Cairo - Mubasher: Pharos Research said in a report that the recent hike in stock prices for several food and beverage manufacturers was triggered by news on potential mergers and acquisitions (M&A).

“With the sizable population, the favourable demographics, as well as the relative inelasticity of demand for consumer staples, we had always noted that M&A activity is the way forward and it is only a matter of time before we see high interest in the Egyptian market,” Pharos explained.

Post-flotation, Egyptian stocks have become much cheaper for potential strategic investors as opposed to the replacement cost of setting up Greenfield operations.

In order to determine stock prices for potential acquisitions, or the rerating in peers once a transaction is completed, Pharos ran a comparative trading multiples exercise, including global peers, for key food and beverage players and looked at the average multiples for historical acquisition transactions in the sector concluded over the course of last year.

The multiples-based valuation suggests that Domty and Juhayna are currently trading at a discount to peers. Both firms are not acquisition suspects so far, but could potentially rerate with the announcement of any successful transaction.

“It is worthy to note though that our discounted cash flow (DCF) valuation for Domty could get close to its multiples-based valuation, rather than Juhayna, where the DCF valuation peaks at EGP 8.50,” the report concluded.