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Securities & Investment

Month: August 2025

HC still see room for the CBE to cut the policy rates by 200 bps

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to cut the policy rates by 200 bps at its upcoming August 28, 2025 meeting.

Financials analyst and economist at HC, Heba Monir commented: “We see Egypt’s external position stabilizing as per the following indicators: (1) the c5% EGP appreciation y-t-d to EGP48.6/USD (2) Egypt’s 1-year CDS retreating to 267 bps from 379 bps at the beginning of the year, (3) Egypt’s worker remittances increasing c13% m-o-m and c17% y-t-d in May to USD3.4bn, reflecting confidence in the FX liquidity in Egypt, (4) Net International Reserves (NIR) inching up c1% m-o-m and c4% y-t-d to USD49.0bn in July, and (5) Egyptian banks’ net foreign assets (NFA) position widening by c2% m-o-m and c72% y-t-d to USD14.9bn in June. On the flip side, (a) deposits not included in official reserves decreased by USD1.72bn m-o-m to USD8.70bn in July from USD10.420bn in the previous month, which we attributed to the government paying USD1bn of its liabilities to foreign oil companies operating in Egypt in July and the higher energy import bill for power generation, (b) the BOP recorded an overall deficit of USD1.37bn in 3Q24/25, reversing a surplus of USD489m in 2Q24/25, due to the reversal of the financial accout into a net outflow of USD256m from a net inflows of USD4.14bn in 2Q24/25, which was mostly related to other external dues repayments. Domestically, the PMI index increased to 49.5 in July from 48.8 in June, still below the 50.0 mark, due to signs of recovery in demand, particularly in the services sector. Regarding the energy prices, the government decided to postpone increases in the electricity and natural gas prices. For the electricity prices, the government decided to postpone hikes until October, after it was initially scheduled to take place at the beginning of FY25/26, due to the current economic conditions and the high consumption bills during the summer. As for natural gas prices, the government postponed increasing the price for the industrial sector by USD1/mmbtu, instead of applying it in August, as the fertiliser companies requested the government to increase local subsidised fertiliser prices if it increases natural gas prices. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 26.08% implies a positive yield of 6.66% using our 12M inflation estimate of 15.5% (after deducting a 15% tax rate for European and US investors), which also aligns with our estimates, suggesting that Egypt’s Carry Trade remains attractive. Despite the anticipated hike in energy prices, we still see room for the MPC to cut the policy rates by 200 bps mainly due to (1) the recent inflation deccelration for two consecutive months, (2) the need to stimuilate economic growth and ease the burden on the private sector, (3) the relative stability in Egypt’s external position, (4) the deflationary effect of the recent EGP appreciation, and (5) the still attractive carry trade despite the interest rate cut expectation.”

It is worth mentioning that, at its 10 July meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates at 24.0% and 25.0%, respectively, after it had cut policy rates by 325 bps in 1H25 of a total 1,900 bps rate hikes since the CBE started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 13.9% in July from 14.9% in June, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices inched down 0.5% m-o-m compared to a 0.1% m-o-m decrease in June. On the global front, on 30 July, the U.S. Federal Reserve maintained the target range for the federal funds rate at 4.25-4.50%, leaving the total cuts at 100 bps after it hiked rates by 525 bps since it started tightening policy in 2022, and on 24 July the European Central Bank (ECB) maintained the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility at 2.00%, 2.15% and 2.40%, respectively, bringing total cuts to 200 bps, since it started cutting rates in June 2024 after it hiked rates by 450 bps since it started its tightening policy in 2022.

About HC Securities & Investment

HC Securities & Investment is a leading investment bank in Egypt and the MENA region. Since its inception in 1996, HC has utilized its relationship-driven insights, local and regional market knowledge, and industry-specific expertise and strong execution capabilities to provide its clients with a wide range of services in investment banking, asset management, securities brokerage, research, custody and online trading through its offices in Egypt and the UAE (DIFC). HC Investment Banking has an outstanding track record of advising leading corporates in Egypt and the MENA region on M&A, capital market, and financing transactions in excess of USD6.6bn. HC Asset Management now manages 7 mutual funds for commercial banks and portfolios for institutions and sovereign wealth funds with assets under management in excess of EGP4bn. HC Brokerage is ranked among the top brokers in Egypt and provides a wide array of services, including research and online trading to institutional and retail clients.

HC: Eastern Company, rebuilds momentum

Posted on by Marwa Nakhla

  • Higher selling prices, volume recovery, and replenished inventory should enhance EAST’s operations over FY25/26–29/30e 

  • The ERP and investment income from UTC should also preserve EAST’s profitability and support cash dividend distribution                                                              

In a recent report, HC Brokerage presented their vision about Egypt’s consumers sector through an updated evaluation of Eastern Company where they expect the company’s profitability to be preserved.  

