EFG Hermes, a leading financial services corporation in Frontier Emerging Markets (FEM), reported today solid results for the second quarter of 2018, recording a net profit after tax and minority interest of EGP 200 million on revenues of EGP 1,004 million. Adjusting for one-off gains related to the sale of a stake in Credit Libanais realized in the comparable period of last year, the normalized Group revenues would be up 28% Y-o-Y in 2Q18.

Fees and commission income climbed 17% Y-o-Y to EGP 748 million in 2Q18, with almost all business lines recording revenue growth. The Group’s performance was supported by accelerated growth at its non-bank financial institutions (NBFIs) platform, particularly Tanmeyah Micro Enterprise Services (Tanmeyah), as well as solid contributions from the Group’s buy-side business. 

Meanwhile, the Group’s capital markets and treasury operations reported revenues of EGP 256 million in 2Q18. Normalizing one-off gains related to Credit Libanais’ sale proceeds, capital markets and treasury operations revenue would record a 74% Y-o-Y increase on stronger dividend income and treasury operations revenues. 

“Our results for the second quarter of the year demonstrate how the Firm’s diversification and geographic expansion strategy allows us to post strong results amid challenging market conditions,” said EFG Hermes Group CEO Karim Awad. “Our venture to build a leading NBFI platform is delivering strong results with revenues almost doubling compared to last year, while our investment bank is consistently gaining strong footing in newly-entered territories and driving our long term growth momentum.” 

The sell-side business recorded revenues of EGP 351 million in 2Q18, supported by Brokerage revenues which reached EGP270 million, up 14% Y-o-Y, on higher Brokerage commissions and margin income. 

At the Firm’s buy-side business, revenues grew to EGP 145 million in 2Q18, up 64% Y-o-Y primarily on higher management and incentive fees booked by FIM, with the Asset Management division’s total revenues up 72% Y-o-Y to EGP 121 million in 2Q18. Private Equity revenues climbed 33% Y-o-Y to EGP 23 million in 2Q18, on higher Vortex management fees.

“On the sell-side, the Brokerage division has reaffirmed its lead as the largest broker across five regional exchanges and is seeing growing contributions from frontier markets; while our Investment Banking division is breaking new ground and showcasing its execution capabilities. Meanwhile, the buy-side is also reaping the benefits of our diversification strategy, with revenue growth driven by the consolidation of regional asset manager FIM and increased private equity management fees,” Awad noted. 

Overall, the Investment Bank delivered a net profit after tax and minority interest of EGP 158 million in 2Q18; largely stable year-on-year if we excluded the one-off gains related to Credit Libanais’ stake sale in the comparable quarter last year.

The firm’s NBFI platform generated net revenues of EGP 253 million in 2Q18, up 92% Y-o-Y and contributing 25% to the Group’s total revenues versus only 13% in 2Q17. The platform’s accelerated growth was predominantly driven by a 141% Y-o-Y increase in Tanmeyah’s top-line in 2Q18. The platform posted a net profit after tax and minority interest of EGP 42 million in 2Q18, up 100% Y-o-Y.

EFG Hermes’ employee expenses stood at 45% of total revenues in 2Q18, remaining below the firm’s longstanding target of 50%. 

Net operating profit for the Group recorded EGP 307 million in 2Q18, while net profit after tax and minority interest came in at EGP 200 million, up 18% Y-o-Y after adjusting for 2Q17 one-off gains.

“Heading into the second half of the year, we expect operations at our new, on-the-ground presence in Nigeria to commence, and the launch of EFG Hermes Factoring to be announced as we push forward with our diversification and expansion strategy. EFG Hermes’ growing product portfolio, geographic presence and execution capabilities will continue to serve as the bulwark against market headwinds,” Awad concluded. 

Key Operational Highlights of 2Q18

The Investment Bank:

•EFG Hermes Securities Brokerage total execution for MENA and frontier markets reached USD 9.1 billion in 2Q18, up 9% Y-o-Y on the back of higher volumes in Qatar and frontier markets. Total executions were down 7% Q-o-Q as regional markets witnessed slower activity during the holy month of Ramadan. The firm closed the quarter as the largest broker across five markets, maintaining its leading position on the Egyptian Exchange, the Dubai Financial Market, the Abu Dhabi Exchange, Nasdaq Dubai, and Kuwait Stock Exchange. EFG Hermes also ranked second among foreign brokers in Saudi Arabia and delivered a solid performance in Jordan. Meanwhile frontier markets reported healthy revenues, with Kenya and Asian revenues remaining steady and Nigeria faring well on the back of several block trades.     

