Fawry aims to retain its top spot in Egypt’s FinTech space

It is a time of change for the Egyptian digital payments platform Fawry, after 13 years in the market, its chief executive and founder Ashraf Sabry says.

Amid growing competition in Egypt’s FinTech space and a tough economic environment, the company is exploring listing a portion of its shares in the US, seeking to raise new capital, widening its investor base and introducing more services.

“My feeling is that the era of very high valuations is not going to continue. We have witnessed that in the capital market in the US, followed by the capital market in Egypt,” Mr Sabry told The National.

“[FinTechs in Egypt] will have to exert a lot of effort in the coming two years and have a business that has very clear foundations.”

FinTech companies have been flourishing in the country of more than 100 million people, tapping into a largely unbanked population while benefitting from new central bank regulations and an influx of investments.

Last year, Egyptian start-ups raised a record $491 million in 147 deals and attracted the highest percentage of foreign investors in the Middle East and North Africa, according to data platform Magnitt. FinTech accounted for 17 per cent of total deals closed in the country.

On top of the game

Founded in 2008, Fawry offers bill payment and financial services to consumers and businesses through a variety of channels across more than 225,000 locations in Egypt.

As the Covid-19 pandemic accelerated the shift to digital payments with consumers switching to cashless payments and online shopping, Fawry became Egypt’s first unicorn, hitting a market capitalisation of more than $1 billion in August 2020 — one year after its listing on the Egyptian stock exchange (EGX).

In February 2021, the company's valuation surpassed $2bn. However, its share price has fallen by more than 50 per cent from its May peak of 12.77 Egyptian pounds ($0.69), valuing the company at about $800m as of this week. Fawry's shares closed at 4.57 pounds on the EGX on Wednesday.

“The subdued performance recently is because of the turbulence in global stock markets in general,” said Hisham Hamdy, equity research analyst at Naeem Holding. “The EGX isn’t doing well, but fundamentally, Fawry is very strong.”

In the company's full-year earnings, released last week, Mr Sabry called 2021 “Fawry’s strongest year yet”.

Revenues rose 34 per cent year-on-year to 1.66bn pounds, though net income dipped 5 per cent to about 177m pounds.

Meanwhile, stock markets globally are closely watching a potential US interest rate hike next week, rising inflation and the economic impact of Russia’s war in Ukraine.

In Egypt — as in many other countries — the Russia-Ukraine crisis has led to higher food prices, reduced tourism inflows and falling foreign currency reserves. Last month, the Central Bank of Egypt raised interest rates for the first time since 2017 and devalued the pound by 14 per cent.

Egypt is also negotiating with the International Monetary Fund for a financial support package.

“Egyptian share prices in US dollars terms are breaking below the multi-year support line. More downside is likely. Chances are that this bourse will underperform the EM [emerging market] equity benchmark,” BCA Research said in a note earlier this month.

Gulf countries have committed up to $22bn in central bank deposits and investments to help Egypt weather the crisis. That includes $2bn from the UAE, $5bn from Qatar and $15bn from Saudi Arabia.

Raising new capital

Abu Dhabi’s holding company ADQ spent about $1.8bn to acquire stakes in five publicly-listed Egyptian companies — including Fawry — last month, to help bolster the country's economy and capitalise on its investment potential. The move is part of ADQ's $20bn joint strategic investment platform with The Sovereign Fund of Egypt that was launched in 2019.

As part of the deal, ADQ purchased 215.1 million Fawry shares for $68.6m, as well as a rights issue for another 201.6 million shares worth $54.9m. A rights issue allows shareholders to buy new shares at a discount for a certain period.

ADQ’s Alpha Oryx purchased the shares from the two state-owned banks: Banque Misr and the National Bank of Egypt. It is now Fawry’s largest institutional shareholder with 12.6 per cent of the company’s shares.

Other institutional shareholders include Link Hold Company, Banque Misr, the Egyptian-American Enterprise Fund, Black Sparrow Long Term Investments, Actis Egypt Payments and the National Bank of Egypt.

In January, Fawry received an approval from its board of directors to create an American Depositary Shares (ADS) programme, which would allow the company to list shares in the US. Mr Sabry said Fawry is exploring an SEC-registered secondary offering to follow, but declined to provide further details or a timeline.

“We are a large platform serving millions of Egyptians, and accordingly, listing on [the] EGX was most appropriate for the company,” Mr Sabry said.

“As long as investors have the appetite to invest in the Egyptian stock exchange … then it makes sense. Sometimes the market conditions will not encourage investors to invest in the local exchange and then you have a problem.”

Expanding product offerings

Fawry will use the nearly $55m raised through ADQ’s rights issue purchase to widen its product offerings, including a buy-now-pay-later (BNPL) platform, myFawry pre-paid cards, consumer finance and a mutual fund with Misr Capital.

The company also plans to expand its nationwide point-of-sale network, its Fawry Plus branches and users of its myFawry app, which racked up nearly five million cumulative downloads in 2021, compared to 1.7 million in 2020.

Mr Sabry expects Fawry’s business to grow more than 40 per cent this year.

“All components of the business will drive the overall revenue growth. However, new business initiatives like acceptance, agent banking services and financial services will be higher contributors to our growth,” he said.

Last year, Fawry acquired minority stakes in Egyptian food delivery app elmenus and social e-commerce platform Brimore. In February, it co-launched Roaderz, a platform linking couriers and small delivery operations to e-commerce merchants and social sellers.

Fawry's ultimate goal is to become a “super app” that provides a variety of lifestyle services to its customers.

“Our direction is that we are focusing on the three main anchor dimensions of a super app, which are digital payments, financial services and commerce,” Mr Sabry said.

There are over a dozen financial services and e-payments companies in Egypt, including Aman, Bee, Khazna, Masary and MNT-Halan.

“Currently, Fawry is the market leader in the e-payments area,” said Mr Hamdy of Naeem Holding.

If Fawry continues to invest in the Egyptian market, retain customers and offer more services, it is unlikely to lose market share “but, of course, the throughput value could be eaten because of competition”, he added.

As for international expansion, Fawry ventured outside Egypt for the first time last year with an investment deal in Sudan’s alsoug.com e-marketing platform.

“Our expansion strategy is to leverage our technology in partnership with reputable local partners in underserved countries,” Mr Sabry said.

“Egypt is such a big market that we want to focus on. However, this does not stop us from being opportunistic.”