Pakinam El-Etriby, Consumers Analyst at HC commented that: “FX availability, tax brackets adjustment, and price hikes improved EAST fundamentals, in our view: After a challenging 2023 and part of 2024, EAST witnessed several positive developments. In 4Q22/23 and FY23/24, its local cigarette volumes significantly declined, primarily due to USD shortages and a hike in raw tobacco prices. At that time, Egypt experienced an FX crunch, which limited EAST’s ability to import raw tobacco. As a result, its volumes dropped by c46% y-o-y to 8,660m cigarettes in 4Q22/23 and c26% y-o-y to 43,158m cigarettes in FY23/24, from an average quarterly level of 16,306m cigarettes and yearly level of 64,919m cigarettes in the previous three years. However, by 4Q23/24, volumes began to recover following the 6 March EGP devaluation and the USD35bn Ras El Hekma deal, which improved USD liquidity at banks and raw materials importation. Volumes increased by c28% y-o-y in 4Q23/24, c70% y-o-y in 1Q24/25, and c33% y-o-y in 2Q24/25, yet declined by c19% q-o-q in 3Q24/25 due to Ramadan seasonality in March. On the pricing front, EAST increased its selling prices in November 2024 by c12%; however, not enough to restore its margins. And on 29 June, the government allowed an exceptional measure by increasing the retail price ceiling of the first tax bracket by c23% to EGP48.0/pack, allowing EAST to increase its retail prices on 18 July by c14%, and paving the way for it to revert to its higher pre-FX crunch margins. The government also approved increasing the local cigarette flat tax by only EGP0.50/pack, which is also positive given that the new flat tax of EGP5.00/pack represents 10.4% of the retail price of EGP48.0/pack, compared to the previous EGP4.50/pack flat tax, representing 11.6% of the retail price of EGP38.9/pack. EAST also increased its inventory coverage to 11.3 months in 3Q24/25 from 7.1 months in 2Q24/25 and 2.5 months in 1Q24/25, to mitigate inflationary pressures. The company sold its Factory Nine to United Tobacco Company (UTC) in July 2024 for EGP1.58bn, and hence it ceased to recognize leasing income from it starting 2Q24/25.

 

“We forecast EAST net income to grow at an FY26/27—29/30e CAGR of c14%, supporting future cash dividend distribution: In FY25/26e, we expect revenue to grow by c49% y-o-y to EGP58.7bn (c32% above our prior estimate), largely attributed to c33% y-o-y increase in local ex-factory prices to EGP17.1/pack (versus our previous estimate of EGP11.4/pack) while volumes increasing by c12% y-o-y to 64,831m cigarettes (slightly below our earlier estimate of 68,416m cigarettes). We assume a further c12% increase in the tax bracket in 2Q25/26e to EGP53.8/pack from EGP48.0/pack, assuming a retail price of EGP50.0/pack (ex-factory price of EGP18.7/pack) by 4Q25/26e. Over our FY26/27—29/30e forecast period, we expect revenue to grow at a CAGR of c10%, underpinned by volume and price growth of c2% and c8%, respectively, as volumes normalize and price increase momentum continues. We estimate FY25/26e GPM to expand by c9 pp y-o-y to c39%, supported by higher prices and ERP-related cost efficiencies, and average c44% over our FY26/27—29/30e forecast period. We forecast EBIT margin to increase by c10 pp y-o-y to c37% in FY25/26e, and average c42% over our FY26/27—29/30e forecast period. We anticipate EAST to record provisions of EGP2.43bn in FY24/25e for its early retirement program (ERP), assuming 2,000 employees opt in, resulting in annual savings of EGP529m, on our numbers, and expect it to stop provisioning for it post FY24/25e. As a result of the margins expansion, cost reduction, and hefty investment income from UTC, especially after it increased its selling prices in July, we expect EAST’s EPS to grow at a FY26/27—29/30e CAGR of c14%, supporting future cash dividend distribution. While EAST had consistently maintained a net cash position, it turned into a net debt position of EGP2.31bn as of 3Q24/25, parallel to its strategy to build up inventory to hedge inflationary pressures. However, assuming a drop in the cash conversion cycle (CCC) to nine months in 4Q24/25e from around 15 months in 3Q24/25, we expect EAST to start reverting to a net cash position of EGP8.10bn as of 4Q24/25e and remain in a net cash position until the end of our forecast period.” Pakinam concluded.

 

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

For further information, please contact:

Research@hc-si.com

 

HC: Palm Hills Development, Positioned for expansion

Posted on by Marwa Nakhla

  • New business ventures and regional expansions, including Abu Dhabi, to add value to the company and serve as catalysts

  • We forecast EGP423bn in collections over 2Q25–2032e as we expect PHDC to capitalize on its EGP679bn sales inventory

HC Brokerage issued their update about Egypt’s real estate sector through shedding the light on Palm Hills Development performance focusing on the company’s strategic decisions.

Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “Strategic business decisions justify a more positive view: PHDC’s expansions extended beyond the Egyptian real estate market with a new focus on the GCC, including the newly announced Abu Dhabi project, along with potential expansions in Saudi Arabia’s real estate, commercial, and educational sectors and Egypt’s educational and hospitality sectors. These new opportunities offer value and act as stock price catalysts, in our view, as the company joins other Egyptian real estate developers in capturing a share of a lucrative GCC market. Additionally, PHDC’s Egyptian real estate business grew significantly with its launch of Hacienda Heneish and Hacienda Waters on the North Coast in 2024, and a management agreement for Jirian on the Nile Delta extension in 2025. Of the company’s EGP151bn of FY24 sales, c63% were generated from the North Coast (EGP95.1bn), with some EGP82.4bn of inventory remaining in the two projects, on our numbers. The success builds on increased demand for the North Coast following the Ras El Hekma investment deal announced in February 2024 and strengthens PHDC’s position as a major North Coast developer. PHDC expanded its hospitality exposure in 2024 to 1,262 rooms by adding around 200 rooms through an agreement with Marriott International to launch the 150-room Ritz Carlton Residences Hotel in West Cairo and increasing its stake in Maccor Hotels to c70% and targets adding 4,000 new rooms over the coming five years. Also, PHDC increased its exposure to Egypt’s education sector with the acquisition of c33% of Taaleem Management Services (TALM EY), diversifying its revenue stream and increasing its recurring income businesses. The company’s announcement to develop a 1.87m sqm plot in Abu Dhabi with Wave Seven triggers a rerating in our view, due to the project’s location, expected selling price, exposure to a USD-pegged currency, and low tax rate. The project directly faces the iconic Saadiyat Island near Yas Island and Al Reem Island and will be executed through PHD North Jubail Property Development Company, a fully owned subsidiary of Palm Hills Developments. Additionally, PHDC’s announced partnership with Saudi Dallah Al-Baraka Holding Company (DBHC) includes establishing a company with a 60%/40% ownership structure to develop several integrated mixed-use urban projects in different regions of the Kingdom is a major step. PHDC also plans to invest around USD300m in Saudi education developments in 2025 with local partners, USD300m in residential and commercial projects, and is working with a local joint venture (JV) to open 15 schools in cities including Riyadh and Jeddah, its CEO said.

“Despite lower affordability in Egypt, we still expect a decent sector performance on North Coast sales, price increases, relaxed payment terms, and regional expansion: We believe developer sales in 2025e will be driven by North Coast sales, and relaxed payment terms, while ventures into the hospitality segment, along with GCC expansions, should bode well for Egyptian real estate players. We expect developers to start reaping the benefits of Ras El Hekma as early as this year with Modon Holding’s announcement of launching the first 12,000-feddan phase of the mega-project. We see little concern of construction cost overruns during the short-medium term, provided limited currency shocks, coupled with significant price increases. A declining interest rate environment should improve real demand and open new opportunities for developers, especially those with ambitious recurring income projects that are capital-intensive. Interest savings should also boost profitability to highly leveraged developers. We expect 2025e deliveries to be somewhat impacted by higher construction costs but remain at healthy levels.” Mariam El Saadany added.

The real estate analyst concluded: “We expect strong real estate cash collections of EGP588bn over our 2Q25–38e forecast horizon: We estimate EGP588bn in collections over 2Q25–38e, including collections from existing receivables, new sales in the launched projects in the North Coast, Alexandria, and Eastern and Western Cairo, capturing sales from Badya, P/X, Hacienda Heneish, Hacienda Waters, Hacienda Blue, PHNC, Bamboo III, among other projects. We forecast total sales of EGP679bn over 2Q25–2032e, including EGP506bn from West Cairo, EGP131bn from the North Coast and Alexandria sales, and EGP41.9bn from East Cairo. We estimate EGP552bn of real-estate revenue recognition over 2Q25–2032e, accounting for the outstanding backlog of EGP68.9bn and new sales from launched projects’ phases, and all of Badya. We assume a total real estate cost recognition of EGP310bn over 2Q25–2032e, implying an average future gross profit margin of c44% for the launched projects. We expect interest rate easing to reflect positively on PHDC’s profitability throughout 2025e, as we forecast interest expense to drop to EGP2.09bn in 2025e from EGP2.31bn in 2024e. Management’s guidance is EGP160m in interest savings for every 100 bps rate cut. Given the declining cost of debt, management could seize the opportunity to increase its leverage; however, given the high sales levels we expect going forward, we expect the high collections to be sufficient to finance construction costs. Accordingly, we expect net debt-to-equity to drop to 0.55x in 2025e from 0.75x in 2024. Given the company’s expansion plans, we expect it to withhold dividends going forward. We expect revenue to grow at a 2025-28e CAGR of c7%, EBITDA at c13%, and net income at c23%.”

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311