HRHO EY | Up valuation to EGP22.5/share; Maintain OW
Remains among Egypt top picks. We raise our 12M valuation by 12.3% to EGP22.5/share (+50% upside), on incorporating valU (5.7% of TP) and aiBank (12.8% of TP) in our numbers. Higher policy rates in Egypt – up 3% since March – benefit the firm’s credit business, while the EGP weakness is net positive for its capital market operations – >50% FCY-denominated income. M&A transaction on the consumer finance level and/or faster-than-expected RoE expansion for commercial bank are potential upside risks for the stock.
valU: Strong operational and M&A momentum ahead. We expect valU to grow both its net profit and loan book at a 2021-26e CAGR of c55%. This is underpinned by its strong product offering, wide merchant network, and the sector’s relatively low penetration. The valuation of valU implied from the potential acquisition of a stake by Amazon (2022e P/BV of 15x) could act as a potential trigger for EFG. Our valuation for valU implies a 2022e P/BV multiple of 4.4x against sustainable RoE of 26%.
aiBank complements the offering. EFG’s plan to extract value from aiBank should come mainly through restructuring and synergies with other segments. We project the bank to grow its loans at a 2021-26e CAGR of 18% and improve its CTI by 6pp to 37% over the same period. We see aiBank’s RoE reaching 17% by 2026e – broadly in line with Tier-2 peers’ current levels – vs. 9.2% in 2021, on our calculations.
Balanced growth between NBFS and capital markets. For EFG’s NBFS (36% of our valuation, including valU), we forecast total loan portfolio and net profit to grow both at a 2022-26e CAGR of 21%. The tighter interest rate environment should support the platform’s profitability in 2022 – mainly micro and consumer finance business. We look for the IB platform’s (IBP) revenues to expand at a 2022-26e CAGR of 15% to represent an average of 47% of total revenues over our forecast horizon. Capital markets’ volatility, in the short-term, should be mitigated by the high FCY exposure.
EFG-Hermes Holding is bank based in the Arab world. Co. is engaged in investment banking, securities brokerage, asset management, private equity and research. Co. also participates in the establishment of companies which issue securities or in increasing their share capitals, custody activities and margin trading.
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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