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Category: HC News

HC Brokerage awarded the Best Forecaster of Egypt’s Monetary sector in the 2025

Posted on by Marwa Nakhla

HC Brokerage awarded the Best Forecaster of Egypt’s Monetary sector in the 2025 FocusEconomics Analyst Forecast Awards,

  • HC Brokerage’s Research Team has been awarded the Best Forecaster of Egypt’s Monetary sector in the 2025 FocusEconomics Analyst Forecast Awards, where they ranked number one in forecasting Egypt’s interest rate and number three in forecasting inflation.

Forecasters for Egypt included EFG Hermes, HSBC, Goldman Sachs, JP Morgan, Oxford Economics, Standard Chartered, EIU, Capital Economics, Delta Bank, EMFI, Emirate NBD, Euromonitor Intl., Fitch Ratings, Fitch Solutions, National Bank of Greece, National Bank of Kuwait, Allianz, BNP Paribas, Credit Agricole, and Scope Ratings.

FocusEconomics is a leading provider of economic analysis and forecasts for 198 countries in Africa, Asia, Europe, the Middle East, and the Americas, as well as for 30+ key commodities. Each month, FocusEconomics surveys over 1,500 economic experts from national and international banks, top financial institutions, and economic research companies to obtain their projections for the main economic indicators and elaborate the Consensus Forecast, which is the average of all individual forecasts. FocusEconomics has established a solid reputation among the most renowned financial institutions, multinational companies, consulting firms and government agencies as a reliable source for timely and accurate business intelligence.

Hassan Choucri, Managing Director of HC Brokerage, expressed his enduring confidence in the research team and appreciation for their continued excellence for the third year, stating: ‘HC continues to develop its capabilities to provide accurate forecasts for all Egyptian economic indicators, despite the geopolitical complexities the region is witnessing. We are committed to our role as a leading provider of financial research services in the Egyptian market through a wide range of solutions.'”

It is worth mentioning that in 2024 HC Brokerage won the Best Forecaster of Egypt’s Fiscal Balance in the 2024 and in 2023, they won the best overall Forecaster for Egypt where the Research team also secured the top spot in inflation forecasts and ranked third in exchange rate and fiscal balance forecasts.

HC Brokerage is an affiliate of HC Securities & Investment– the full-fledged investment bank has consistently maintained its position as a dynamic participant in the region. The company’s primary objective is to support its partners, clients, and staff in achieving their goals by providing exceptional financial services to local, regional and international investors.

HC expects the CBE to cut interest rates by 150 bps at its upcoming

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 interest rates by 150 bps at its upcoming April 17, 2025 meeting.

Financials analyst and economist at HC, Heba Monir commented: “ Egypt’s external position witnessed a mixed performance with (1) the banking sector’s net foreign asset (NFA) position widening by USD1.48bn m-o-m to USD10.2bn in February from USD8.71bn in January, reversing a net foreign liability (NFL) position of USD22.0bn a year earlier, on narrowing mainly the banking sector’s NFL position (excluding the CBE) by USD1.38bn m-o-m, reflecting lower pressures on foreign currency liquidity, (2) net international reserves (NIR) increasing by USD363m m-o-m in March to USD47.757bn from USD47.394bn in February, mainly due to a c6% m-o-m noticeable increase in gold, and deposits not included in official reserves also increasing by USD398m m-o-m to USD11.065bn in March, and (3) Egypt 1-year CDs hiking to 525 bps in April from 379 bps as of December, negatively impacted by the global economic turmoil from the US tariffs and its implications on foreign portfolio investment outflows, which in its turn impacted Egypt’s FX rate. Foreign investors sold USD1.04bn worth of treasuries in the secondary market since the beginning of this week and as of Tuesday, and the daily interbank volume jumped to USD1.12bn on Sunday from its daily average at USD150-250m, retreating to USD700m on Monday, USD300m on Tuesday and increasing again to USD955m yesterday. Domestically, real GDP grew by 4.30% y-o-y and 0.2% q-o-q in 2Q24/25 from enhanced exports. The PMI index fluctuated, retreating slightly below the 50.0 neutral mark to 49.2 in March, mainly from a weakening in the new orders after it exceeded the 50.0 mark in January and February on an easing in the inflationary pressures with improved consumer spending. Regarding inflation, March’s reading came higher than our estimate of 12.4% and higher than the Reuters consensus median estimate of 12.6%, which we attribute to higher-than-expected food and beverage prices due to seasonality, with Ramadan occurring in March. As for the T-bills auctions, yields are fluctuating, with the latest 12M T-bills auction of 24.95% reflecting a positive yield of 9.42% on the 12M inflation estimate of 11.8% (after deducting a 15% tax rate for European and US investors). The estimated average required rate of return by foreign investors on 12M T-bills is also declining to 28.0% from 29.3% in mid-February, based on our calculations, considering a lower inflation differential and the recent hike in Egypt’s 1-year CDs, close to the average interest rate on 3M T-bills of 28.24%, given the current inverted yield curve, as shown in the chart below (3M T-bills higher than 12M T-bills). From the above, we conclude that the Egyptian economy was able to contain the inflationary pressures (albeit still above the CBE’s targets; however, on a downward trend mainly due to base effect), our carry trade is still attractive, and there is a noticeable improvement in the NFA position of the banking sector, allowing the smooth recent exit of some foreign investors from our treasuries market. Therefore, we expect the MPC to cut interest rates by 150 bps at its upcoming 17 April meeting, mainly to stimulate local economic growth, considering global recessionary fears.”

