of Payment statistics for the fiscal year 2009/2010 depict notable improvement in the overall balance that has accumulated a surplus of US$ 3.36 billion, compared to a deficit of US$ 3.38 billion in the fiscal year 2008 /2009. G. Stock Exchange As for the performance of Domestic Capital Market, the EGX-30 index increased by 601.63 points, reaching 6,634.27 in September compared to 6,033.04 in June; however it has decreased by 127 points compared to September 2009. Market capitalization decreased over the previous year by 19.4 percent, reaching LE 431 billion (31.3 percent of GDP). Egypt’s Key Economic Indicators Key Indicators Population (mn) Nominal GDP (US$ bn) Real GDP growth (%) Consumer price inflation (%) Government Balance (% of GDP) Current-account balance (% of GDP) Gross Fixed Investment (% real change) Total External Debt (year-end; US$ bn) a: Actual, b: Economist Intelligence Unit Estimate 2008a 81.5 159.7 7.2 18.3 -7.0 -0.8 14.8 32.6 2009a 83.1 189.2 4.7 11.8 -6.6 -1.5 -10.2 29.5 2010b 84.7 224.8 5.3 11.8 -8.7 0.4 8.2 30.2 2011b 86.3 261.4 5.4 12.0 -7.6 1.3 11.2 31.2 Volume I—Issue 4 July-September 2010 EGYPT QUARTERLY MARKET REVIEW Money Market Statistics Overnight Int. bank Rate 91 T-Bill Rate 182 T-Bill Rate 365 T-Bill Rate CBE Discount Rate Deposit Rate Lending Rate EGX30 Three-Month Chart GDR Trading Rate Date 30/06/2010 Local L.E GDR (USD) P/D% 6800 8.260 9.252 9.759 10.259 8.263 7.200 10.900 29/09/10 CIB (1:1) EFG (1:2) Palm Hills (1:5) OCI (1:1) OT (1:5) Telecom Egypt (1:5) Suez Cement (1:1) 42.90 29.08 5.78 250.35 5.04 17.48 42.32 7.61 10.39 4.50 44.99 4.34 15.10 7.70 -2.38 -1.69 -14.31 -1.11 -5.23 -4.93 0.13 6400 29/09/10 29/09/10 29/09/10 02/08/09 31/08/10 31/08/10 EGX 30 Index 6600 6200 6000 5800 5600 5400 5200 Value Traded (L.E mn) 41,243 Close Prev. Close %Chg High Low YTD% 6,634.27 6,033.09 9.97 6,781.26 5,814.24 -2.29 Yr. H 7,603.04 Yr. L 5,850.38 Volume Traded (L.E mn) 6,221 Corporate News Corporate News Egypt's EFG Hermes entered into an agreement with majority shareholders to buy 65 percent of Credit Libanais. EFG will pay cash consideration of $542 million for 65 percent interest in the Lebanese bank and will finance the acquisition from its own cash resources, and will not need external funding. Mo'men Group plans to sell 40 percent of its shares in an initial public offering (IPO) in late 2012. The company is expected to increase its revenue to about LE 1 billion ($176 million) in 2011 from a targeted LE 750 million this year. Egyptian private equity firm Citadel Capital invested $40 million to grow crops in Sudan, acquiring agricultural land under long-term leases of up to 25 years from Sudan's government via two subsidiaries, Sabina and Concord. On a different note, the company is considering listing two of its existing portfolio companies in the next 12 to 24 months, a senior executive at the private equity firm said. The listings could take place in Egypt and would be in the range of between $175 million and $250 million. Egyptian group El Sewedy Cables is increasing output this year and the next on the back of growing demand for its products in Europe, the Middle Eastern and Africa. They plan to capture 2-3 percent of Europe's market over the next three years. The firm is eyeing wind markets in Brazil, Turkey, Pakistan and Libya, and is also negotiating for a 50-megwatt wind power project in Pakistan, in a bid to open a new market in Asia. Egyptian billionaire Naguib Sawiris is in talks to sell a majority stake in mobile firm Orascom Telecom and Italy's No. 3 operator Wind to telecoms group