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ADIB Egypt and Al Baraka top picks of Egypt "small-cap" banks, Hermes

February 6, 2014

Arab Finance : EFG-Hermes said that ADIB Egypt and Al Baraka Banks are top picks of Egypt "Small-Cap" banks. Hermes in a recent study, mentioned that it will initiate coverage on five Egyptian "small-cap" banks: ADIB Egypt, Al Baraka Bank Egypt , Faisal Islamic Bank of Egypt , Housing and Development Bank (HDB) and Egyptian Gulf Bank (EGB). It added "Unlike their larger peers CIB, QNB Al Ahly (ex-NSGB) or Credit Agricole Egypt , smaller banks have had a track record of poor profitability, mainly due to large loan loss provisioning charges following a build-up of non-performing loans (NPLs) in the early and mid-2000s. Banks have completed their bad debt restructuring process, in our view, with NPL coverage now at or over 100%." Hermes also said " Our Buy-rated stocks are ADIB Egypt, Al Baraka, Faisal and HDB. These banks offer a combination of cheap multiples (Faisal 2014e P/E of 4.5x, Baraka 5.5x), solid outlook on loan growth in 2014-15, barring further political instability and/or scope for further ROE improvement, despite factoring in some spread pressure on lower yields on government securities in 2014. Our top picks are ADIB Egypt, an attractive restructuring story for which we see the strongest outlook on earnings expansion (CAGR of 56% in 2014-15) driven by loan growth and loan loss recoveries, and Al Baraka, currently trading at a 20% discount to book value in 2014e."

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Source: Arab Finance (Egypt)

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