It is worth mentioning that, in its 20 February meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, for the seventh consecutive times, after it hiked them by 600 bps in March 2024, bringing total rate hikes to 1,900 bps since it started its tightening policy in 2022. Egypt’s annual headline inflation accelerated to 13.6% y-o-y in March from 12.8% y-o-y in February, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.6% m-o-m compared to a 1.4% m-o-m increase in February. On the global front, on 19 March, 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, while the European Central Bank (ECB) lowered the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility by 25 bps on 6 March to 2.50%, 2.65% and 2.90%, respectively, bringing total cuts to 150 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 EGP7bn. 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: Edita Lower WACC and expansion boost valuation

Posted on by Marwa Nakhla

  • We see Edita benefiting in 2026e from improved consumer spending, pent-up demand, and its expansion in Iraq, given the market’s promising dynamics

  • We forecast EBITDA to grow at a CAGR of c23% and EBITDA margin to average c18% over our 2025–29e forecast period, driven by higher prices and volume recovery

In a recent report, HC Brokerage presented their evaluation of Edita Food Industries forecasting Iraq expansion to add value to the company.

Pakinam El-Etriby, Consumers Analyst at HC commented that: “ Revenue growth and margin resilience amid significant challenges: Despite notable commodity price increases due to the disruptions in global supply chains since the start of the Russian-Ukraine war in February 2022 and significant EGP devaluations over the past three years, Edita Food Industries (EFID) was able to preserve its margins relatively. In 2022, it improved its GPM by c2 pp y-o-y to c34% (a c22% y-o-y increase in volume and a c20% y-o-y increase in prices), yet recorded c2 pp y-o-y drop in GPM to c32% in 2023 (a c13% y-o-y increase in volume and a c40% y-o-y increase in prices); however, in 9M24, its GPM further dropped c2 pp y-o-y to c30%, as its volume was almost flat y-o-y (a drop of 0.14% y-o-y) after it increased prices by c36% y-o-y considering the c40% y-o-y rise in cost/pack, due to significant commodity price increases, such as a threefold rise in cocoa powder price to USD24,149/ton. During 3Q24, EFID increased selling prices by c50% y-o-y while its volume dropped c16% y-o-y, and its GPM dropped c2 pp y-o-y to c31%, indicating stretched consumer demand given the inflationary pressures. In 2025, according to data from Bloomberg, cocoa prices are expected to increase by c11% y-o-y to USD9,085/ton. We also expect inflation to remain in double-digits and the EGP to devalue by an average of c14% in 2025e, leading us to expect only a 2.0% y-o-y increase in private consumption in FY24/25e, down from 5.3% y-o-y in FY23/24. Accordingly, we estimate EFID’s volumes to drop by c4% y-o-y in 2025e (similar to an expected c4% y-o-y volume drop in 2024e), price increases to be less aggressive but still remain high at c30% y-o-y (versus an expected c39% y-o-y increase in prices in 2024e), and GPM to expand by c1 pp y-o-y to c31% for 2025e. We believe the company’s volume is supported by trade-down trends of Egyptian consumers, increasing their consumption of local snacks at the expense of imported ones due to inflationary pressures and the EGP devaluation.”