Vimpelcom. Citigroup Inc's venture capital arm and two other investors are planning to sell Amoun, one of Egypt's biggest drug-makers. The owners are close to hiring Goldman Sachs to run the sale. The trio bought Amoun, which makes off-patent branded drugs, for about $450 million in 2006 and it could now be worth roughly $1 billion. El Sewedy Cables signed a contract amounting to EUR82 million where the company is assigned to supply and install 60 megawatt in Libya. The Holding Company for Natural Gas acquired 80% of Egypt Gas (EGAS) in a deal worth LE674.2 million which is equivalent to LE70.23/share. The seller was the General Authority for Petroleum. Orascom Construction Industries approved a two-tranche, five-year bond worth 1.65 billion Egyptian pounds ($289 million) with a fixed coupon of 11.75 percent. Its coupon will be paid semi-annually and 90 percent of the bond will be offered via a private placement while rest will be offered to the public in a second tranche. Stock Fundamentals Powered by: Price Stock Reuters Code P/E Close Yr. H Yr. L Market Cap (mn) 28650.99 7.01 ROA ROE Target Price Recommendation EV (m) 10 11 12 10 11 12 10 11 Outperform 60229.85 9.49 6.90 5.19 21.13 21.30 29.22 123.60 86.01 12 Telecommunications Orascom Telecom Holding ORTE.CA 5.04 7.92 4.27 MobiNil Telecom Egypt Construction and Materials Orascom Construction Industries Banking Commercial International Bank Credit Agricole Egypt Housing & Development Bank Financials EFG-Hermes Holding Pioneers Holding Real Estate TMG Holding 6th Oct. Development Heliopolis Housing Medinet Nasr Housing Palm Hills Development Oil and Gas Maridive & Oil Services* Sidi Kerir Petrochemicals Egyptian Financial & Industrial Tourism, Travel & Leisure Egyptian for Tourism Resorts Orascom Development Holding (EDR)** Industrial Goods El Swedy Cables El Ezz Steel Rebars Consumer Goods Delta Sugar GB AUTO EMOB.CA 177.54 242.50 156.06 19036.00 193.30 Outperform 24303.25 11.58 11.92 10.69 9.00 8.70 8.90 43.30 33.70 113.9 2 30.90 ETEL.CA 17.48 20.59 14.88 30232.24 20.10 Outperform 29157.45 9.69 9.73 9.36 NA NA NA 11.50 10.70 10.46 OCIC.CA 250.35 287.90 217.00 52852.08 276.30 Hold 64814.08 16.98 12.91 10.58 6.30 8.00 8.80 17.97 23.00 25.00 COMI.CA 42.90 45.98 24.50 25734.15 41.01 Hold 13993.18 13.42 11.48 9.59 2.80 2.90 3.05 25.47 25.68 25.66 CIEB.CA 12.98 14.08 10.00 3733.87 15.36 Buy (1105.01) 10.00 8.93 7.80 1.60 1.65 1.70 20.08 22.15 24.90 HDBK.CA 21.30 28.30 18.00 1785.58 29.10 Buy 2696.45 NA NA NA 1.65 2.20 3.10 22.80 25.55 29.30 HRHO.CA 29.08 37.29 23.60 11424.01 33.80 Outperform 6420.20 18.45 14.12 11.28 7.10 7.30 9.50 6.78 7.33 9.51 PIOH.CA 3.70 8.27 3.20 1782.50 11.00 Buy 1469.51 NA NA NA NA NA NA NA NA NA Oriental Weavers TMGH.CA 7.02 8.63 5.71 14675.07 9.65 Outperform 17893.17 9.58 6.88 5.35 2.43 2.43 2.48 5.76 6.85 8.52 OCDI.CA 92.09 103.00 75.00 2639.84 118.50 Buy 1816.54 19.12 9.30 6.16 3.80 5.50 10.20 9.62 12.54 17.28 HELI.CA 33.05 45.58 24.10 2447.66 53.40 Outperform 2516.00 15.45 14.69 13.17 10.91 9.23 9.17 46.56 32.93 26.87 MNHD.CA 30.98 37.00 23.60 3102.00 50.00 Outperform 3072.04 20.20 18.19 16.45 8.70 11.70 12.60 30.40 34.00 31.50 PHDC.CA 5.78 7.10 4.25 6132.67 7.55 Outperform 8518.73 10.33 6.58 5.95 4.72 7.02 7.86 15.96 22.30 16.21 MOIL.CA 2.84 4.00 2.48 884.74 3.96 Outperform 1117.43 10.20 7.08 6.42 16.21 18.91 19.01 27.60 43.95 42.01 SKPC.CA 12.96 15.80 9.60 6693.75 16.00 Buy 5946.55 8.24 8.93 8.61 30.10 22.00 22.00 34.20 28.00 27.00 EFIC.CA 19.16 26.98 15.70 1335.44 26.40 Outperform 2303.67 12.47 8.81 8.02 4.56 6.70 6.26 10.91 14.42 11.31 EGTS.CA 1.92 3.13 1.62 2215.50 