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Wednesday, 02 December 2020

Covid-19 uncertainty dilutes Egypt's 1Q 2020 private sector rebound: HC Brokerage

Private consumption grew 5.3 percent Y-o-Y in 3Q of FY2019/2020, the highest level since FY2012/2013, according to a HC Brokerage report

Doaa A.Moneim , Wednesday 7 Oct 2020
Monette Doss
head of macro and financials at HC Brokerage, Monette Doss
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Uncertainty over possible future developments of the Covid-19 pandemic has diluted the rebound of the private sector in Egypt in the first quarter of 2020, HC Brokerage said in a report Monday.

Private consumption grew 5.3 percent Y-o-Y in the third quarter of FY2019/2020, the highest level since FY2012/2013, according to the report.

The report also pointed out another significant development during the first nine months in FY2019/2020 when private investment upped by 14.1 percent Y-o-Y, outpacing government investments, which declined by 4.5 percent Y-o-Y.

“Both developments confirm our earlier expectation that the private sector’s contribution to economic growth should gain traction following the materialisation of the easing cycle and the completion of Egypt’s economic reform programme,” head of macro and financials at HC Brokerage, Monette Doss, told Ahram Online.

Since the outbreak of the pandemic, the government made efforts to support the private sector through giving a monthly allowance to daily workers, in addition to decreasing natural gas prices to $4.5/mmbtu for industrial users, down from $5.5/mmbtu previously, reducing electricity prices by EGP 0.1/KWh for medium, high and ultra-high voltage users, fixing electricity tariffs for other industrial users for a period of 3-5 years, and directing financial support to the healthcare and tourism sectors, according to Doss.

For interest rates, the report expected that the Central Bank of Egypt (CBE) will keep them on hold through the end of 2020. The CBE Monetary Policy Committee (MPC) is scheduled to next convene 12 November.

Doss highlighted that despite the decline in state revenues in 2020, non-banking financial services (NBFS) are showing high resilience, with companies seeking profitable investments and synergies with commercial banks. In this regard, the report showed that, at the sector level, new leasing contracts were slashed by 43 percent Y-o-Y in the second quarter of 2020. However, the figure grew 13 percent Y-o-Y in the first half of 2020 to reach EGP 25.7 billion.

HC Brokerage downward revised its 2020-2024 net profit estimates by an average of 16 percent up to 21 percent for Reefy and Tanmeyah respectively, on higher than previously expected provisioning and lower fees and commissions. Despite the economic downturn taking its toll on brokerage, advisory and asset management revenue, the firms under HC coverage sought expansion in the high potential educational sector.

EFG Hermes’ GEMS Egypt for Education Services (a joint venture between GEMS Education and the Egypt Education Fund managed by EFG Hermes) and CI Capital have acquired a 16.5 percent stake in Taaleem Services Management Company, the owner of Nahda University, according to the report.

Both firms are also seeking synergies with commercial banks, as EFG Hermes and the Sovereign Fund of Egypt (SFE) are currently conducting due diligence to acquire 51 percent and 25 percent stakes respectively in the Arab Investment Bank (AIB) with a EGP 5 billion capital increase, according to the report.


 

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