“We upward revise our 2024–28e revenue forecast by c10% and gross profit by c2%, on higher average prices despite higher costs: Over our 2026–29e forecast period, we expect revenue to grow at a CAGR of c18%, driven by higher volumes and prices, growing at a CAGR of c7% and c10%, respectively. For 2024e, we have downward revised our gross profit estimate by c13% to EGP4.92bn (up c25% y-o-y), implying a GPM of c30% (down c2 pp y-o-y), versus our prior estimate of c33%, mainly on higher production costs, especially cocoa which hiked c2x y-o-y in 2024. For 2025e, we expect gross profit to increase c28% y-o-y to EGP6.30bn, still below our previous estimate of EGP7.05bn, with GPM slightly improving by c1 pp y-o-y to c31%, versus our prior estimate of c34%, as we expect average selling prices to increase by c30% y-o-y (offsetting the c28% y-o-y increase in average cost/pack), with a 3.71% y-o-y slight decrease in volumes. In 2026e, we forecast a c11% y-o-y increase in volumes, driven by pent-up demand, easing inflation, and interest rate cuts, then gradually normalizing at a c4% y-o-y growth by the end of our forecast period. Over our 2026–29e forecast period, we foresee gross profit to grow at a CAGR of c19%, with average price per pack growing at a CAGR of c10%, offsetting the rise in cost per pack of c9%, as we expect EFID to pass cost increases onto consumers to preserve its margins. We forecast EBITDA to grow at a 2026–29e CAGR of c20% and net income at c25%. We expect EFID to report a net debt balance of EGP1.33bn in 2024e, EGP1.34bn in 2025e, then decrease to EGP728m in 2026e and turn into a net cash balance starting 2027e, assuming improved operations from its Iraqi subsidiary (valued in USD terms), and a reduction in its cash conversion cycle to 24 days by the end of our forecast period from an average of 45 days in 9M24.” El-Etriby added.

“Iraq expansion to add value to the company, in our view: In January 2025, EFID signed a partnership agreement with Baghdad-based Tuama Jebur Abbas (TJA) to acquire 49% of it for USD8m, through a capital increase. The acquisition includes a factory equipped with three production lines, two for cakes and one for biscuits. Edita Iraq plans to invest more than USD27m over three years, including relocating one bakery line from Egypt to Iraq by the end of 2025, adding a new cake line by early 2026, and carrying out renovations and expansions at the Iraqi factory. The partnership will implement a technical know-how and manufacturing assistance agreement, focusing on maximizing production capacity, efficiency, and control to ensure the transfer of EFID’s expertise and industrial capabilities. Additionally, a trademark agreement will secure the rights to launch EFID’s brand portfolio in Iraq, broadening its product range and market presence. EFID aims to leverage its brand equity through exports, including the Molto and Tiger Tail brands, which generated around USD10.2m in 2023. In our view, the Iraqi market is attractive with a population of around 44m, GPD per capita of USD5,745 in 2024 (higher than Egypt’s USD3,574), and a low-single-digit inflation and stable currency. We expect Edita Iraq to begin contributing to EFID’s total sales in 2025e, assuming around EGP588m in revenue, rising to EGP1.28bn in 2026e, and growing at a CAGR of c34% over our 2027–29e forecast period. We forecast Edita Iraq to record a GPM of c30% in 2025e, increasing to c32.0% in 2026e, and averaging c34% over 2027–29e.” Pakinam El-Etriby 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 Brokerage Signs Cooperation Agreement with Fawry Plus

Posted on by Marwa Nakhla

HC Brokerage Signs Cooperation Agreement with Fawry Plus to Enhance Trading and Investment Services

  • HC Brokerage, one of Egypt’s leading securities brokerage firms, has announced the signing of a cooperation agreement with FawryPlus for Banking Services. The partnership aims to simplify trading in the stock market, in line with HC’s strategy to expand its service offerings and enhance accessibility for clients across Egypt.

Under this agreement, HC clients will be able to open securities brokerage accounts, complete bookkeeping procedures, and sign online trading contracts, among other services, through FawryPlus’ extensive branch network across all governorates. This eliminates the need for clients to visit HC branches or wait for company representatives.

Commenting on this strategic partnership, Hossam Ezz, CEO of FawryPlus stated: “Were delighted to partner with HC Brokerage, as this partnership reaffirms Fawry’s commitment to providing innovative solutions that support the growth of Egypt’s financial market fostering effective partnerships with brokerage firms to attract new segments of investors and integrate them into the formal financial sector.

He added: “FawryPlus places great emphasis on the Financial Inclusion Strategy (2022-2025) issued by the CBE. Our goal is to promote the financial inclusion, expand access to financial services for underserved consumers in rural and remote areas, improve financial literacy, and facilitate access to financial services for both individuals and businesses, ultimately encouraging a shift towards the formal financial sector.

