Tuesday, 10 August 2021

Annual urban inflation accelerated in July — but not as much as analysts had expected it to

TL;DR

WHAT WE’RE TRACKING TONIGHT

Good afternoon, wonderful people. We hope Tuesday is treating you well — and that you’re as excited as we are by the prospect of a Thursday-Saturday long weekend. It’s another busy newsday, so let’s jump right in:

THE BIG STORY TODAY- Consumer prices rose in July at the fastest pace so far this year, advancing to 5.4% last month from 4.9% in June as electricity and food prices rose. We have chapter and verse in this afternoon’s Speed Round, below.

WHAT WE’RE ACTUALLY CHEERING: The EGX30 is in the green year-to-date for what we are pretty sure is the first time in 2021. The benchmark index is now up 0.1% YTD (0.08% if you want to get picky about it) after closing up 0.5% today in heavy trading. Shares worth EGP 1.91 bn changed hands today — nearly 32% above the trailing 90-day average.

** CATCH UP QUICK on the top stories from today’s EnterpriseAM:

  • NIB to be liquidated: The heavily indebted National Investment Bank (NIB) — which is actually a development bank — is preparing for its liquidation over the coming 18 months or so. The plan to shutter the institution was agreed with the International Monetary Fund.
  • Is Damietta about to become Israel’s natgas terminal? Both countries’ oil ministers were in talks yesterday about using Damietta’s liquefied natural gas facilities to receive, process and export Israel’s natural gas bonanza.
  • Egyptian fintech startup Dopay will offer its services to Bank ABC corporate clients: Dopay has landed a CBE-regulated agent banking license that will allow the startup to provide payroll and other banking services in partnership with Bank ABC.

THE BIG STORY ABROAD? Dear God, it’s a slow newsday. SoftBank’s move to cut investment in China until the Great Capitalist / Tech Smackdown cools leads the front page of the Financial Times. The Wall Street Journal is also banging on about SoftBank, reporting that the value of the company’s tech investments sank alongside its profitability in the quarter ending June. Does anybody in Egypt really care about SoftBank — other than as a reminder of what happens to private investment when governments deliver a smack to the heads of high-profile corporations?

More interesting: The Economist’s lead story, which asks What tech does China want? as it argues that “the contours of the Communist Party’s masterplan for its technology industry are emerging.” The answer: The country aims to become a “techno-utopia” — with a ton of state control and much thinner margins for the private sector.

🚙 FOR YOUR COMMUTE-

WARNING- Companies are going to dock your wages if you WFH. Case in point: Google employees who work from home could be paid less than folks who commute into the office, Reuters reports in an exclusive.

Is it rank socialism or, frankly, justice? Publicly traded corporate mega-landlords in Berlin with more than 3k apartments each could see their properties confiscated if a local referendum passes next month. The landlords are accused of “squeezing out lower income, long-term residents through shoddy maintenance and jacked-up rents” and could now see as many as 240k units taken over by the state. The Financial Times suggests that a majority of Berlin voters — more than half of whom are renters — support the measure, which would force the companies to sell their units to the city government at a fair price.

Are we the only ones gnashing our teeth that Stranger Things won’t be back until 2022? Or willing to complain loudly that the latest “sneak peek” (which confirmed that season four won’t air until next year) left us … unfulfilled? Watch and decide for yourself, runtime: 0:30.

Gold bugs, delight: Naguib — who has absolutely no vested interest in the price of the precious metal — thinks gold should account for 20-30% of everyone’s portfolio, CNBC reports after interviewing the celebrity bn’aire on Capital Connection. “Let’s say the inflation comes in and there is a crash in the stock market for any reason or the other, you know, then you will be very happy that … you have a position in gold.” Does that mean Naguib is waiting for the market to crash? Kinda. “He said prices have been high for a ‘very long while’ and will ‘inevitably’ fall at some point,” adding that global “political uncertainties … and the ‘never ending saga’” of covid are keeping him up at night.”

You know who else is being kept up at night by covid? Schools in the west and the corporate world … everywhere? Amazon is the latest to join the ranks of major corporates who are delaying their return to the office from fall to — in the Everything Store’s case — 2022.

Lionel Messi is very close to becoming a PSG player: In potentially the most significant transfer of the century so far, Barcelona legend Lionel Messi will join Paris St. Germain on a two-year contract worth EUR 35 mn a year, according to the Associated Press. The 34-year-old Argentinian has finalized his contract with the French club and is today flying to Paris to seal the move, the newswire says.

