By: Heba El-Kordy

Cairo – Mubasher: Following the decision taken by the Central Bank of Egypt (CBE) to cut interest rates last week and adopt a more flexible monetary policy, analysts have pinpointed the top companies that are most likely to benefit from the rate cut.

On Thursday, the CBE’s Monetary Policy Committee (MPC) cut interest rates by 1%, which means overnight deposit and lending rates now stand at 17.75% and 18.75%, respectively, while the main open market rate will be at 18.25%.

Following the decision, public banks immediately stopped the 20% deposit certificates, replacing them with 16% ones.

Analysts expect the Egyptian Exchange’s (EGX) performance to improve on the back of the decision; however, they noted that the banking sector may be negatively affected by the decision and future rate cuts.

Biggest Benefit

Trimming interest rates by 1% is not enough to bolster the EGX and its listed companies, commented Abou Bakr Imam, head of research at Prime Holding, noting that an improvement will be seen when interest rates drop by another 2% or 3%.

EGX-listed companies whose cost of debt is high will benefit the most from the CBE’s decision, Imam said, naming GB Auto, Ezz Steel, Palm Hills, Talaat Mostafa Group (TMG), Juhayna, and Domty as those with the biggest gains from the rate cut.

Meanwhile, Ahmed AbdelNaby from Mubasher Financial Services (MFS), noted that 11 EGX-listed stocks will benefit from the decision, indicating that along with Ezz Steel, GB Auto, TMG, and Palm Hills, Global Telecom, Citadel Capital, Orange, Elsewedy Electric, Maridive and Oil Services, and Telecom Egypt will see benefits.

The real estate sector will benefit the most from the rate cut, AbdelNaby added, indicating that developers will be able to provide additional facilities in terms of installments, which may increase their sales.

Direct impact

Ezz Steel’s stock was among the EGX-listed stocks that were immediately affected by the CBE’s decision, with the stock’s price rising to its highest level since September 2008 to EGP 25.

The interest rate cut is likely to positively affect Ezz Steel’s financial performance, particularly in terms of reducing interest on debt, noted Mohamed Magdy, construction materials analyst at Prime Holding, indicating that around 50% of Ezz Steel’s debt is in Egyptian pounds and estimated at around EGP 24 million.

Ezz Steel last reported a 16.3% year-on-year drop in losses to EGP 107 million in the third quarter of 2017 on the back of sales growth from EGP 127.9 million.

Most impacted sectors

In terms of sectors, the banking sector will be the most negatively affected by the CBE’s decision as banks which have given out loans at high interest will now see these loans repaid at lower interest, the head of research at El Marwa for Securities Brokerage Mohamed El-Naggar commented.

The Egyptian food and beverage sector, however, will benefit the most from the rate cut, according to the analyst.

Translated and edited by: Nada Adel Sobhi