Equity Analysis /
Egypt

e-finance: Initiation of coverage – digitizing Egypt

  • e-finance has successfully managed to provide leading digital payment solutions across the nation

  • We expect revenues to grow at a 5yr CAGR of 43% between 2021-26f and bottom line CAGR of 48.0% between 2021-26f

  • We arrived at a DCF valuation of EGP42.08 billion, implying a FV of EGP23.67 per share, an upside of 20.6%

Digitizing Egypt

e-finance has successfully managed to provide leading digital payment solutions across the nation through establishing and developing a digital financial network that forms the backbone of the Egyptian government’s digital transformation strategy. The company provides a wide range of digital transformation solutions, including e-payment infrastructure, cards center services, cloud services, contact center services, and operational support services. Moreover, we believe that e-finance is a key beneficiary of government enforcement of digital transformation along with other digital transformation projects in the transportation, healthcare, and tourism sectors that will drive growth going forward. The company enjoys a very solid pipeline going forward and the company is still in phase 1 in many projects, that would be reflected in next year’s business plan.

We expect revenues to grow at a 5yr CAGR of 43% between 2021-26f, driven by growth in transaction revenues as well as B&O projects of e-finance Digital Operations, Smart Solutions (includes transportation project) of e-cards, growing Khales PoS and number of digital services, eAssawaq’s digital marketplaces and farming platforms along with e-nable’s operations capitalizing on the group’s growing business. Operating margins will gradually expand on management’s strategy towards a favorable revenue mix (higher contribution of transaction revenues) that would imply a margin expansion of 4-5 ppts over the forecast horizon and would drive a 5yr bottom line CAGR of 48.0% between 2021-26f.

Valuation

We arrived at a DCF valuation for EFIH of EGP42.08 billion, implying a FV post capital increase of EGP23.67 per share, an upside of 20.6% and an overweight recommendation.

Methodology:

  • DCF valuation for each of e-finance group subsidiaries, followed by SOTP Valuation for e-finance Investment Group.

  • Relative valuation of investments/projects utilizing capital increase proceeds, using a blended P/B multiple of 5.6x.

EFIH is currently trading at 2022f P/E of 43.7x, and EV/EBITDA of 33.9x, at a discount of global peer average of 59.4x and 33.0x; respectively.

Click through to access our 51-page initiation report on the company.