Egypt's Ghabbour Auto, the largest independent car assembler in the Middle East, has long been a favourite among analysts. The company is expected to reap the dividends of changes to Egypt's traffic law, introduced in June 2008, which will phase out taxis over 20 years old, forcing the replacement of some 37,000 vehicles. The changes are expected to begin taking effect over the second half of this year, which should bode well for Ghabbour.
Ghabbour's main business lies in passenger cars. It is the sole agent and distributor of Hyundais in Egypt and runs a network of after-sales services for cars and commercial vehicles. It is also the exclusive agent for Hyundai, Mitsubishi and Volvo buses and the sole agent for the three-wheeler rickshaw, or "tuk tuk". Geographical diversification means Ghabbour's net profit is dependent on currency movement, and it carries exposure to multiple currencies: the dollar, the Korean won and the euro.
The company was established in 1940 by the Ghabbour brothers and now boasts a market capitalisation of 4.9 billion Egyptian pounds (Dh3.16bn), with 29.1 per cent floated on the Egypt Stock Exchange after its initial public offering in 2007. The remainder is held by the Ghabbour family. Parts of the 2008 traffic law have already been implemented, including the licensing of tuk tuks, and as sole player in the market, Ghabbour is cashing in.
Ghabbour's shares have made an aggressive turnaround. This year alone, the stock has soared a whopping 59 per cent. Ghabbour was trading 0.84 per cent lower yesterday at 39.08 pounds and CI Capital has a buy rating with a target price of 46.5 pounds. The stock is up 42.9 per cent so far this year. Ghabbour was hit hard by the financial crisis and bore the brunt of a decline in sales, especially of luxury goods, coupled with a fall in the willingness of banks to offer car loans.
The company expects its revenues for the second half to be about 4.3bn pounds, closing the year at between 7.3bn and 7.4bn pounds. Ghabbour has already reported a 92 per cent increase in second-quarter profits to 77.7 million pounds compared with the same period last year. Catalysts to watch out for include Egyptian economic data. An increase in tourism would bode well for bus sales, while Ghabbour's other business would thrive on any consumer spending growth.
Holders of stock should keep an eye out for information on the taxi replacement scheme and any developments in the company's joint venture to distribute lorries in Algeria. halsayegh@thenational.ae