📺 ON THE TUBE TONIGHT- (all times CLT)

What happens on a yacht stays on a yacht … unless you’re watching Below Deck. Next up in our reality TV week is a show that follows the crews of massive yachts that are home to some of the biggest and most scandalous parties and events — or just a bn’aire going on a marine adventure. The guests expect every cent of what they’re paying to be worth it, with some of the most random and over-the-top requests to the crew that they have to follow through on. The show also keeps an eye on the dynamics between crew members, with workplace romances popping up every once in a while. Every episode features a new group of passengers, a new destination, and new drama.

El Zamalek are playing Al Ittihad at 9pm today in the Egyptian Premier League. Earlier on in the day at 7pm, Misr Lel Mekassa is going up against Ceramica Cleopatra while Ghazl El Mahalla play Wadi Degla.

🥗 EAT THIS TONIGHT-

From the heart of Beirut to Cairo: Loris first opened in 2015 on the gorgeous Pasteur Street in Beirut. Today, Raya Restaurants has brought Loris to our neck of the woods, introducing the brand to Sheikh Zayed’s Galleria40. The restaurant is a great place for family gatherings and business meetings (as long as they’re back on our calendars), whether that’s for dinner, breakfast or happy hour. The menu has the Lebanese savory dishes and flavorful desserts we all love. Although we usually start with savory, at Loris their sweet goulash bel gebna is king. Otherwise, go for a platters with a variety of grilled meats and sausages as well as shawarma. Of course we don’t need to tell you the importance of mezzet at a Lebanese restaurant — we often have to stop ourselves from just going for fattoush, sawda djej, hummus, and makanek and calling it a full meal.

Raya Restaurants plans to invest EGP 50 mn in the F&B sector over the next five years. The company’s brand portfolio also includes Ovio, the Lebanese Bakery, and Jones the Grocer, according to a press release (pdf).

🎤 OUT AND ABOUT-

Nour Khan & Tafaqum are part of The Room New Cairo’s acoustic music night today at 9pm.

Underground rock band Massar Egbari are performing at the Cairo Opera House tomorrow at 8pm.

💡 UNDER THE LAMPLIGHT-

Microsoft’s Satya Nadella is a big fan of this book: Competing in the Age of AI: Strategy and Leadership When Algorithms and Networks Run the World looks at how AI-centric businesses have introduced a new “operating architecture” (🤮) redefining how they “create, capture, share, and deliver value.” Authors Marco Iansiti and Karim R. Lakhani argue that AI is more scalable, posing theoretical scenarios of what would happen if large firms, such as Ikea, decided to adopt AI. The book looks at what AI has become and what it potentially could become in well-versed and detailed explanations that call for rethinking business and operating models. This transition is not without risks, and tech business leaders have a new scope of responsibilities and ethics to keep in mind as they further encompass the digital age.


☀️ TOMORROW’S WEATHER- More 41°C weather in the coming three days for those of us stuck in the capital city, with the mercury set to fall to 25-26°C at night, according to our favorite weather app. It’s much cooler in Sahel, with daytime high tomorrow of 33°C and an overnight low of 24°C.

SPEED ROUND: ECONOMY

Inflation hits 2021 high but still rises below expectations

Annual urban inflation accelerated in July on the back of rising energy and food prices, according to official figures from state statistics body Capmas. The headline urban rate climbed to 5.4%, up from 4.9% in June, as the government hiked fuel and electricity costs. Headline prices rose 0.9% on a monthly basis, compared with a 0.2% rise in June.

Housing and utilities prices accelerated to 4.1% annually and 2.4% from June in response to the higher energy costs. Food and beverage prices, the largest component in the basket of goods, rose 4.8% on an annual basis, and 0.5% on a monthly basis, while tobacco increased 2.9% after prices were hiked at the beginning of the new fiscal year. Transport (6.6%, and recreational and cultural activities (12%) also became more expensive in July.

This is the highest headline inflation rate recorded since the start of the year — and marks the first time since January 2020 that inflation has risen into the CBE’s target range, which currently stands at 7% (±2%) on average by the fourth quarter of 2022.

Overall annual inflation shot up to 6.1% as it continued to pull away from the urban rate, up from 5.3% in June, rising 1% on a monthly basis in comparison with 0.3% in June.

Core inflation at near two-year high: Annual core inflation rose to its highest level since August 2019, accelerating to 4.6% in July from 3.8% the month prior, central bank figures (pdf) show. Monthly core prices rose to 0.6% from -0.1% in June. Core inflation strips out volatile items such as food and fuel.

The headline figure came below analysts’ expectations despite rising for the third month running. The rise came in below Beltone Financial’s expectation of a 6% increase, and Pharos’ 5.6% forecast.

