Pharma stocks seen as hottest Egypt picks

Positive sentiment toward equities will continue this year as many stocks trade at attractive valuations

by BLOOMBERG

DUBAIHealthcare and pharmaceutical shares could prove the hottest choices for investors in Egypt’s stock market this year as the country expands its universal health programme, according to Khaled Darwish, money manager at CI Capital Asset Management.

Darwish, whose firm oversees more than nine billion Egyptian pounds (RM2.02 billion), is also positive on companies winning contracts on large infrastructure projects and says consumer stocks are recovering from the shock of 2016’s currency devaluation. The fund he helps run delivered gains of almost 45% last year, the best performance among 25 local open-ended stock funds, according to figures compiled by the Egyptian Investment Management Association.

Egypt’s main stock benchmark advanced more than any other in the Middle East in 2017 as the government moves forward with structural reforms that attracted foreign investors to its debt and equity markets. Positive sentiment toward equities will continue this year as many stocks trade at attractive valuations, while conditions in the Egyptian economy are supportive, Darwish said in a telephone interview from Cairo.

Here are his views on sectors and stocks:

Healthcare, Pharma

“The beauty of this is that, when the market tends negative, if it turns bearish, it is still very defensive,” Darwish said. For example, stocks in this sector didn’t suffer as much as others during the 2011 uprising that ousted President Hosni Mubarak, he said. The EGX 30, measured in local currency, fell 49% that year.

The proposed universal healthcare system will cover 107 million Egyptians by the time it’s fully implemented in 2032, Deputy Prime Minister Mohamed Maait said last month.

Ibnsina Pharma SAE: Top Egyptian pick. Earnings to soar as much as fivefold in two to three years.

Egyptian international Pharmaceuticals: Seen as one of the top drug manufacturers in the country. It trades at around a 50% discount to peers, Darwish estimates.

Construction and Infrastructure

Many have won business on projects in other parts of Africa and the Middle East, Darwish said.

ElSewedy Electric Co: considered a proxy for infrastructure in the country. The cable manufacturer, is poised for gains that could be even higher than its 99% jump in 2017. Stock trades at a cheap valuation and has a clear dividend policy.

Consumer

“This sector took a strong hit after the currency was allowed to float. Now, it’s trying to catch up with inflation, volume of sales is rising.

Juhayna Food industries: the processed food producer is up 14% this year, adding to gains of 70% in 2017. Its partnership with Arla Foods Amba, a Danish food producer, is seen by Darwish as “a game-changer”.

Cautious on Real Estate, Banks

After the currency flotation, real-estate prices rose too far, too rapidly, while income and salaries failed to keep pace. “I’m still sceptical about demand,” he said. When it comes to banking shares, new taxation of the sector plus expected benchmark interestrate cuts could put pressure on these stocks this year. — Bloomberg