• Global : values Credit Agricole - Egypt at LE17.0 and recommends a 'BUY' on the stock
Global Investment house -Global - Credit Agricole - Egypt (CAE)Credit Agricole-Egypt (CAE) was established in September 2006, following the merge of Calyon-Egypt with the Egyptian American Bank (EAB) in August 2006, forming one entity under the name of Credit Agricole-Egypt.
The Bank reported a net income of LE523.9mn in 2007, compared to LE20.7mn, realized in the previous year. It is worth mentioning that the Bank experienced an extraordinary loss in 2006, resulting from the deficit witnessed in the EAB employees' pension fund, amounting to LE317.5mn. This has negatively affected the Bank's results in 2006 and consequently boosted the growth in net income realized the following year.
Though the Bank had fully amortized the remaining goodwill balance, amounting to LE36mn in 2007, it was able to realize an impressive growth in net profit over 2006, reaching 60.7%, after eliminating the effects of unusual items and goodwill amortization. Excluding these items, net income surged over the previous year, as a result of the rise in net interest income and total non-interest income by 23.1% and 64.6%, respectively.
Concerning net interest income, the Bank experienced a 55.5% increase in its interest expense, resulting from the increase in its deposits balances. Though interest income from treasury bills and bonds dropped by 36.5%, as a result of the declining yields on treasury bills, the Bank was able to generate income from loans and interbank assets, realizing an interest income growth of 78.8%, which compensated for the drop in income from treasury bills and bonds and the cost associated with deposits and interbank liabilities. This was a result of the rise of the loans balances and interbank assets.
In the mean time, the rise in non-interest income was partially attributed to income generated from fees and commissions, which rose by 12.2%, in response to the increase in loans balances, along with the 162.5% increase in contingent liabilities. Other contributing factors to non-interest income were some volatile factors, represented by dividend income, gain on sale of investments, foreign exchange operations, financial investments valuation differences and other income, which grew by 838.2%, 317.1%, 41.3%, 777.9% and 322.7%, respectively.
Other important factor affecting the rise in net income was the reversal of provisions in 2007, amounting to LE57.4mn.
Based on the current market price of LE15.2/share, CAE is trading at 2008E P/E and P/BV multiple of 8.7x and 2.6x, respectively. Our estimated value for this banking scrip is worked out to be LE17.0 based on DDM (80%) and adaptation of the Gordon Growth Model (20%). According to our fair value the banking scrip offers an upside of 11.8% over the closing price of LE15.2/share (as of September 7th, 2008). We therefore recommend a BUY on the scrip.
The Bank was able to increase its ROAA and ROAE - adjusted for extraordinary items and goodwill - from 2.4% and 25.7% in 2006, to 3.0% and 38.1% in 2007, respectively. This surge resulted from the remarkable growth in net income during the year, which far exceeded the growth of average assets and average equity, represented by 25.3% and 4.9%, respectively. Based on our assumptions, we believe the Bank's ROAA and ROAE will reach around 2% and 36% respectively by 2011.