•EFG Hermes Investment Banking successfully concluded four transactions worth a combined c. USD 580 million in 2Q18 spanning equity, M&A and debt capital markets. The team acted as book runner in the USD 52 million accelerated book build of Abraaj’s stake in Orascom Construction; and acted as sell-side advisor to TMG Holding on its USD 56 million divestment from a portfolio of four schools. On the debt front, the team executed two more debt transactions, acting as financial advisor to ADES on the USD 450 million debt facility to support its acquisition plans; and as a lead arranger in the USD 22.5 million acquisition finance facility to Social Impact Capital. With the upturn in local demand and economic reforms, EFG Hermes’ Investment Banking department continues to develop a robust pipeline of both M&A, equity and debt deals to be executed throughout 2018.

•EFG Hermes Asset Management’s total public AUMs reached USD 3.2 billion at the end of 2Q18, inching down 2% Q-o-Q. The firm’s Egypt AUMs base reached EGP 13.7 billion in 2Q18, up 4.0% Q-o-Q as strong money market and fixed income inflows overshadowed weaker equity markets. Meanwhile, regional AUMs recorded USD 2.4 billion at the end of 2Q18, down 4.7% Q-o-Q as net outflows offset better market performance. 

•EFG Hermes Private Equity’s Vortex platform posted AUMs of EUR 1.3 billion and stable managed capacity of 822 MW in 2Q18. The wind portfolio of Vortex I and Vortex II generated EBITDA of c. EUR 30.7 million in 2Q18 while Vortex Solar’s EBITDA reached c.GBP 14.0 million. In May 2018, EFG Hermes entered into an exclusive partnership with GEMS Education (GEMS), the world’s leading provider of K-12 education services, to establish an investment platform dedicated for investing in the vastly growing and significantly underserved Egyptian K-12 education sector. The Platform already closed on 27 May 2018 its first investment in Egypt, acquiring a portfolio comprising 4 schools located East of Cairo with c.5k enrolled students from Talaat Mostafa Group Holding (TMGH).

•EFG Hermes Research’s coverage universe reached 240 companies across 21 geographies at the end of 2Q18, up from 235 in 1Q18 and 171 at the end of 2Q17. The division continues to expand its frontier coverage where 2Q18 witnessed the addition of Rwanda and Botswana to a roster of now nine African countries – with Ghana and Zimbabwe to follow. EFG Hermes Research’s continued success saw it ranked as the number two research house in MENA and number one in frontier markets in the Extel Survey results. The division’s analysts showed a marked improvement in Y-o-Y rankings with nine out of the top 20 analysts in MENA coming from EFG Hermes. 

The Non-Bank Financial Institutions (NBFIs):

EFG Hermes Leasing’s outstanding portfolio reached EGP2.6 billion by the end of June 2018, with 53 new contracts in 2Q18 up from 32 new contracts in the previous quarter and 50 contracts in 2Q17. Overall, the Leasing business maintained a total of 487 contracts since inception, with an accumulated bookings value of EGP 3.1 billion. EFG Hermes Leasing is successfully diversifying its portfolio in terms of asset type, sectors and funding channels to mitigate concentration risk. The business is also working to grow its SME portfolio size, launching in May 2018 its SMEs program backed by vendor alliances and subsidized funding agreements. During 2Q18, SMEs contribution stood at 11% versus 8% in 1Q18, with a target to reach a 20% by year-end. 

•Tanmeyah Micro Enterprise Services delivered an exceptional performance in 2Q18, with its outstanding portfolio reaching EGP 2.2 billion by the end of June 2018, up 26% Q-o-Q. Portfolio growth was driven by an increased number of loan officers and high productivity per officer. The company posted improvements across all KPIs, including growth in active borrowers (+17% Q-o-Q), applications processed (+15% Q-o-Q) and loans issued (+11% Q-o-Q). Tanmeyah continues to have a lower PAR 30+ than the industry standards as a result of the quality of its portfolio and loan approval process. The company opened 24 branches during 2Q18 to the close the quarter with a total of 195 fully operational locations.

•valU, which was launched earlier this year, offers instalment sales services through 136 merchants across Greater Cairo and Alexandria by end of 2Q18. Number of downloads for the mobile application stood at 49 thousand with 7 thousand online applications completed by the end of the same period.

EFG Hermes’ 2Q2018 financial results and management’s commentary on them are now available here.