Sunday, 12 June 2022

PM — First sovereign sukuk issuance is still on hold

TL;DR

🔎 WHAT WE’RE TRACKING TONIGHT

Good afternoon, friends. It’s a relatively calm start to the week (especially if you’re comparing to the past few weeks of unrelenting newsflow) — but we’re not complaining.

THE BIG STORY TODAY

Our first sovereign sukuk issuance is still on hold as global market conditions continue to be unfavorable for the bond sale, Finance Minister Mohamed Maait told reporters today (watch, runtime: 1:51). The issuance was originally expected to go to market before the end of the current fiscal year at the end of June, but markets are currently not ideal, Maait said. “We’re in constant communication with our financial advisors on when would be the best time to go ahead with the sale,” he said. “There are estimates that the volatility could subside in 3-4 months, but nothing is certain right now.”

THE BIG STORY ABROAD

There’s no single story topping headlines in the international business press this afternoon. The Wall Street Journal is leading with the “darkening outlook” on US equities and soaring inflation, while Bloomberg’s top story is that Iran could be the new trade corridor for Russian goods to arrive in India. Meanwhile, Ukraine’s efforts to get its grain shipments out into the world through Poland and Romania are still facing “bottlenecks,” Reuters reports.


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

  • Inflation rose to a three-year high in May at 13.5%, but came in lower than expected and even slowed down on a monthly basis.
  • CIRA could issue Egypt’s first future flow securitized bonds next month: The Financial Regulatory Authority has approved a program that would see EGX-listed private sector education outfit CIRA issue EGP 2 bn of future flow securitized bonds over three years.
  • The Egyptian Belgian Company has new Saudi owners: Saudi food conglomerate Savola has signed an agreement to acquire 100% of the Egyptian Belgian Company.

enterprise

*** It’s Inside Industry day — your weekly briefing of all things industrial in Egypt. Inside Industry focuses each Sunday on what it takes to turn Egypt into a manufacturing and export powerhouse, ranging from initial investment and planning to product distribution, through to land allocation to industrial processes, supply chain management, labor, automation and technology, inputs and exports, regulation and policy.

In today’s issue: Amid a myriad of global and local challenges facing the industrial sector, Enterprise assessed industrial companies’ share performance on the EGX in 1Q 2022 and YTD. What we found is a disappointing stock performance that is at odds with the gains made in their financial statements. This could signal that the pressure on the industrial sector is still to be felt on their top and bottom lines, but investors are taking caution preemptively.

HAPPENING THIS WEEK-

It could be a big week for our gas export ambitions: Hopes will be high this week that Egypt can ink an agreement to increase exports to the EU when EU Commission President Ursula von der Leyen lands in Cairo for talks with President Abdel Fattah El Sisi. According to a draft document seen by Bloomberg earlier this month, the EU is expected to sign an MoU with Egypt and Israel that will see more Israeli gas shipped to Egypt’s LNG facilities where it will be exported across the Mediterranean. The pact could also see the three sides work to curb methane gas emissions, the business information service reported.

The African Export-Import Bank’s (Afreximbank) annual meetings start Wednesday at the new capital’s St. Regis Almasa Hotel. President Abdel Fattah El Sisi, Central Bank of Egypt Governor Tarek Amer, and Afreximbank President Benedict Oramah will give keynote speeches at the event, which will focus primarily on implementing the Africa freetrade agreement that came into force in 2021.

🗓 CIRCLE YOUR CALENDAR-

There’s a handful of conferences coming up:

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

☀️ TOMORROW’S WEATHER- Expect a daytime high of 35°C tomorrow before the mercury falls to 23°C at night, our favorite weather app tells us.

enterprise

🚙 FOR YOUR COMMUTE

Coldplay launched an app that aims to reduce fans’ emissions at their concert: The British band released an app earlier this year that rewards fans for taking low-carbon transportation to concerts during the group’s current world tour, reports Bloomberg. The app allows fans to calculate their estimated carbon emissions based on their mode of transport and are then encouraged to choose a climate-friendly option with the incentive of 10% off Coldplay merchandise. There were 80k downloads of the app during the first leg of the 2022 tour, and the band pledged to cut emissions 50% compared to its 2016-2017 shows.

