Trade winds blow in favour of EFG-Hermes

AWhat's Up: Analysts bet on EFG-Hermes, the region's biggest publicly traded investment bank, to benefit from increased investor appetite in its key markets, Egypt and Dubai.

People exit the new headquarters of Egypt-based investment bank EFG-Hermes, on the outskirts of Cairo, October 19, 2010. REUTERS/Asmaa Waguih (EGYPT - Tags: BUSINESS)

EFG-Hermes, one of the biggest publicly traded investment banks in the Middle East and North Africa, is expected to benefit from increasing trading activity in its key markets: Egypt and Dubai.

"Beyond the turmoil of 2011, the firm is a direct play on recovery in its Egyptian brokerage business and successful utilisation of the commercial banking licence in penetrating value-accretive markets," said Hamza Al Assad, an analyst at Pharos Holding.

The powerhouse, based in Cairo, was hurt after Egypt's revolution caused its stock market to shut for close to seven weeks, while negative sentiment triggered by civil uprisings in parts of the Arab world caused a sell-off in Dubai equities.

Markets reversed their track this quarter, however.

Traded value has risen 126 per cent so far this year in Egypt to an average of 333 million Egyptian pounds a day. The North African country accounts for 61 to 87 per cent of total brokerage revenue for EFG-Hermes.

"The crash in market volumes post-revolution has intensified price competition against local brokers, but EFG-Hermes has managed to partially hedge via shifting to retail clients," Mr Al Assad said. "Institutional clients are charged commission rates that are almost half the rates charged to retail clients."

Traded value in Dubai has risen 400 per cent, with a daily average of Dh189m changing hands, reaching a high of Dh981m on March 5, after the number of brokerages in operation dropped to 55 from 110 at the beginning of last year.

"International names in the GCC, UAE specifically, have started to cut costs by closing shops," Mr Al Assad said. "EFG-Hermes could benefit from this situation in the long run as long as it solidifies its presence in GCC markets, while many other smaller local players and international names foreclose operations."

EFG-Hermes has always expressed interest in acquiring a commercial banking licence in Egypt. It has a 63.7 per cent stake in Credit Libanais Bank.

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