Digital Payments Firm Strikes Gold in Egypt, Where Cash is King

(Bloomberg) -- An Egyptian digital payments firm has quadrupled in value during the pandemic, helped by a government push to reduce citizens’ heavy reliance on cash. Investors and analysts are split on whether the stock rally has further legs.

Fawry for Banking & Payment Technology Services SAE debuted on Cairo’s exchange just over a year ago. A 300% rally from a mid-March low has boosted its market value to 20 billion Egyptian pounds ($1.3 billion). That puts Fawry among the country’s 10 most valuable companies alongside firms such as Telecom Egypt Co. and Elswedy Electric Co., which generate many times more revenue and profit.

Egypt, where it’s common for government employees to ring doorbells to collect cash payments for gas and electricity bills, is trying to shift more transactions digital. The North African nation’s central bank has asked lenders to set a strategy to ensure all citizens have access to financial services, focusing on digital payments and mobile wallets. The regulator is also pushing consumers to use payment platforms such as Fawry in an attempt to curb the spread of the new coronavirus.

Not everyone believes it will last. Fawry’s valuation is “over-hyped,” especially when compared to its earnings, according to Amr Elalfy, head of research at Prime Securities in Cairo. The company posted a revenue of 549 million Egyptian pounds for the first half of 2020, a 47% rise on the same period last year.

The Egyptian firm’s trailing 12-month price-to-sales ratio is 20, about the same as credit-card giant Mastercard Inc., whose revenue is significantly greater and recent profit margin four times higher, according to data compiled by Bloomberg. Fawry’s 14-day relative strength index has remained above 70 for the past two weeks, suggesting it may have risen too far, too fast.

Room for Growth

The shares have rallied on “hopes of exponential growth from the digital payments sector in Egypt, which until now is still significantly under-penetrated,” said Allen Sandeep, director of research at Cairo-based Naeem Holding.

About a third of Egyptians 15 years and older have accounts with financial institutions, a relatively low proportion, according to data compiled by the World Bank in 2017. Virtually all utility payments are done in cash in the country of 100 million people, it said. Fawry has 166,500 locations including retail shops around the country to accommodate cash payments and also provides it service on ATMs and smartphones.

Fawry didn’t respond to requests for comment on the company’s performance.

While the firm’s value exceeds that of more than half of those listed on Egypt’s benchmark EGX30 index, the stock hasn’t been included in the gauge as it doesn’t meet trading volume requirements, according to a spokesperson from the exchange.

Next Wave

All the same, Fawry’s surging stock price may encourage further investment in Egypt’s e-payment sector, according to Ahmed Abou El Saad, managing director of Azimut Egypt Asset Management. Valuations for initial public offerings of other payment platforms should follow Fawry’s lead, he said.

The National Bank of Egypt is looking to buy stakes in Aman, Raya Holding for Financial Investments’ e-payment subsidiary, which was planned to IPO in three years, the local business newspaper Al Mal reported in 2019. MM Group for Industry & International Trade SAE is also planning to begin procedures to list non-banking investments firm Ebtikar next year, according to Daily News Egypt.

Some of the hottest IPOs of recent years have occurred in payments, including Amsterdam-listed Adyen NV, which trades at more than five times its 2018 listing price. Square Inc. raised less than it sought in its 2015 listing, but has since multiplied its initial $2.9 billion valuation to about $65 billion.

The e-payment platform “wave is bigger than you can hold back, and it’s coming,” Abou El Saad said. “It’s better for the central bank and other lenders to “cooperate, and to regulate.”

©2020 Bloomberg L.P.