EUR 69.26 For Business Accounts Only

IB pick-up a precursor to rerating; Maintain OW

Remains a top play on potential liquidity improvement. Our updated TP for EFG of EGP25.2/share, down 3% from our previous valuation, reflects: i) our valuation roll-over to 2020e, ii) our lower CoE assumptions, in line with the ongoing monetary easing, and iii) the higher value creation from NBFS. This is more than offset by the EGP appreciation and our lower valuation of Credit Libanais (CL). We anticipate higher transmission of monetary easing, on the release of excess liquidity parked at the CBE, which our in-house macro view estimates could reach EGP220-250bn in 2020e, along with higher liquidity from the retail segment on lower CD rates and further rate cuts (expect 2.5% of rate cuts in 2020, implying collective cuts of 9% since 2018 onset), a precursor to Egypt’s ECM recovery.

Egypt brokerage and IB main catalysts. We expect the EGX’s total turnover to grow by 38% y-o-y in 2020, then expand at a 2021-24e CAGR of 26%. We believe the rerating of EFG’s stock hinges on the pick-up of the Egyptian market (c41% of EFG’s total IBP revenues in 2019e), primarily brokerage activity, which would be coupled with the expected release of liquidity in 2020e. This would reflect positively on the retail segment’s EGX transactions (60% of total), incentivising institutional investors and releasing the pent-up IB pipeline, coinciding with the planned state IPOs.

High-margin NBFS continue to support growth. Operations’ contribution to the firm’s bottom line grew to 34% of net income in 9M19 vs. 31% in 2018, levelling out EFG’s earnings trajectory. We expect revenues and net profit of EFG’s NBFS, which contribute 33% to our valuation, to grow at 2020-24e CAGR of 12% and 18%, respectively. We forecast microfinance loans and leasing contracts value to grow at a 2020-24e CAGR of 20% and 14%, respectively. The increasing competition, along with potentially stricter regulations, pose downside risks to our valuation.

Incorporate sustainable dividend payout; Possible CL impairment factored in. We expect EFG’s dividend payout to average c22% over our forecast horizon, implying an average yield of c1.5%, following the materialisation of its revenue diversification plan. This is equivalent to Tanmeyah’s payout to the holding company, which we estimate at a run rate of 60%. Our revised valuation of EFG’s 8.8% CL stake implies a prospect impairment loss/provision expense of cEGP0.5bn. This compares to EFG’s exposure of EGP1.1bn.