Egypt sell-side business key driver; Maintain OW
Decent upside, expect ST volatility to continue. We upgrade our TP by 22% to EGP26.1/share, on: i) rolling over our DCF, ii) raising value of the microfinance and leasing by c2.8x to EGP4.70/share (18% of EFG’s valuation), following strong performance over the past 3 quarters, while iii) lowering Egypt’s brokerage income (32% of IB platform revenues) by an average of 16% during 2018-19e, reflecting lower market turnover amid a slower-than-expected pace of monetary easing. The potential cut in interest rates in Egypt (4Q18e) should act as the main trigger for the stock.
Egypt brokerage and IB main catalysts. We expect the EGX’s total turnover to grow by 40% in 2019, before expanding by an average of 20% p.a. in 2020-21e, on the resumption of monetary easing by 4Q18. We forecast EFG’s Egypt brokerage fees to rise by a 2018-21e CAGR of c20%, (60% of total brokerage fees). For the IB division, we estimate fees to grow at a 2018-21e CAGR of 19%, backed by Egypt’s strong pipeline (60% of IBD fees) and expansion plans into frontier markets. We expect the IBD to continue recording the highest RoE within the platform, averaging 42% in 2018-20e.
NBFS offer key support to growth. In line with the growing market for non-banking services, we forecast revenues from micro finance and leasing to grow at a 2018-21e CAGR of 18.9% (c32% of EFG Group’s total revenues), while bottom line to grow at a CAGR of 23.0% over the same period. NPM and RoE are expected to record 22%, and 25%, respectively. Tanmeyah represents 13% of EFG’s valuation, while leasing stands at 5%. Consumer finance and factoring (valued at BVs) could present potential upside for the NBFS platform.
Cash utilisation potential upside; eyes on risks. EFG’s excess cash (EGP6.10/share) caps the group’s total returns, yet present potential to enhance shareholders’ value, if actively utilised (generating RoE >20% via growing merchant banking deals or the NBFS platform). Sustaining income from structured products (EGP29mn in 1H18) could offer upside to our numbers. On the downside, key risks include: i) a delay in Egypt’s monetary easing beyond 4Q18, and ii) escalation of pressures on emerging markets.
EFG Hermes Pakistan Limited, formerly Invest and Finance Securities Limited, is a Pakistan-based investment bank. The Bank offers securities brokerage and research services to institutional and individual clients. It also offers investment banking advisory services to Pakistani corporations and foreign investors.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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