A number of capital market experts agreed that small and medium IT companies face obstacles in entering the Nile Stock Exchange (NILEX) because they do not possess physical assets to determine the fair value of the stock price as the majority of their business is based on memorandums of understanding rather than final contracts.
However, some experts emphasised the effective role that NILEX could play to support the growth of these companies, believing the exchange can experience growth in the coming period.
Chairman and CEO of Eagle Financial Consultancy Yasser Emara said the launch of NILEX in 2010 was intended to provide a market for small and medium sized companies in the IT and telecommunications sectors, following the example of NASDAQ Stock Market. A protocol of cooperation was signed with the Information Technology Industry Development Agency (ITIDA) to encourage companies to register at the stock exchange.
Under the cooperation protocol, ITIDA bears 80% of the registration fees and consultation works for telecommunications and IT companies that attempt to register at the stock exchange.
Several IT companies attempted to register at NILEX when it was first conceived, according to Emara. However, companies faced difficulties during the evaluation process as the Egyptian Financial Supervisory Authority (EFSA) does not have a metric to evaluate subsystems of integrated IT systems in determining share value.
Emara gave the example of ITC Energy who registration was halted after a disagreement between the company and theEFSA regarding the value of the company’s shares.
The majority of these companies do not offer an integrated services but rather provide parts of work at the subsystem of larger IT integrated systems. These companies also have small capital reserves.
There are currently four companies operating at the telecommunications and IT sectors registered at NILEX. Express Integration is also currently taking steps towards offering its shares.
Emara called for special criteria for the evaluation and registration of IT companies, as well as the need to allocate a part of the portfolios of specialised IT investment funds for investment in NILEX.
He suggested that small and medium IT companies form unified entities through acquisition or alliance so that disparate services carried out by several companies will be brought under the title of a single company. This would allow regulatory agencies to more accurately examine a company’s assets, integrated services, and financial portfolios, and thus guarantee a fair price for the shares.
An official at the ITIDA attributed the delay in ITC Energy’s registration to the fact that the majority of the company’s business is based on memorandums of understanding (MoUs) with its customers and not final contracts. The EFSA does not recognise MoUs in the evaluation of the value of shares.
Ahmed Hamdi, Head of the Grand Investment for Trading, said the capital market in general has been suffering from fluctuations due to a number of external and internal challenges, besides instability in global stock markets and the collapse of oil prices.
Regarding NILEX, Hamdi said there were IT companies preparing to offer their shares but they had retreated in the last stage because of the instability of financial markets at the local and global levels.
The Egyptian capital market has recently appreciated, which gives the impression of stability in investment and encourages the return of the companies to the market.
NILEX has the opportunity to grow strongly over the upcoming period specially since there is a state tendency to support small and medium-sized enterprises (SMEs), according to Hamdi.
According to Hamdi, 80% of the shares of listed companies are undervalued because they are affected by domestic and foreign events.