• Cut FV to EGP5.20; reiterate Buy on undemanding multiples ADIB Egypt’s share price is down 48% over the past 12 months, versus a 28% decline for the HFI, despite the bank’s very strong earnings performance in 2013-15. We believe investor focus may have shifted away from stocks, like ADIB Egypt, which pay no cash dividends. Despite the lack of dividends, we believe it continues to have the strongest restructuring story of Egypt banks: its cost-income ratio has fallen from 121% in 2012 to 54% in 2015 and ROA has swung from negative in 2012 to 1% in 2015 (ROE of 20.4%) and we believe there is further scope for ROA gains. We cut our FV to EGP5.20, and as this implies 25% upside we reiterate our Buy rating.
• Planned EGP2 billion rights issue unlikely in the short term… We believe the planned EGP2 billion rights issue, initially announced in 2013 and called off in 2014 has raised concerns. The rights issue involves a transfer of EGP1.8 billion from the paid-under capital increase reserve, injected by ADIB UAE back in 2010-12, with the remaining share theoretically to come from minority shareholders (they have a 40% stake). As the rights issue is priced at the par value of EGP10/share and the stock price is EGP4.16, we believe it is very unlikely that this will happen in the short term, as it would imply minorities being diluted to a 20% stake in the bank. Also ADIB UAE/EIIC would have to increase its stake from the current c60% to 80%, and it would have to fully consolidate ADIB Egypt, which is not fully Sharia-compliant, due to the lack of sukuks in Egypt.
• …and likely to remain so if shares are below par value of EGP10/share We believe that the scenario of a dilutive rights issue is not in play as long as the share price continues to be below the par value rights issue price per share of EGP10. Current valuation multiples are in our view undemanding, and are the lowest amongst Egypt banks: P/E of 3.1x and P/B of 0.6x. Our FV factors in a large discount to other Egypt banks to account for some degree of uncertainty regarding the timing of the rights issue, as well as the lack of dividends. ADIB Egypt cannot, by law, pay dividends until the large balance of retained losses in its shareholders’ equity is closed.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel