Investors in Egyptian Company for Mobile Services (ECMS), a holding company that operates the mobile network Mobinil, have had a good run.
But analysts say it might be time to sell ahead of a possible buyout, as the company reports bigger than expected losses.
ECMS emerged as a target of a €1.5 billion takeover by a subsidiary of France Telecom earlier in the year, spurring a big rally on the Egyptian market.
ECMS stocks are now up 150.5 per cent since the start of the year, at 196.01 Egyptian pounds each.
France Telecom has put a target price on the stock of 202.5 pounds each, buying out most of the stocks held by Orascom Telecom Media and Technology, its joint venture partner. If the offer is fully tendered, France Telecom would acquire 95 per cent of ECMS' stock, leaving Orascom TMT with 5 per cent of the company's shares.
The deal has been approved by the Egyptian financial supervisory authority, the country's regulator.
So far, so good.
But ECMS' fundamentals are worsening, and analysts are cutting their recommendations on the stock. ECMS generated a net loss of 74 million pounds during the first quarter compared with a profit of 23m pounds in the same period a year earlier, as it bore the costs of partially upgrading its network from 2G to 3G.
The company's results came in slightly below expectations for the top line, but disappointed significantly on bottom-line levels, analysts from Beltone Financial wrote in a research note. Barclays Capital downgraded the stock to "equal weight" from "overweight".
The tender offer is open to shareholders until May 23. In the meantime, investors may be wiser to book in the gains of the past few weeks, analysts from Naeem Brokerage wrote.
"While we don't think the offer will be derailed at this stage, the market may still continue to apply a 2 to 5 per cent risk discount on concerns over the possibility of minorities filing legal cases against the EFSA approval," the analysts said. Naeem recommends taking profit above 195 pounds per share to avoid exposure to a value fall in the Egyptian pound while cash is tied up.
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