4.10 Outperform 2013.34 1055 26.38 14.91 0.67 3.56 7.23 0.82 4.65 10.33 ODHR.CA 14.58 512.03 278.35 8557.80 89.92 Outperform 1968.71 11.42 11.06 9.12 6.60 6.90 NA 11.57 12.65 12.61 SWDY.CA 54.446 63.80 42.54 9264.97 65.20 Outperform 13580.31 11.04 8.50 6.50 7.70 9.00 10.25 18.08 20.70 20.29 ESRS.CA 19.25 26.00 13.63 10163.60 25.00 Outperform 19446.13 16.17 13.78 7.77 3.80 4.80 7.14 11.18 15.00 22.70 SUGR.CA 17.21 26.97 14.00 2104.53 21.55 Buy 2413.80 7.07 7.87 8.32 23.78 19.02 17.93 30.61 26.22 25.26 AUTO.CA 43.80 55.00 21.01 6188.18 46.95 Outperform 7662.31 15.70 12.61 9.52 7.70 8.47 10.08 18.66 22.35 25.73 ORWE.CA 33.00 37.30 24.89 2920.19 37.34 Outperform 5256.10 9.26 8.50 8.05 6.66 6.62 6.37 11.54 11.96 12.54 *All figures are quoted in USD **ROA, ROE, EV, Target Price are quoted in Swiss Franc (CHF) Volume I—Issue 4 July-September 2010 EGYPT QUARTERLY MARKET REVIEW Highlight of the Quarter: Egypt's Beltone, Pioneers merger scrapped A $62 million acquisition by Egypt's Pioneers Holding of investment bank Beltone Financial has been scrapped after the two sides failed to agree on a strategy for the merged firm. Under the plan, announced in November and approved by shareholders of both companies, Pioneers would have acquired Beltone in an all-share deal creating an entity with 29.2 billion Egyptian pounds ($5.13 billion) under management. Pioneers was to have issued 100 million new shares for Beltone, whose owners would have held 17 percent of the combined entity. Beltone CEO Aladdin Saba was to have headed the firm. Based on the Pioneers share closing price on June 30, the last day it traded before the announcement, the deal would have valued Beltone at 351 million Egyptian pounds ($61.6 million), about half the deal's value when it was first announced last year. Contacts & Disclaimer CCFC Team Director: Dr. Eskandar Tooma Program Manager: Aliaa Bassiouny Program Executive: Ghada El Eraqi Research Associate: Diana George Research Associate: Jasmin Abu El-Dahab Research Associate: May Farag For more Information regarding CCFC Services, contact us on: +(202) 2615-3443/3469/3680/3442 or [email protected] Beltone's head of investor relations, Osama Rashad, told Reuters the deal fell through due to "lack of agreement on future strategy for the new entity". Pioneers has a wide retail distribution network with smaller research and investment banking operations. Analysts had said when the merger was announced that the tie-up would have been complementary, given Beltone's institutional client base. Some Egyptian media had reported disagreements in the make-up of a new board. However, Pioneers board member Khaled El Tayeb dismissed such talk. As a result of the merger scrap, Pioneers shares were trading down 2.9 percent and the benchmark index (EGX 30) was down 1.1 percent. Disclaimer: This newsletter has been prepared by Citadel Capital Financial Center staff and undergraduate students at the American University in Cairo. This review is based on information available to the public. This review is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The information and opinions in this review were prepared by CCFC from sources we believe to be reliable and information available to the public. CCFC makes no guarantee or warranty to the accuracy and thoroughness of the information mentioned in this review and accepts no responsibility or liability for losses or damages incurred as a result of opinions formed and decisions made based on information presented in this review. CCFC does not undertake to advise you of changes in opinion or information.