Prices will likely keep on pushing up: Inflation will continue to gain momentum in the second half of the year “as the rise in global commodity prices starts to reflect gradually in the domestic market coupled with base effect,” Beltone’s chief economist Alia Mamdouh wrote in a note this morning. Her statement was echoed by EFG Hermes’ head of macroeconomic research Mohamed Abu Basha, who told Bloomberg that “minor inflationary pressure remains on the cards.” Expectations are that late July’s hike in fuel prices will show in August’s numbers, while analysts are also braced for the impact of any potential rise in the price of subsidized bread.

Central bank to hold rates through 2021? The chances are that the central bank will continue to keep interest rates on hold at its next meeting in September, Mamdouh wrote, citing the need to maintain Egypt’s high real rates as other emerging markets tighten policy. Meanwhile, Abu Basha said that the central bank may leave rates unchanged for the rest of the year. Prime Holdings and Renaissance Capital are also predicting rates to stay the same until 2022. The CBE left rates on hold for a sixth straight meeting last week, meaning the overnight and lending rates will remain at 8.25% and 9.25% respectively until at least September.

AUTOMOTIVE

Egypt, UAE to set up JV for manufacturing dual-fuel trucks

Egypt, UAE to jointly assemble dual-fuel trucks: A joint venture between an Emirati industrial company and the Egyptian military will be set up to locally assemble pickup trucks equipped with dual-fuel engines capable of running on natural gas, the cabinet said in a statement on Monday. The Military Production Ministry will produce the vehicles with M Glory Holding, which specializes in integrating advanced technologies into manufacturing and industrial processes. The JV will be known as Egyptian Emirates Automotive Company and the trucks will sell under the name “EM.”

The JV will begin assembly in the first half of 2022 and aim to produce 12k vehicles each year, some of which will be exported to other African countries. That’s about 32% of total sales in the truck market in 2020, according to figures from industry association AMIC.

Another part of the government’s natgas transition plan: In a renewed push to power more of the nation’s vehicles with natural gas, the government this year began rolling out a plan that it hopes will see as many as 450k cars outfitted with dual-fuel engines by 2024, as well as 15k microbuses during its first year. The scheme — which provides financial incentives to vehicle owners to either convert their engines or swap their vehicles to run on natural gas — is also expected to be extended to tuk-tuks. The government is working to expand the country’s natgas refueling infrastructure and plans to have 1k natural gas filling stations set up nationwide by the end of this year.

GO WITH THE FLOW

NBK Egypt a step closer to delisting, Telecom Egypt making bank

NBK Egypt board agrees to EGX delisting: The board of directors at the National Bank of Kuwait (Egypt) has agreed to voluntarily delist from the EGX, the bank said in a statement (pdf) to the EGX this morning. Prime Capital has been appointed as a financial advisor to value the subsidiary, which it will present to shareholders at an extraordinary general assembly meeting. A final decision will be taken three months afterwards.

This is not bad news for the EGX: The bank’s shares are rather illiquid, with less than 80k of them changing hands today, according to Reuters data. By comparison, 1.2 mn shares of CIB, 710k shares of EFG Hermes and 315k shares of Edita were bought and sold today. Retail darling Qalaa Holding saw some 6 mn shares change hands today.

EARNINGS WATCH- State-owned Telecom Egypt’s (TE) bottom line more than doubled to EGP 1.75 bn in 2Q2021, compared to EGP 748.4 mn the same period last year, according to the telecom operator’s financial results (pdf). The company attributed the profit growth to a rise in investment income from Vodafone Egypt, in which it holds a 45% stake, and FX gains. Revenues also rose to EGP 8.97 bn in 2Q2021 from EGP 7.94 bn in the same quarter of 2020. TE said it received EGP 3.6 bn in income from Vodafone in July. Reuters took note of the figures.

Raya Contact Center’s bottom line fell 25% to EGP 7.71 mn in 2Q2021, from EGP 10.35 mn in 2Q2020, according to the company’s financial results (pdf). Revenues were essentially flat, coming in at EGP 193.7 mn compared to EGP 192.3 mn in the same period of 2020.

Transport player Egytrans saw its bottom line decline to EGP 6.4 mn in 1H2021, compared to EGP 9.6 mn in 1H2020, based on the company’s financial results (pdf). Revenues rose to EGP 123.5 mn in 1H2021 from EGP 101.4 mn during the first six months of 2020.

