• Upgrade earnings estimates and FV on higher NIMs; reiterate Buy We raise our 2016-17 net income estimates for Credit Agricole Egypt (CAE) to reflect mainly higher net interest margin assumptions following the increase in policy rates in mid-March and consequently in yields on government securities. We raise our FV to EGP26.7 (from EGP24.9), and reiterate our Buy rating as our FV implies 21% potential upside. While the share price has had a good run, up c16% over the past three months, we believe valuation multiples do not look demanding: it trades at a low P/E of 6.1x in 2016e, a P/B of 1.9x and we expect 2016e ROE of 33.8% (from 35.8% in 2015). In addition, it has an attractive dividend yield of 8.6%.
• Large 2016e P/B discount to CIB, despite similar profitability CAE trades at a discount of c20% on P/B and 34% on P/E for 2016e to CIB. On a trailing basis, the P/B discount to CIB is c18%, and it has narrowed only slightly from 21% earlier in the year. Historically (over the past 8 years), the discount has been in the range of 26%. This was to some extent justified by CIB having superior profitability, however this is no longer the case: CAE has an ROE which is 300-200bps higher than that of CIB in 2016-17e. We believe there is room for the P/B discount to CIB to narrow further.
• Loan growth slowing; wider NIMs to drive double-digit earnings growth CAE’s loans grew 11% Y-o-Y, with retail loan growth strong at 19%. We believe that loan growth will be slower this year, mainly as a result of new caps on debt burden ratios imposed by the CBE (maximum of 35% of net monthly salary from January 2016). NIMs will be, in our view, the key driver of earnings growth this year. We note that CAE’s earnings growth momentum (+10% Y-o-Y) is likely to be slower than CIB (+25% Y-o-Y) in 2016, as we believe CAE will not actively chase deposit growth in an environment of slowing lending demand, as it does not solely focus on growing deposits to invest in T-Bills and T-Bonds. Government securities account for 27% of CAE’s total assets, versus 43% for CIB.

Elena Sanchez-Cabezudo, CFA
Rajae Aadel