How accurate is the data from the app? Fans could game the app for the promised markdown, since there isn’t a way to verify that fans actually used the method of travel they stated in the app. There’s also the matter that carbon emissions are calculated differently in different countries where the band is touring. Still, it’s a good and creative initiative: Besides its direct effectiveness, it also raises awareness among the band’s following.


Say hello to solar cars: Dutch startup Lightyear will start rolling out the world's first production-ready solar electric car to customers later this year, the company said in a statement. The USD 263k car, dubbed Lightyear 0, promises customers the chance to “drive for up to two months before you need to think about charging” in the Netherlands, while in sunnier countries like Portugal, it could spend up to seven months without the need to get charged. Lightyear 0, which has a maximum speed of 160km/h, is set to undergo its first test drives in August, in hopes to start reaching drivers in November. Lightyear 0 has fully embraced its clean and environmentally friendly promise, with a vegan interior and recycled and ethically-sourced materials. The company has more affordable models of its solar car in the pipeline, slated to start production in 2024-2025, which will be in the EUR 30k price range, Bloomberg reports.

👌 ENTERPRISE RECOMMENDS

📺 ON THE TUBE TONIGHT-
(all times CLT)

Escape our local football drama with a feel-good sports movie: Hustle. Adam Sandler’s new basketball dramedy is a funny, heartwarming story that delivers a good time, regardless of whether or not you can identify a double-dribble. Sandler plays an NBA scout who discovers a raw talent player in Spain, and goes to great lengths to get him into the top professional basketball league in the world, defying traditional rules and the player’s checkered past. It’s an inspiring underdog story that will have you rooting for the two heroes, while enjoying Sandler's signature sense of humor along the way.

UEFA Nations League: Spain will play against Czech Republic at 8:45 pm, and Switzerland will face Portugal at the same time.

Egypt Cup: Al-Ahly will face Masri Al-Salloum at 9pm in the round of 32, while Port Said’s Al-Masry will face Al-Mansoura at 6:30pm

☕ DRINK THIS TONIGHT-

Good coffee is more than a beverage, it’s an experience, and the Specialty Bun knows it. Nestled in Arkan Plaza’s extension, Specialty Bun’s hand crafted caffeine cups are certain to elevate the quality of your day. Their menu includes coffee in various shapes and forms: Black, white, pour over, hot, iced… you name it. They also offer an exceptional Chai Latte — we savored their hot mug, but as the scorching summer kicks off, the iced glass is probably a better option. Their brewery opens at 7am every day, which is perfect for an early-morning pick-up for fellow early risers.

🎤 OUT AND ABOUT-
(all times CLT)

Two enchanting musical nights kick off tomorrow at the Cairo Opera House with the renowned musician Omar Khairat and his brilliant orchestra. The artists will performing two shows at the open-air Fountain Theater on Monday and Tuesday at 8 pm

💡 UNDER THE LAMPLIGHT-

What happens if the entire Earth goes off grid? Aurora is a dystopian thriller where a solar storm causes most of the world to lose power, and the laws of survival kick in. Written by acclaimed screenwriter David Koepp — whose portfolio includes the first two Jurassic Park films, Mission: Impossible, and Angels and Demons — the novel unfolds through the eyes of a suburban family and a tech b’naire struggling to survive the global power outage. The suspenseful page-turner is also a story of triumph, power, and the hope of survival that plays out in a small, scenic, and charming town. The novel is being turned into a major motion picture by Oscar-winning director Kathryn Bigelow, but we highly recommend you read the powerful story before its film version comes to our screens.

🌊 GO WITH THE FLOW

The EGX30 fell 1.4% at today’s close on turnover of EGP 529 mn (36.6% below the 90-day average). Local investors were net buyers. The index is down 15.5% YTD.

In the green: Heliopolis Housing (+5.5%), Madinet Nasr Housing (+2.9%) and Ezz Steel (+1.1%).