Sidpec continues to recover from last year’s turmoil: Sidi Kerir Petrochemicals (Sidpec) announced a bottom line of EGP 283 mn in 1H2021, against losses of EGP 28 mn during the same half a year earlier, according to the company’s financial results (pdf). Revenues jumped almost 60% to EGP 2.67 bn in 1H2021, compared to EGP 1.67 bn last year.


MARKET WATCH-

The EGX30 rose 0.5% at today’s close on turnover of EGP 1.91 bn (31.4% above the 90-day average). Foreign investors were net buyers. The index is up 0.1% YTD.

In the green: Egyptian Resorts Company (+3.4%), Heliopolis Housing (+2.7%) and TMG Holding (+1.8%).

In the red: Sidi Kerir Petrochemicals (-6.4%), Ezz Steel (-3.5%) and Orascom Development Egypt (-2.9%).

ANALYST OF THE WEEK

Meet our analyst of the week: Prime Holding’s Mohamed Saad

OUR ANALYST OF THE WEEK- Mohamed Saad, senior equity research analyst at Prime Holding (LinkedIn).

My name is Mohamed Saad and I’m a senior equity analyst at Prime Securities. When I first started my career I worked as an equity trader at Naeem Holding and then as a business development executive at Future Group. Both positions weren’t for me as I was very interested in the stock market and wanted to delve deeper into the field. I applied to Mubasher and Amr Elalfy took the risk of hiring me and I’ve worked as an analyst ever since. I joined Shuaa Capital afterwards and then moved to Prime Securities where I am now.

I now cover industrials in Egypt, but I started off covering banking and NBFS. I think banking is one of the best sectors for a beginner as it’s very stable and depends on economics more than anything. When I went into industrials I was a little shaky at first, but getting out of my comfort zone proved advantageous and I’ve learned a lot through the process.

The best part of my job is that it doesn’t have a textbook. Every day is different and you have to constantly adapt to new events or circumstances. In my case that involves reading a ton to always stay up to date. I’d say my day is divided into 40% reading, 30% writing, and the rest is miscellaneous [laughs].

The worst part of the job is that you can be proved wrong at any point. You can try to forecast the future, but sometimes one small variable can defy expectations or an unexpected variable can take the world by storm … such as the pandemic. I still get frustrated sometimes but I tell myself that it’s a learning curve and no one can be expected to get everything right.

WFH was challenging for me as it blurred the lines between my job and personal life. I found myself working 24/7 at one point because there wasn’t that physical barrier to let me know I was done with my job for the day. I’m also a person who takes time to wake up fully, so when I was going from my bed to the laptop right away it just wasn’t productive. We’re now working on a rotational system which is a big improvement, but personally I would opt for the in-office work every day.

My theory of investment is to ensure you’re an insider in whatever investment you choose. You really need to know the ins and outs, the industry trajectory, and the country forecasts for every stock you choose. When you can speak confidently about the investment and explain your reasoning behind it well, only then should you put your money where your mouth is.

Commodities are the investment of the season. I think the commodities boom will continue until at least 2022 as they were big beneficiaries from the aftermath of the pandemic. It will take time for supply to reach the level of demand needed for a correction, so there’s still a lot of upside potential in the coming period. Fertilizers in particular are an undiscovered gem.

The most important factors I look at before recommending an investment are the valuation gap and the liquidity of a stock. The valuation gap is essential as it gives you an indication of whether the stock has room to grow, but it also goes hand-in-hand with liquidity to ensure that it will actually be easy to trade hands.

2021 will be the year of recovery, but not the year of Egypt. That time will come when there’s a full recovery from the pandemic and we’re not still suffering from things such as decreased purchasing power. However, we’re currently at a good starting point and I think the next couple of years will propel us forward.

If I had to cover another industry I would go for real estate. It’s something I have little experience with so I’d like to get acquainted with it and understand its dynamics a bit better.

If I had to change jobs altogether, I would go into private equity. In research, analysts say what they think should happen, but in private equity, you get to contribute to the decision-making process which I think is more empowering.

The last great thing I watched is Legion which is based on the Marvel comic. It’s very well-crafted and interesting, and could tempt me to get into the rest of the Marvel cinematic universe.

The last great thing I read is the written play El Kherog Men El Gana by Tawfiq Al Hakim. I’ve been a fan of his since childhood so reading the play was quite nostalgic for me. It’s hard to keep up the habit of reading alongside work, but I try and get through one book every month.

In my downtime I like to play chess. I’ve had that hobby before the Queen’s Gambit trend [laughs]. But that doesn’t take away from the fact that it was a really good show. I’m a bit of an overthinker so chess helps me release the excess thinking in something abstract … it’s quite therapeutic in that sense. Other than that I watch football. I’m a big fan of Al Ahly and AC Milan.

