Ezz Steel shares take beating over bad news

Shares in Ezz Steel have been under pressure in the last few months as its chairman comes under investigation, but analysts say the stock could have been unfairly punished

The Egyptian tycoon Ahmed Ezz has had some unpleasant headlines in the press, but some believe the stock of his company Ezz Steel has been unfairly punished.

Shares in Egypt's largest steel producer have fallen 45 per cent since the country's market reopened on March 23 and analysts say the stock is at or near its bottom.

"The shares have fallen big time," said Menna el Hefnawy, an analyst at Alembic HC Securities in Cairo. "Even in the worst-case scenario, there will be little point selling the stock."

Ms el Hefnawy upgraded her view on the stock to "overweight" and maintained the target price of 14.8 Egyptian pounds a share. Shares in Ezz Steel yesterday fell 2 per cent to 10.46 pounds.

Stocks of a number of companies that benefited from the previous government have beenunder pressure on the Egyptian stock market.

Since February, prosecutors have pursued businessmen with ties to the regime of the former president Hosni Mubarak, freezing assets, banning them from travel and filing corruption charges.

In a statement on its website at the end of last month, Ezz Steel assured investors any investigations against Mr Ezz were personal and not expected to affect the management of the business.

Current and potential liabilities against Mr Ezz, who was a top official in Mr Mubarak's party, could result in fines of up to 700 million pounds for the company, Alembic said in its note.

Ezz Steel has also been entangled in other allegations related to the acquisition of subsidiaries and licences at either below market value or for free. These could also lead to a small penalty for the company, the Alembic note added.

But Ms el Hefnawy said any negative outcome related to its acquisition of EZDK, or El Dekheila Steel, a subsidiary it acquired for "below market value", is expected to remain specific to Mr Ezz.

He is charged with illegally taking control of the state-owned company, which then supplied steel at reduced prices.