EGAL's capital increase and revamp project trigger potential FV upgrade to EGP96.00/share

• Initial agreement on Emirates Global Aluminum (EGA) subscription to EGAL’s capital increase
• Scenario: Upside potential triggered by the transaction. There are many missing inputs and details to quantify the costs and benefits of the revamp project into our model. We are currently valuing EGAL at a FV of EGP77.75/share with an Overweight recommendation. However, we ran several assumptions to reach an estimate for the potential effect of the Revamp Project on the company’s value. After running these assumptions into our model, the new project could add another EGP18.25/share to our FV to reach EGP96.00/share.

Value of Egyptian Nitrogen Fertilizer Producers Implied by Fertiglobe Deal; EKHO stands out

ADNOC decided to acquire OCI’s 50% stake in Fertiglobe for USD3.62 billion, which values Fertiglobe at a total of USD7.24 billion in equity value. This implies an EV/ton of USD1,340 calculated using the annualized production sales volume in 2023, which is around 5.65 mn tpa. 

EKHO highest upside; MFPC still overvalued. We used the 2024f exchange rate of EGP45 to calculate the implied fair values of EGX-listed nitrogen fertilizers players. However, knowing that Fertiglobe has operations in UAE, Egypt and Algeria, we applied a 30% discount to take into consideration Egypt’s current macro challenges. In conclusion, EKHO is the only pick amongst all four stocks, based on the Fertiglobe transaction. 

Four of the world’s largest shipping firms have said that they are pausing transit through the Red Sea due to repeated attacks on shipping by Houthi groups in Yemen. 

MSME finance and consumer finance companies can now create and manage investment funds in partnership with commercial and investment banks and ins. firms.

A USD500 mn loan from the World Bank’s IBRD got the sign off from President El Sisi. The funding will be used to expand Takaful and Karama cash-based welfare programs.

Federal Reserve officials have been quick to urge caution to bullish markets that have priced in interest rate cuts as early as March. The Fed’s Atlanta President slated rate cuts for “sometime in the third quarter” of 2024 if inflation falls as expected. 

We issued this morning our Egypt Banking Sector 2024 Update, in which we discuss:

·        Sector outlook, 

·        Interbank analysis,

·        Individual bank analysis for: COMI (FV: EGP100/share, OW), CIEB (FV: EGP33.00, OW), ADIB (FV: EGP70.00, OW), SAUD (FV: EGP17.00, OW), EXPA (FV: EGP32.00/share, OW), FAIT (FV: EGP33.00/share, EW), EGBE (FV: USD0.45, OW), HDBK (FV: EGP65.00, OW), QNBA (FV: EGP55.00, OW), CANA (FV: EGP17.30, OW). Our top picks for the sector are COMI & ADIB. 

COMI has imposed further limits on the use of credit cards for FX spending, where credit card holders will only be allowed to spend EGP 7.75k worth of FX transactions a month while in Egypt, regardless of the number of credit cards they hold. The restriction went into effect on Friday.

Sarwa Insurance Company BOD, CNFN’s insurance arm, approved an increase in the company’s paid-in capital to EGP136 million (an increase of 36%). The increase, amounting to EGP36 million, was entirely financed from retained earnings. 

RAYA plans to list a stake of 30-35% of its subsidiary “Raya Information Technology” on EGX in 1H2024, according to local press.

In execution of the court ruling in December 2021, EGTS (FV: EGP1.68, EW) paid USD5.7 million (EGP0.17/share) to Trans Mediterranean for Tourism Investments in relation to a canceled land sale contract.