In the red: Eastern Company (-4.0%), Abu Qir Fertilizers (-3.3%) and Egypt Kuwait Holding-EGP (-2.7%).

industry

Global trade disruptions, materials shortages, and inflation drive down industrial stocks: Almost all EGX-listed major industrial companies have seen their stock price fall during the first five months of 2022, reversing previous gains after the worst of the covid-19 pandemic had passed. The downturn in these companies’ stock performances came as the war in Ukraine and ensuing global uncertainty pushed investors to quickly exit equity markets as a whole, but particularly impacted industrial players amid trade disruptions, material shortages, and rising prices and costs. Notably, their share performances diverge from their earnings: With the exception of two outliers, industrial companies had stellar earnings during the first quarter of the year.

For the purposes of our analysis, we focus on the top weighted industry stocks on the EGX30: GB Auto, Oriental Weavers, Alexandria Minerals and Oil Company (AMOC), Sidi Kerir Petrochemicals (Sidpec), Ezz Steel, Elsewedy Electric, and Tenth of Ramadan for Pharma Industries and Diagnostic Reagents (Rameda).

Almost all the companies have underperformed the EGX30 so far this year, falling more than EGX30’s YTD return of -15.5%.

The only ones to buck the trend: AMOC and Sidi Kerir kept a tight grip on their stock price, with AMOC’s stock remaining somewhat flat falling to EGP 3.7 from EGP 3.75 at the beginning of the year while Sidpec actually rose 6.3% YTD to EGP 8.07.

Stock prices are weighed down by the local and global economic environment: Performance has been weak YTD due to the higher cost of equity in Egypt on the back of the two interest rate hikes enacted by the Central Bank of Egypt to offset inflation, explains Arqaam Capital Associate Director Nour El Din Sherif. Annual urban inflation accelerated to 13.5% in May, as rising global commodity prices and the recent EGP devaluation pushed consumer prices upwards for the sixth consecutive month. Investor sentiment has also been dampened by concerns of a slowdown in global growth amid the US Federal Reserve’s monetary tightening, lockdowns in China, and the ongoing geopolitical tensions in Europe, he added.

And a long list of other factors: Industrials have also been pressured by higher commodity prices, higher working capital and freight costs, and receivables that are piling up — all of which are leading to a slowdown in cashflow generation and lower margins, Sherif added. Input cost inflation rose in May at its quickest rate in six months due to rising commodity prices, a strengthening USD, and import restrictions, S&P Global said.

The stock downturn came despite these companies broadly recording strong financial results in 1Q2022:

  • AMOC’s bottom line rose 143% y-o-y in 1Q2022 to EGP 346.5 mn, according to figures from their website. Revenues also jumped 81.5% y-o-y to EGP 5.2 bn.
  • Rameda reported a 138% y-o-y jump in its net income to EGP 71.8 mn, according to its earnings release (pdf). Rameda’s topline rose 27% y-o-y to EGP 343.1 mn.
  • Sidpec reported a 65.4% y-o-y rise in its bottomline to EGP 251.07 mn, according to its financials (pdf). Revenues jumped 61% to EGP 2.11 bn during the quarter.
  • Elsewedy Electric’s net income was up 9% y-o-y to EGP 760.9 mn, according to the company’s latest earnings release (pdf), although the company was hit by shortages in raw materials and cargo ships. Revenues rose 51% y-o-y to EGP 18.6 bn.
  • Ezz Steel’s bottom line rose 2.4% y-o-y to reach EGP 1.22 bn, according to the company’s financials (pdf)a. The metal producer saw its revenues increase 38.1% y-o-y to EGP 18.64 bn.

GB Auto is one of the outliers: GB Auto’s net income slid 23% y-o-y to EGP 229.4 mn, the company said in its latest earnings release (pdf), blaming an EGP 211 mn foreign exchange loss following the EGP devaluation in March. Revenues rose 15% y-o-y during the quarter to EGP 7.8 bn. GB’s earnings slip comes as the automotive sector is being buffeted by a multitude of headwinds, including a lack of financing for imports, rising inflation, component shortages and the EGP devaluation in March.

