Valuations
Egypt is turning out to be the second most popular stock market in the Middle East for foreign investors this year, just behind Saudi Arabia. Investors see growth potential in Egypt given heavy investments coming into the country through China’s ambitious One Belt One Road project.
Egypt’s benchmark index – the EGX 30 Index (EGX30.CA) currently, trades at a one year forward price to earnings multiple of 11.7x. In the last 12 months, this index is up 61% but investors believe Egypt’s market is still attractively priced. Shakeel Sarwar, head of asset management at Securities & Investment Co in Bahrain stated, “In terms of valuations it looks more attractive. “Growth prospects of Egypt’s economy are much stronger than those of the Gulf economies.” He added, “Going forward, if I take a one-year view Egypt is likely to offer better returns.”
To identify the attractively valued Egyptian stocks, we studied the holdings of the Market Vectors Egypt Index ETF (EGPT). Amer Group Housing (AMER), Emaar Misr (EMFD) and Telecom Egypt (TEEG.IL) are currently trading at inexpensive valuations compared to their peers. They have one year forward price to earnings multiples of 3x, 4.5x and 4.9x respectively.
Meanwhile, Heliopolis Housing (HELI), EFG Hermes Holdings (HRHO.CA), and Medinet NASR Housing (MNHD.CA) are noticeably expensive. They have PE multiples of 39.7x, 31.8x and 21x respectively.
Generally, stocks trade at an average price to earnings ratio of 20-25x. Stocks trading lower than their average price to earning multiples or lower than the sector average price to earnings multiples attract investor attention because they’re considered inexpensive. The price to earnings multiple compares a stock’s price to its forward earnings per share. If a company trades at a high PE, it means investors are anticipating higher growth in the future.