“Hassan Choucri, Managing Director of HC Brokerage, expressed his enthusiasm for the partnership, stating: “This agreement marks a significant milestone in HC’s journey, enhancing our ability to provide more advanced financial and investment services in line with Egypt’s digital transformation and financial inclusion agenda.”

He added: “At HC, we are committed to expanding our reach by leveraging Fawry Plus’s extensive branch network. This enables us to offer innovative solutions tailored to the needs of diverse investor segments, both individual and institutional, while contributing to the development of Egypt’s capital market.”

He further emphasized: “As a leading financial advisor with over 25 years of experience in both local and regional markets, HC continuously adapts to the evolving financial landscape. The recent shift in the Egyptian stock market, where individual investors now account for the majority of trading, underscores the need for more efficient and innovative solutions to support their growth and enhance market performance.”

This collaboration ensures that HC’s diverse and integrated services are now available to all investor segments, including individuals and institutions, without the need for travel between governorates or visits to the company’s headquarters. It reflects HC’s commitment to adopting the latest digital technologies to promote financial inclusion and facilitate broader access to financial services.

FawryPlus is a leading player in promoting financial inclusion, providing accessible banking services such as digital wallet activation, prepaid cards, Know Your Customer (KYC) registration, financial inclusion account openings, and electronic remittance and collection services. Through its extensive network and innovative model, FawryPlus bridges the gap in financial service accessibility, empowering individuals and businesses to manage their financial affairs efficiently.

With over 300 branches across Egypt and operating seven days a week FawryPlus prioritizes reaching remote areas that lack access to financial services, enabling banks to serve their customers beyond official working hours. FawryPlus has also revolutionized the banking sector with its “One Zone, One Bank” model, which offers a centralized banking hub for more than 36 banks, making it easier for individuals and businesses to access various financial and banking services under one roof.

– Ends –

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.

About Fawry for Banking Technology and Electronic Payments

Founded in 2008, Fawry is the largest e-payment platform in Egypt serving the banked and unbanked population. Fawry’s primary services include enabling electronic bill payments, mobile top-ups and provisions for millions of Egyptian users. Other digital services also include e-ticketing, cable TV, and variety of other services. Through its peer-to-peer model, Fawry is enabling corporates and SMEs to accept electronic payments through a number of platforms including websites, mobile phones, and POSs. With a network of 36 member banks, its mobile platform and more than 372 thousand agents, Fawry processes more than 6 million transactions per day, serving an estimated customer base of 53.1 million users monthly. Learn more at www.fawry.com.

HC expects the CBE to keep interest rates unchanged in the upcoming MPC meeting

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in the MPC upcoming meeting scheduled February 18, 2025

 

Financials analyst and economist at HC, Heba Monir commented: “ Egypt’s external position witnessed a minor deterioration with: (1) the 1Q24/25 Balance of Payments (BOP) turning into an overall deficit of USD991m from a surplus of USD229m, (2) the banking sector’s net foreign asset (NFA) position narrowing by c12% m-o-m to USD5.23bn in December, while banks excluding CBE widened their net foreign liability (NFL) position by c10% m-o-m for the fifth consecutive month to USD6.42bn, and (3) Egypt’s external debt increasing by 1.52% q-o-q to USD155bn in 1Q24/25. On the positive side, signs of improvement include: (1) net international reserves (NIR) increasing by USD156m m-o-m in January 2025 to USD47.3bn from USD47.1bn in December 2024, and deposits not included in official reserves increasing by USD222m m-o-m to USD10.17bn in January, (2) Egypt’s 1-year CDS declining to 332 bps in January 2025, from 379 bps in December 2024, and (3) the PMI index surpassing the neutral mark and recording 50.7 in January, indicating improved business conditions for Egypt’s non-petroleum sectors. Regarding inflation, January’s reading came higher than our estimate of 22.8% and higher than the Reuters consensus median of 23.0%. As for the recent T-bills auctions, yields on the shorter maturity, mainly 3M T-bills, started to pick up again slowly, rising by 59 bps y-t-d to 27.5% in the latest auction. Thus, given the tightened external position and the turbulent geopolitical tension and its effect of a potentially delayed recovery of the Suez Canal revenues and the U.S. declaration of potentially displacing Gaza’s residents in several countries, including Egypt, we expect the MPC to leave interest rates unchanged at its upcoming 20 February meeting and delay rate cuts as these factors could pressure Egypt’s foreign currency inflows, considering its external debt dues and energy import bills, creating a need to maintain the attractiveness of the carry trade.”

