The market has been quite challenging, with the EGX 30 being down by more than 20% year to date. Yet, as the saying goes, with every challenge, there is an opportunity hidden that will lead you towards the path of wealth.
Last year, we shared a similar exercise identifying opportunities to look out for and if you have invested equally in all opportunities, you would have outperformed the market by 12%, which went down by -18% during that period.
Our assessment is based on identifying profitable companies that are trading at a discount. Profitability is measured by looking at Return on Equity (ROE > 20%) and valuation discount is assessed by comparing the current market capitalization of the company to the book value of their shareholder’s equity (Price to Book < 1).
The exercise is simple; companies generating healthy profits yet trading at a discount to the book value of their shareholder’s equity might represent good investment opportunities.
This year we decided to take a step further by looking at the quality of generated profits and the book value of their shareholder’s equity.
Quality of Profits:
Last 3 years’ average ROE is greater than 10%
Net Income growth is positive
Quality of Book Value:
Net debt to equity ratio is not higher than 2.0
Below is the list of companies that have been identified