Ditto Orwe as Cost of goods + slowing US purchasing power didn’t do it any favors: Oriental Weavers’ (Orwe) net income fell 24.2% y-o-y to EGP 260.06 mn, according to its earnings report (pdf). The company’s sales rose 18.2% y-o-y to reach EGP 3.26 bn. The increase in the company’s cost of goods sold (COGS) outpaced its income growth, as raw material costs (including polypropylene, polyester, latex, and nylon) rose more than the company’s “multiple price increases.” ORWE’s exports also did little to offset its losses, as its US-based subsidiary’s USD income dropped on the back of delayed shipments from Egypt and lower sales, “as US consumers are impacted by the general economic downfall.”

As for the rest, what gives? One explanation for the difference between earnings and stock performance is that companies’ earnings may have already peaked before normalizing in 2H2022, Sherif believes. Industrial players have been taking advantage of existing inventories and high selling prices to combat the local and global pressures, but things are expected to take a turn for the worse in the second half of the year, he added. Companies like Elsewedy, which have diversified portfolios, are able to offset any margin pressures on the company, with its wires and cables segment bringing in nearly half of its revenues, Mohamed Saad, vice president of research at Prime Securities, told Enterprise.

Any recovery depends on the global uncertainty dissipating as well as commodity prices normalizing and cashflow generation improving, Sherif said. The cost of investing in equity is likely to remain an issue going forward this year, which will put pressure on industrial names, he added.


Your top industrial development stories for the week:

  • Ezz Steel was named the top steelmaker in the MEA region in 2021 after manufacturing 5.14 mn tons of the metal during the year, according to a press release (pdf).
  • El Sherif Showroom For Housewares will invest EGP 25 mn in the first phase of its new factory in Minya’s Industrial Zone, CEO Sherif Abdel Moneim was quoted as saying by Al Borsa.
  • Japan’s Sumitomo is planning to set up an industrial complex in 10 Ramadan City to produce pigtail cables, with the factory expected to begin operations by the end of 2023.
  • Tariffs were reduced on more than 150 raw materials imports for local manufacturers, with a focus on the automotive industry, in efforts to promote investment, boost exports, and protect local industries.
  • The Trade Ministry has extended anti-dumping duties on Chinese, Ukrainian and Turkish steel imports for another year, with the decision causing an outcry between the real estate and steel sectors.

📆 CALENDAR

OUR CALENDAR APPEARS in two sections:

  • Events with specific dates or months are right here up top
  • Events happening in a quarter or other range of time with no specific date / month appear at the bottom of the calendar.

JUNE

14-15 June (Tuesday-Wednesday): Federal Reserve interest rate meeting.

15-18 June (Wednesday- Saturday): Afreximbank annual meetings, St. Regis Almasa Hotel, new capital, Egypt.

15-18 June (Wednesday-Saturday): St. Petersburg International Economic Forum (SPIEF), St. Petersburg.

16 June (Thursday): EU-Egypt Sustainable Food Value Chain conference, Grand Nile Tower Hotel, Cairo.

16 June (Thursday): End of 2021-2022 academic year for public schools.

21-22 June (Tuesday-Wednesday): Aswan Forum for Sustainable Peace and Development, Cairo.

21-23 June (Tuesday-Thursday): Commonwealth Business Forum, Kigali, Rwanda.

23 June (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

25-27 June (Saturday-Monday): Big 5 Construct, Egypt International Exhibition Center.

26 June (Sunday): The deadline for private companies to pre-register ahead of bidding for the second phase of the PPP national project to establish and operate 1k language schools.

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

30 June (Thursday): June 30 Revolution Day, national holiday.

30 June (Thursday): Deadline for bids for National Democratic Party HQ redevelopment contract.

June: Egypt will launch a unified ticketing system for all means of transport at the Adly Mansour Interchange Station.

June: Egypt and Israel will sign an agreement with the EU to increase LNG exports.

JULY

July: A law governing ins. for seasonal contractors will come into effect.

July: Fuel pricing committee meets to decide quarterly fuel prices.

July: Actis’ expected sale of its majority stake in Lekela to Infinity and Masdar’s Infinity Power.

First week of July: The national dialogue called for by President Abdel Fattah El Sisi kicks off.

1 July (Friday): FY 2022-2023 begins.

1 July (Friday): Official rollout of e-receipt system begins.

8 July (Friday): Arafat Day.

9-13 July (Saturday-Wednesday): Eid Al Adha, national holiday.