 

It is worth mentioning that, in its 26 December meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, for the sixth consecutive times, after it hiked them by 600 bps in March 2024, bringing total rate hikes to 1,900 bps since it started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 24.0% y-o-y in January 2025 from 24.1% y-o-y in December 2024, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.5% m-o-m in January compared to a 0.2% m-o-m increase in December. On the global front, on 29 January, 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, while the European Central Bank (ECB) lowered the key ECB interest rates for the deposit facility, the main refinancing operations and the marginal lending facility by 25 bps on 30 January to 2.75%, 2.90% and 3.15%, respectively, bringing total cuts to 125 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 EGP7bn. 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 believes the CBE is keeping interest rates unchanged in the upcoming MPC meeting

Posted on by Marwa Nakhla
  • In light of Egypt’s macro economy developments and the geopolitical conditions, HC Securities & Investment believes the CBE is keeping the interest rates unchanged in the MPC upcoming meeting scheduled December 26, 2024

Financials analyst and economist at HC, Heba Monir commented: “Egypt’s external position remains stable; however, USD liquidity was lower than the previous month, (1) with net international reserves (NIR) increasing by USD10.0m m-o-m in November to USD46.952bn from USD46.942bn in October, the lowest increase since September 2022, which can be due to Egypt’s scheduled commitment to repay USD3bn of green and Islamic financing to Gulf banks and USD1.32bn in matured Eurobonds during November, (2) the banking sector’s net foreign assets (NFA) position narrowing by 10.8% m-o-m to USD9.21bn in October from USD10.3bn in September, reversing a net foreign liability (NFL) position of USD27.2bn a year earlier, and an NFL of USD1.41bn, excluding the CBE, and (3) Egypt’s 1-year CDS dropping to 353 currently, from 857 bps on 1 January. On the economic activity front, the PMI index rose slightly for the second consecutive month to 49.2 in November from 49.0 in October, still below the 50.0 mark, with the report showing that contraction softened from the previous month, attributing this reading to the weak customer demand. For December’s inflation, we expect it to decelerate to 24.1% y-o-y and 0.2% m-o-m, on relatively lower to stable vegetable and fruit prices due to seasonality. Regarding the exchange rate, the EGP has depreciated by c2.5% since the start of December due to a strengthening of the USD against other currencies. The latest 12M T-bill auction yielded a positive real interest rate of 2.9% over the weighted average yield of 26.24%, net of 15.0% tax on US and UK investors and factoring in our inflation estimate one-year from now of 19.4%, with this real yield subject to increase further with the inflation deceleration. From the above, we expect the MPC to leave interest rates unchanged at its upcoming 26 December meeting to keep the carry trade attractive until inflation moderates.”

It is worth mentioning that, in its 21 November meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, for the fifth consecutive times, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy in 2022. Egypt’s annual headline inflation decelerated to 25.5% y-o-y in November from 26.5% y-o-y in October, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 0.5% m-o-m in November compared to a 1.1% m-o-m increase in October. On the global front, on 18 December, the US Federal Reserve cut the federal funds rate by 25 bps to 4.25-4.50%, bringing total cuts to 100 bps after it hiked rates by 525 bps since it started its tightening policy in 2022. Also, the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility by 25 bps on 12 December to 3.15%, 3.40% and 3.00%, respectively, bringing total cuts to 100 bps, since it started cuts in June 2024 after it hiked rates by 250 bps since it started its tightening policy in 2022. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 26 December MPC meeting.

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 EGP7bn. 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: We expect the MPC to leave interest rates unchanged at its upcoming meeting.

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the CBE to leave the interest rates unchanged in its upcoming meeting scheduled November 21, 2024

