EFG Hermes stock major trend still up despite current correction: report

Daily News Egypt
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The new headquarters of the Egypt-based investment bank EFG-Hermes is seen on the outskirts of Cairo October 19, 2010. REUTERS/Asmaa Waguih (EGYPT - Tags: BUSINESS)

A recent technical report issued by Markets Chimp said that EFG Hermes’ current stock price could still have an uptrend despite current correction in its share price.

“The weekly chart of EFG Hermes Holding reveals that even though the stock is in a severe correction or retracement phase since the beginning of the current year, the long or major trend is still up,” the research firm said in a note.

“The recent correction move from EGP 29.00 to EGP 20.00 considers just a 38.2% Fibonacci Retracement of the 2016 parabolic up-trend (not shown on the chart)! Historically speaking, this is a healthy, natural, and needed correction phase that must precede any spectacular major uptrend,” it added.

In September, the investment bank announced the opening of new headquarters in New York under the name EFG Hermes USA Inc.

The Egyptian financial services firm received the necessary licenses to conduct its business operations in the US as of 1 September, the company said in a filing to the Egyptian Exchange (EGX).

The report added that during most of 2017, the price movement has been confined between two medium-term falling trendlines. However, the bears were not able to force stock down decisively below the two major horizontal support levels (20.00 and 17.00 points).

“Moreover, the trading activity dried up noticeably during this secondary correction phase. This confirms our first conclusion that the stock is just experiencing a natural medium-term secondary correction phase that is materialising in the context of an intact major bull market,” it added.

Last month, EFG Hermes Investment Banking Co-Head Mostafa Gad revealed that the group had completed 10 investment deals exceeding $870m in value since the start of 2017.

“The daily chart shows that the stock might be building a medium-term base. A decisive breakout over the key resistance level at 22.50 would force the stock up to the first target at 27.50,” the report concluded.

Meanwhile, a separate research note issued by Pharos Research has maintained the same target fair value (FV) for Eastern Company at EGP 390 per share, with an equal weight recommendation.

Eastern Co’s gross profit margin rose 1% quarter-over-quarter (q-o-q) and 10% year-over-year ( y-o-y) to reach 39% in the first quarter of fiscal year (FY) 2017/2018, beating Pharos estimates of 25%.

The tobacco company reported an 18% q-o-q and 66% y-o-y surge in revenues in the first quarter (Q1) of FY 2017/18 to EGP 3.2bn.

The cost of goods sold (COGS) stood at EGP 1.9bn in Q1 of FY 2017/18, with an increase of 17% q-o-q and 44% y-o-y.

Net profit after tax amounted to EGP 1.04bn from EGP 435m in Q4 of FY 2016/17.

“Results show that the company is still benefiting from low-cost dollar inventory,” Pharos added.

Although Eastern Co has not revealed full details, Pharos claims that the company’s bottom-line growth was driven by a “one-off reversal of provisions.”

Meanwhile, Mubasher Trade has maintained its sell/moderate risk rating for the Commercial International Bank Egypt (CIB), with a price target (PT) of EGP 76 per share, according to a recent report.

The CIB posted a 25% y-o-y surge in consolidated net profit to reach EGP 7.52bn in 2017, which came in line with Mubasher Trade estimations (MTRe) of EGP 7.59bn.

The research firm attributed the growth in earnings to a 24.8% y-o-y rise in net interest income (NII) at EGP 12.5bn, coupled with an 83.4% y-o-y hike in non-interest income to EGP 2.38bn.

The bank’s net loans rose by 3.6% y-o-y to EGP 88.4bn in December 2017, while customer deposits increased by 8.2% y-o-y to EGP 250.7bn, the report said.

Meanwhile, the bank’s net loans-to-deposits (L/D) ratio fell to 35.3% from 36.8% in December 2016, which is attributable to the current high-interest rates, which led to a slowdown in demand for credit, the report highlighted.

“We believe that lending to corporate and retail clients should increase over the coming period with the expected easing by the Central Bank of Egypt,” Mubasher Trade noted.

The CIB’s capital adequacy ratio (CAR) increased to 19.3% in December 2017 from 13.97% in December 2016, which is “comfortably above the minimum CAR required by the CBE of 11.25%.”

“This increase in CAR can be attributed to the fact that the CIB has already taken steps to support its capital base by securing subordinated loans totaling $200m from the European Bank for Reconstruction & Development and International Finance Corporation,” the report continued.

The research firm forecast that this move will bolster the CIB’s plan for expansion in Africa, which should be very positive given the current low L/D ratio of nearly 50% in Egypt, compared to nearly 80-90% in the GCC, according to the report.

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