If money talks, the relationship between Egyptians and their cigarettes won’t be changing anytime soon.
Shares of Cairo-based Eastern Tobacco, which holds a monopoly on cigarette production in Egypt, have hit successive record highs, in both dollar and local-currency terms, after the company posted an increase of almost 161 percent in first-half profit.
Eastern Tobacco has been on an upward trend since Egypt let its currency float freely in November 2016 and started implementing an economic reform program to end a dollar shortage and narrow its budget deficit.
Since then, the stock has surged 373 percent, compared with 6 percent for the MSCI World Tobacco Index and 70 percent for Egypt’s benchmark gauge.
“The increase in profits is mainly due to pricing,” said Khaled Sadek, head of consumer and healthcare research at CI Capital. “They raised their ex-factory prices by about 40 percent compared to last year and they still have a big part of their inventory of raw tobacco from before the currency float which makes the cost low for them and the margins higher.”
Eastern Tobacco’s revenue in the first half increased 36 percent to 6.8 billion Egyptian pounds ($384 million), and costs rose 23 percent.
While the volume of sales fell between 7 percent to 10 percent since the price of cigarettes climbed in November, Chairman Mohamed Haroon sees them starting to return to normal in March, he said in an interview last week.
The new currency regime sent inflation to record levels and diminished the spending power of most Egyptians, but it also spurred the return of investor confidence and foreign inflows into the nation’s assets.
The tobacco producer became one of the most popular names among equity investors; it gained the most among the 30 members of the country’s EGX 30 index after Egypt Aluminium.
“Historically, people don’t stop smoking,” said Ahmed Hafez, the co-head of research at HC Brokerage in Cairo. “What happens usually is that they cut the number of cigarettes they smoke per day, and then they usually divert to the normal habits again. But we haven’t seen a prolonged impact on demand since price increases.”
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