Financials analyst and economist at HC, Heba Monir commented: “Egypt’s external position remains stable while reflecting improvement, (1) with net international reserves (NIR) increasing by USD205m m-o-m in October to USD46.94bn from USD46.737bn in September, (2) the banking sector net foreign assets (NFA) position increasing by 6.0% m-o-m to USD10.3bn in September, reversing a net foreign liability (NFL) position of USD26.8bn a year earlier, and (3) Egypt’s 1-year CDS dropping to 349 currently, from 857 bps on 1 January. On the economic activity front, the PMI index rose slightly to 49.0 in October, 48.8 in September, recording below the 50.0 neutral, signaling that the non-petroleum sector in Egypt is still not growing. However, the sub-components to the PMI offered a mixed picture, with only the Output and New Orders indices keeping the headline measure below the neutral mark. And although October’s inflation of 26.5% came lower than our expectation of 28.5% despite the government increasing gasoline prices by c11–13%, and diesel prices by c17%, in mid October, we expect inflationary pressures to persist as November is expected to capture the full effect of the energy price increase. We also see Egypt’s carry trade as still attractive given no expected sizable EGP devaluation until year-end and in 2025 and our estimate of positive real interest rate of 2.9% on Egypt’s latest 12-month average T-bill rate of 26.241%, net of 15.0% tax on US and UK investors and factoring in our inflation estimate one year from now of 19.4%. So, given the inflationary pressures and Egypt’s expected external debt repayment in November of around USD4bn based on news flow and its repayment of USD1bn of its dues to foreign oil companies in November, we expect the MPC to leave interest rates unchanged at its upcoming 21 November meeting.”

It is worth mentioning that, in its 17 October meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation inched up to 26.5% y-o-y in October from 26.4% y-o-y in September, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 1.1% m-o-m compared to a 2.1% m-o-m increase in September. On the global front, on 6 November, the US Federal Reserve cut the federal funds rate by 25 bps to 4.50-4.75, bringing total cuts to 75 bps after it hiked rates by 525 bps since it started its tightening policy in 2022. Also, the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility by 25 bps in October to 3.40%, 3.65% and 3.25%, respectively, bringing total cuts to 75 bps, after it hiked rates by 250 bps since it started its tightening policy in 2022. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 21 November MPC meeting.

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 EGP7bn. 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: We expect Juhayna to preserve its market share and margins

Posted on by Marwa Nakhla

Juhayna Food Industries

  • We expect relative inflation easing to improve consumer demand and estimate JUFO’s volume to grow at a 2025–29e CAGR of c5%
  • Capitalizing on its leading dairy local market share, we expect JUFO to preserve its market share, margins, and increase exports. We estimate its 2025-29e EBITDA and EPS to grow at c19% and c24%, respectivel

  • In a recent report, HC Brokerage resumed their coverage of Juhayna Food Industries forecasting JUFO to preserve its market share and margins.

Pakinam El-Etriby, Consumers Analyst at HC commented that: “ JUFO navigating a challenging 2021–24 operating environment: In 2021, JUFO experienced a c3 pp y-o-y decline in gross profit margin (GPM) to c29% from a previous three-year average of c31%, impacted by the 2020 COVID-19 lockdowns, disrupting supply chains and energy and commodity prices. As economies began to reopen in 2021, the supply bottlenecks led to further inflationary pressures. In February 2022, the Russian-Ukrainian war worsened the situation, causing additional global supply chain disruptions, leading to higher commodities prices, with crude oil prices surging c40% y-o-y in 2022 after a c64% y-o-y increase in 2021, corn prices rising c19% in 2022 and c60% y-o-y in 2021, soybean prices increasing c13% y-o-y in 2022 and c44% y-o-y in 2021, sugar prices increasing by c5% y-o-y in 2022 and c39% y-o-y in 2021, and skimmed milk powdered (SMP) increasing c15% in 2022 and c23% y-o-y in 2021.  In 2023, while commodity prices began to normalize – with oil prices dropping by c17% y-o-y, corn c19%, soybean c9%, and SMP c31% – JUFO’s 2023 GPM remained below c30% due to the several EGP devaluation rounds in October 2022 of c19% and January 2023 of c18%, as JUFO imports more than c30% of its COGS, mainly packaging and SMP, and to a lesser extent concentrates. Nevertheless, in 1H24, JUFO’s GPM improved by c10 pp y-o-y to c35%, helped by the March 2024 economic reforms and the Ras El Hekma investment deal, allowing it to source its USD needs from banks at the official rate, c4% y-o-y lower SMP price, and higher exports margin from concentrates. JUFO’s concentrates revenue (c15% of 1H24 total revenue, up from c9% in 1H23) benefited from the global supply shortage of oranges (expected to last for three years) due to climate change and the March 2024 EGP devaluation, increasing its competitiveness and export margins.

