What a difference a year makes: Industrial players are broadly seeing strong stock performances this year, although that momentum has lost a little bit of steam since the beginning of the second quarter. On both a year-to-date basis and when looking at the past five months (starting from 2Q 2023), most major industrial companies are in the green, and some are significantly outperforming the EGX30 this year so far.

Finally, it appears that share performances and earnings are actually on the same wavelength: All industrial companies — with the exception of Rameda Pharma — reported strong earnings during the second quarter of the year, even amid macroeconomic conditions of rising inflation and a persistent FX shortage. These companies’ financial performance is being reflected in their stock performance, with the general trajectory moving in the same direction.

WHERE WE WERE A YEAR AGO- In 2Q 2022, industrial stocks were continuing on a downward trajectory that had begun at the outset of the year, with only one EGX-listed major industrial company in the green as of September 2022. With most of these stocks falling throughout 2022, they were underperforming the EGX30, which had a YTD return of -13.3% and 5M return of -10.46% as of the beginning of September.

WHAT HAS HAPPENED SINCE- Successive devaluations of the EGP over the past several months made equities on the EGX significantly more attractively priced.

For the purpose of this analysis, we’ll look at the performance of a handful of heavyweight EGX30 stocks on a YTD basis and from the beginning of 2Q 2023 until now: GB Corp, Oriental Weavers, Elsewedy Electric, and Rameda Pharma.

Almost all the companies are outperforming the EGX30 on a YTD basis, although the comparison is more mixed when looking at the five-month period beginning in 2Q 2023, according to market data. The EGX30’s YTD return is 26.8%, while its 5M return is 10.9%.

  • GB Corp rose 6.7% YTD and 19.0% since 3 April to EGP 6.38;
  • Elsewedy Electric is up 73.3% YTD and 30.6% since 3 April to EGP 20.98;
  • Oriental Weavers is up 43.4% YTD and 4.6% since 3 April to EGP 15.08.

The only outlier: Rameda Pharma, which fell 31.7% YTD and 4.3% since 3 April to EGP 2.03. Last year, Rameda was the only major industrial company that was outperforming the EGX when the rest of its peers were underperforming.

Recapping the companies’ financial performance:

  • Elsewedy Electric’s net income after minority interest more than doubled y-o-y to EGP 2.7 bn in 2Q 2023, while its top line rose 78% y-o-y to EGP 36.3 bn.
  • GB Corp saw its net income inch up 2% y-o-y to EGP 500.5 mn, while revenues fell 14% y-o-y to EGP 5 bn.
  • Oriental Weavers reported EGP 290 mn in attributable net income in 2Q 2023, up 37% y-o-y, and its revenues rose 31% y-o-y to EGP 4.3 bn.
  • Rameda Pharma reported a 6% y-o-y drop in net income to EGP 119 mn in 1H 2023, while revenues rose 18% y-o-y to EGP 842.4 mn.

A weaker EGP + a focus on shoring up exports is doing good things for industrial players: There’s significant upside for industrial companies that have strong export activity, seeing as they’re able to price their products at import parity, said Arqaam Capital Associate Director Nour El Din Sherif. This means that these companies — such as Elsewedy Electric and Ezz Steel (which has yet to release its 2Q earnings) — have the benefit of raising local prices to offset rising input costs, while exporting in FX while the EGP is weaker, which results in revenue growth, Sherif explained. Ezz Steel, for example, is a “top pick since the beginning of the year, because of the EGP depreciation — it’s securing higher margins on the back of savings from overheads on labor, energy costs, and other expenses priced in EGP, while revenues are repriced at higher costs,” he told Enterprise.

But others are struggling with current macroeconomic conditions: For GB Corp, market conditions — most notably capital controls brought in last year that made it almost impossible for distributors to import cars and components — have weighed heavily on sales across the auto sector. The FX shortage and continued restrictions on imports led HSBC’s Nicholas Paton and Anup Kataria to trim their forecasts for the company’s revenues this year, although the bank sees significant upside for GB Corp’s share price. For Rameda Pharma, a solid rise in revenues failed to offset the impact of inflation and the depreciation of the EGP.

Your top industrial development stories for the week:

  • The Customized Power Technology Group plans to locally manufacture diesel engines in partnership with an unnamed Indian company under the National Initiative of Developing Egyptian Industry (Ebda). (Al Borsa)
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