Eastern Company (EAST EY, Buy, TP : EGP408/share and part of our MENA Top 20 list) currently meets market cap requirements to join MSCI EM (USD1,828mn vs. USD1,472mn required) and is close to float market cap requirement (using 40% float) (USD731mn vs. USD737mn required). Moreover, it passes liquidity requirements for the October 2016 to September 2017 period (again using the 40% but not a 45% float according to our calculations). EAST was removed from MSCI EM in November 2007, and at the time MSCI was using a 45% free float figure for the company, but the real float is c40% as the government owns 55% and another 5.8% stake is owned by the union workers. MSCI would consider both stakes strategic as per their definition of free float. 
 
If MSCI uses a 40% float this time around and EAST meets float market cap requirement during the last 10 business days of October (price cutoff is any of the last 10 business days of October for the November review), EAST could replace HRHO in the MSCI Egypt and hence MSCI EM indexes. In the case of inclusion, we estimate EAST could see passive inflows USD46mn (63x ADVT), while HRHO would be downgraded to small caps (as its market cap is more than 33% below the required market cap levels for existing constituents, cUSD986mn) and see outflows of USD40mn (14x ADVT). MSCI will announce the results of its November review on 13 November 2017, and changes will be effective as of close of 30 November. 
 
Eastern Company: EGP321.78 as of 02 Oct 2017, Rating: Buy, TP: EGP408.00/share, MCap: USD1,828mn, EAST EY/EAST.CA
Mohamad Al Hajj