“We forecast JUFO’s revenues to grow at a 2025–29e CAGR of c19% on higher volumes and prices: We expect a relative moderation in inflation in 2025 to a yearly average of c23% from c30% in 2024 to help consumer demand recover. We project JUFO’s volumes to grow at a CAGR of c5% and average selling prices at c13% over 2025–29e. In 2024e, we expect revenues to grow by c48% y-o-y to EGP23.9bn, largely due to a threefold y-o-y increase in concentrate exports to EGP3.24bn (c14% of total sales from c6% in 2023), partially hedging JUFO’s FX needs. In 2025e, we expect revenues to rise by c26% y-o-y to EGP30.0bn, mainly driven by a c25% y-o-y increase in blended selling prices to EGP61.7/liter and a c31% y-o-y increase in concentrates revenue to EGP4.70bn. Starting 2026e, we expect interest rate cuts, declining inflation, and salary adjustments to accelerate consumer demand recovery and drive revenue growth, leading us to estimate a 2025-29e revenue CAGR of c19%.” Pakinan added.
“We estimate JUFO’s EBITDA and EPS to grow at a 2025–29e CAGR of c19% and c24%, respectively, on healthy revenue growth and higher export rebates despite higher net interest expense: In the absence of any external shocks, we generally expect the company to pass additional costs onto consumers to preserve its margins. We expect JUFO’s GPM to expand to 32.5% in 2024e from 26.2% in 2023, despite higher transportation costs in 4Q24 due to the c17% increase in diesel price on 18 October. However, in 2025e, we project a slight c1 pp y-o-y decline to 31.4% and to increase slightly to c32% in 2026e. In 2024e, we forecast EBIT margin to expand by c7 pp y-o-y to 19.8% on the GPM expansion and c4x y-o-y higher export rebates to EGP392m, and project EBIT margin to average c19% over our 2025–29e forecast period, with export rebates growing at a 2025–29e CAGR of c17%. Accordingly, we estimate JUFO’s EBITDA to grow at a 2025–29e CAGR of c19%. Despite expected higher net interest expenses in 2024e and 2025e due to JUFO’s higher EGP-denominated debt – reporting a net debt of EGP2.14bn as of June 2024, up from EGP1.21bn as of 30 March 2024 and EGP150m as of December 2023 – we expect net profit margin (NPM) to expand by c5 pp y-o-y to 11.3% in 2024e, and 12.2% in 2025e. However, starting 2026e, we forecast a gradual increase in NPM to 14.0% by 2029e, driven by easing interest rates. We estimate JUFO’s EPS to grow at a 2025–29e CAGR of c24%.” Consumers Analyst 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

 

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HC:  We believe that the MPC will opt to delay the cut until later in 2024

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the geopolitical tensions, HC Securities & Investment expects the MPC to keep the interest rates unchanged in its upcoming meeting scheduled October 17, 2024

Head of Equity Research at HC, Nemat Choucri commented: “Egypt’s external position showed signs of improvement with (1) the 4Q23/24 balance of payments (BoP) surplus widening by c9x y-o-y and c22% q-o-q to USD5.55bn, (2) the banking sector remaining in a net foreign assets (NFA) position of USD9.73bn in August, however narrower by USD3.54bn m-o-m, and reversing a net foreign liability (NFL) position of USD25.9bn a year earlier, (3) net international reserves (NIR) increasing by USD140m m-o-m in September to USD46.737bn from USD46.597bn in August, and (4) Egypt’s 1-year CDS dropping to 407 currently, from 857 bps on 1 January. However, Egypt’s business activity remains subdued due to the high interest rate environment impacting private sector investments. Egypt’s September PMI index dropped below the 50.0 mark to 48.8 after it surpassed it in August, signaling a renewed decline in business conditions across the Egyptian non-oil private sector, as rising price pressures dampened sales and slowed business activity and 4Q23/24 GDP reached 2.4%, translating into a GDP growth of 2.4% for FY23/24, down from 3.8% a year earlier, also impacted by geopolitical tensions. To overcome this, the government plans to announce investment incentives and a tax relief package to encourage private local and foreign investments to drive GDP growth. Regarding inflation, we expect the headline inflation to accelerate by 1.0% m-o-m to 26.5% y-o-y in October due to the electricity price increases to the household, retail, and industrial sectors in September and potentially higher energy prices in October with the government’s committee in charge of the indexation of gasoline and diesel prices scheduled to meet in October to discuss 4Q24 gasoline and diesel prices, and the Egyptian Natural Gas Holding Company (EGAS) considering increasing natural gas prices for the industrial sector by c10–30% depending on each industry, due to higher natural gas import costs. Regarding interest rates, Egypt’s latest 12-month average T-bill rate of 26.238%, offers a real interest rate, of 3.00% (net of 15.0% tax on US and UK investors and using our inflation estimate one year from now of 19.3%), higher than the real interest rate on the US 12-month T-bill of 1.86%, yet lower than the real interest rate on Turkey’s 12-month T-bill rate of 17.4%. So although a rate cut is needed to drive GDP growth, we believe that the MPC will opt to delay the cut until later in the year given the expected higher inflation in October, and hence we expect the MPC to maintain rates at its 17 October meeting.”

It is worth mentioning that, in its 5 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation accelerated to 26.4% y-o-y in September from 26.2% y-o-y in August, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 2.1% m-o-m compared to a similar 2.1% m-o-m increase in August. On the global front, on 19 September, the US Federal Reserve cut the federal funds rate by 50 bps to 4.75-5.00% after it hiked rates by 525 bps since it started its tightening policy in 2022. Also, the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility, by 25 bps in June and 25 bps in September to 3.65%, 3.90%, and 3.52%, respectively.

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 EGP7bn. 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 expects the CBE to maintain the interest rates, waiting for more inflation deceleration

Posted on by Marwa Nakhla

  • In light of Egypt’s macro economy developments and the global conditions, HC Securities & Investment expects the CBE to keep the interest rates unchanged in its upcoming meeting scheduled September 5th, 2024

Financials analyst and economist at HC, Heba Monir commented: “We expect urban inflation to decelerate to 24.9% y-o-y for August on a favorable base effect. However, we anticipate a 1.0% m-o-m increase on the recent energy and transportation cost hikes at the beginning of August. Egypt’s PMI index surpassed the 49.0’s level over the last three consecutive readings, coinciding with the deceleration in inflation. Egypt’s external position showed a stable outlook, as follows: (1) Egypt received USD820m from the IMF, representing the third tranche of its USD8.0bn EFF, (2) the banking sector’s net foreign assets (NFA) narrowed by USD1.27bn m-o-m to USD13.0bn in June from USD14.3bn in May, reversing a net foreign liability (NFL) position of USD27.0bn a year earlier. We attribute the m-o-m lower NFA to probably normalized FX inflows, (3) net international reserves (NIR) increased c33% y-o-y and 0.2% m-o-m to USD46.5bn in July, and deposits not included in the official reserves rose 2.11x y-o-y and 3.0% m-o-m to USD9.86bn in the same month, (4) Egypt’s REER index decreased to 91.9 in July from 126 in January, and the NEER index also retreated to 16.6 from 25.5 in January, according to Bruegel data, (5) Egypt’s 1-year CDS recorded 403 currently, down from its figure of 857 bps on 1 January. On the global front, the US sovereign 12M rate also retreated to 4.40% from its peak at 5.23% on 30 April. Thus, our interest rate model estimated the required interest rate by investors on the 12-month T-bills at 33.1%, which implies a real positive interest rate of 7.1% (after deducting a 15% tax rate for European and US investors and based on our 12M average inflation rate forecast of 21.1%), higher than the estimated positive interest rate of 1.2% over the latest 12M T-bill rate of 26.2%. All these factors pave the way for interest cuts; however, we expect the MPC to maintain rates unchanged at the 5 September meeting, waiting for more inflation deceleration, given recent electricity bill hikes scheduled to take effect in September.”

It is worth mentioning that, in its 18 July meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) maintained the benchmark overnight deposit and lending rates unchanged at 27.25% and 28.25%, respectively, after it hiked them by 600 bps in March, bringing total rate hikes to 1,900 bps since it started its tightening policy, including 300 bps in 2022, 800 bps in 2023 and 800 bps in 2024. Egypt’s annual headline inflation decelerated to 25.7% in July from 27.5% in June, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices inched up 0.4% m-o-m, compared to an increase of 1.6% m-o-m in the previous month. On the global front, the US Federal Reserve maintained the target range for the federal funds rate at 5.25–5.50% after it hiked rates by 100 bps in 2023 and 425 bps in 2022, with a total of 525 bps since it started its tightening policy, while the European Central Bank (ECB) lowered the key ECB interest rates for the main refinancing operations, the marginal lending and deposit facility by 25 bps to 4.25%, 4.50% and 3.75%, respectively after nine months of holding rates steady on an improved inflation outlook. Based on Egypt’s current economic situation, we present below our expectations for the possible outcome of the 5 September MPC meeting

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 EGP7bn. 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.