Cairo - Mubasher: Pharos Research has initiated its coverage of Export Development Bank of Egypt (EBE) with an "Overweight" recommendation, and assigned the stock a fair value (FV) evaluation of EGP 24.52 per share.
The research firm said in a report on Sunday that it has based its valuation on a set of key assumptions that underpin the growth potential for the bank.
Pharos stated that the first reason behind the valuation is "the forecasted revival in corporate lending momentum starting fiscal year 2018, to boost lending growth to a compound annual growth rate (CAGR) of 27% between FY2018 and FY2022".
“Strengthening retail lending to constitute around 15% to 20% of the bank’s loan portfolio, from the current 2%, over the forecast horizon to compensate for the projected net interest margin (NIM) compression,” the firm indicated as the second reason.
“Third, faster pickup in non-interest income fuelled by the potential pickup in lending activity,” Pharos explained.
The report also highlighted the key upside triggers to the valuation as the amendment of the bank’s regulation that restricts foreign investors from owning the stock leading to a boost in the stock’s liquidity. This comes in addition to the stronger pickup in exports which accelerates the growth potential for the bank’s key client segment, as well as the faster than forecasted pickup in non-interest income and capital expenditure lending, and the higher exposure to retail financing to maintain resilient margins.
On the other hand, the main downside risks are the higher than forecasted nonperforming loans (NPLs) that are leading to higher provisions, and the slower-than-expected pickup in foreign direct investment (FDI) and capital expenditure financing.
The bank mainly focuses on exporters, as around 74% of the bank’s loan portfolio is assigned to exporters with minimal exposure to the retail sector.
The extraordinary general meeting (EGM) of the bank recently approved raising the authorised capital to EGP 5 billion from EGP 2 billion.