CALENDAR

12 August (Thursday): National holiday in observance of the Islamic New Year.

26-28 August (Thursday-Saturday): Jackson Hole Economic Symposium.

September: Delegation of Russian companies to visit Russian Industrial Zone.

1-3 September (Wednesday-Friday): Digi Sign Africa, Cairo International Convention Centre, Cairo, Egypt.

2 September (Thursday): The new EGX mechanism for calculating closing share prices will come into effect.

3-5 September (Friday-Sunday): The World Karate Federation will hold the third competition of the 2021 Karate 1-Premier League in Cairo.

5-7 September (Sunday-Tuesday): The Arab Security Conference, The Nile Ritz-Carlton, Cairo, Egypt.

7-8 September (Tuesday-Wednesday): Euromoney Conferences will host the GlobalCapital Sustainable and Responsible Capital Markets Forum 2021, featuring Vice Minister of Finance Minister Ahmed Kouchouk.

7-9 September (Tuesday-Thursday): Egy Health Expo, Al Manara International Conference, Cairo, Egypt.

9 September (Thursday): DevOpsDays Cairo 2021 is being organized by ITIDA and the Software Engineering Competence Center in cooperation with DXC Technology, IBM Egypt and Orange Labs.

12-15 September (Sunday-Wednesday): Sahara Expo: the 33rd International Agricultural Exhibition for Africa and the Middle East.

15 September (Wednesday): The CFO Leadership & Strategy Summit is taking place in Egypt.

16 September (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

21-22 September (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

22-25 September (Wednesday-Saturday): Cityscape Egypt, Egypt International Exhibition Center, Cairo, Egypt.

30 September-2 October (Thursday-Saturday): Egypt Projects 2021 expo, Egypt International Exhibition Center, Cairo, Egypt.

30 September-8 October (Thursday-Friday): The Cairo International Fair, Cairo International Conference Center, Cairo, Egypt.

30 September: Closing of 2021’s first oil and gas tender in the Gulf of Suez, Western Desert, and the Mediterranean.

October: New legislative session begins.

1 October (Friday): Businesses importing goods at seaports will need to file shipping documents and cargo data digitally to the Advance Cargo Information (ACI) system.

1 October (Friday): Expo 2020 Dubai opens.

1 October (Friday): State-owned companies and government service bodies selling goods and services to customers that have not yet signed on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

6 October (Wednesday): Armed Forces Day.

7 October (Thursday): National holiday in observance of Armed Forces Day.

11-17 October (Monday-Sunday): IMF + World Bank Annual Meetings.

12-14 October (Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

18 October (Monday): Prophet’s Birthday.

21 October (Thursday): National holiday in observance of the Prophet’s Birthday.

24-28 October (Sunday-Thursday) Cairo Water Week, Cairo, Egypt.

27-28 October (Wednesday-Thursday) Intelligent Cities Exhibition & Conference, Royal Maxim Palace Kempinski, Cairo, Egypt.

28 October (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

30 October – 4 November (Saturday-Thursday): The first edition of Race The Legends, Egypt.

31 October – 12 November (Sunday-Friday): The 26th UN Climate Change Conference, Glasgow, UK.

November: The French-Egyptian Business Forum is set to take place in the Suez Canal Economic Zone.

November: Egypt will host another round of talks to reach a potential Egyptian-Eurasian trade agreement, which can significantly contribute to increasing the volume of Egyptian exports to the Russia-led bloc that includes Armenia, Belarus, Kazakhstan and Kyrgyzstan.

1-3 November (Monday-Wednesday): Egypt Energy exhibition on power and renewable energy, Egypt International Exhibition Center, Cairo, Egypt.

2-3 November (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

1-12 November (Monday-Friday): 2021 United Nations Climate Change Conference (COP26), Glasgow, United Kingdom.

29 November-2 December (Monday-Thursday): Egypt Defense Expo.

7-8 December (Tuesday-Wednesday): North Africa Trade Finance Summit.

12-14 December (Sunday-Tuesday): Food Africa Cairo trade exhibition, Egypt International Exhibition Center, Cairo, Egypt.

13-17 December: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

14-19 December (Tuesday-Sunday): The Cairo International Festival for Experimental Theater.

14-15 December (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

16 December (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

14-16 February 2022 (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo, Egypt.

1H2022: The World Economic Forum annual meeting, location TBD.

May 2022: Investment in Logistics Conference, Cairo, Egypt.

27 June-3 July 2022 (Monday-Sunday): World University Squash Championships, New Giza.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish below between the actual holiday and its observance.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

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