21 July (Thursday): European Central Bank monetary policy meeting.

26-27 July (Tuesday-Wednesday): Federal Reserve interest rate meeting.

30 July (Saturday): Islamic New Year.

Late July – 14 August: 2Q2022 earnings season.

AUGUST

August: Work to extend the capacity of the Egypt-Sudan electricity interconnection to 600 MW to be completed.

18 August (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

SEPTEMBER

September: Egypt will display its first naval exhibition with the title Naval Power.

September: Central Bank of Egypt’s Innovation and Financial Technology Center to launch incubator for 25 fintech startups.

6-9 September (Tuesday-Friday): Gate Travel Expo 2022, El Kobba Palace, Cairo.

8 September (Thursday): European Central Bank monetary policy meeting.

18 September (Sunday): Deadline for brokerage firms, asset managers and financial advisors to register with the Egyptian Securities Federation.

20-21 September (Tuesday-Wednesday): Federal Reserve interest rate meeting.

22 September (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

26–27 September (Monday-Tuesday): The Africa Women Innovation and Entrepreneurship Forum (AWIEF) at the Cairo Marriott Hotel.

OCTOBER

October: Fuel pricing committee meets to decide quarterly fuel prices.

1 October (Saturday): Use of Nafeza becomes compulsory for air freight.

6 October (Thursday): Armed Forces Day, national holiday.

8 October (Saturday): Prophet Muhammad’s birthday, national holiday.

10-16 October (Monday-Sunday): World Bank and IMF annual meetings chaired by CBE Governor Tarek Amer, Washington, DC.

18-20 October(Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

27 October (Thursday): European Central Bank monetary policy meeting.

Late October – 14 November: 3Q2022 earnings season.

NOVEMBER

November: Cairo Water Week 2022.

1-2 November (Tuesday-Wednesday): Federal Reserve interest rate meeting.

3 November (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

3-5 November (Thursday-Saturday): Egypt Fashion Week.

4-6 November (Friday-Sunday): The Autotech auto exhibition kicks off at the Cairo International Exhibition and Convention Center.

7-18 November (Monday-Friday): Egypt will host COP27 in Sharm El Sheikh.

21 November-18 December (Monday-Sunday): 2022 Fifa World Cup, Qatar.

13-14 December (Tuesday-Wednesday): Federal Reserve interest rate meeting.

15 December (Thursday): European Central Bank monetary policy meeting.

DECEMBER

22 December (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

JANUARY 2023

January EGX-listed companies and non-bank lenders will submit ESG reports for the first time.

January: Fuel pricing committee meets to decide quarterly fuel prices.

MAY 2023

22-26 May (Monday-Friday): Egypt will host the African Development Bank (AfDB) annual meetings in Sharm El Sheikh.

EVENTS WITH NO SET DATE

2Q2022: The Sovereign Fund of Egypt will invest in two companies in the financial inclusion and non-banking financial services sectors.

End of 2Q2022: The Financial Regulatory Authority’s new Ins. Act should be approved.

End of 2Q2022: Door for bidding for the contract to redevelop the site of the former National Democratic Party HQ to close.

1H2022: Target date for IDH to close its acquisition of 50% of Islamabad Diagnostic Center.

1H2022: e-Finance’s digital healthcare service platform, eHealth, will launch its services.

1H2022: The government will respond to private companies’ bids to build desalination plants.

1H2022: Egypt’s second corporate green bond issuance expected to be announced.

End of 1H2022: Emirati industrial company M Glory Holding and the Military Production Ministry will begin the mass production of dual fuel pickup trucks that can run on natural gas.

2H2022: The inauguration of the Grand Egyptian Museum.

2H2022: IEF-IGU Ministerial Gas Forum, Egypt. Date + location TBA.

2H2022: The government will have vaccinated 70% of the population.

3Q2022: Ayady’s consumer financing arm, The Egyptian Company for Consumer Finance Services, to release its first financing product.

End of 2022: e-Aswaaq’s tourism platform will complete the roll out of its ticketing and online booking portal across Egypt.

2023: Egypt will host the Asian Infrastructure Investment Bank’s Annual Meeting of the Board of Governors in 2023.

**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 above 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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