Palm Hills sales in Q3 2018 were weak as result of rise in competition: report
A recent report issued by Pharos Research noted that Palm Hills sales in the third quarter (Q3) of the year were weak as competition stiffened on the North Coast this summer, which gave way to almost flat performance year-over-year (y-o-y), and the launch of Badya in Q2 of 2018, which translated into the sharp quarter-over-quarter (q-o-q) decline.
Palm Hills Developments (PHDC) achieved a 20.7% y-o-y increase in the first 9 months of 2018 (9M18) in sales to EGP 9.8bn.
“This comes in comparison to our fiscal year (FY) 2018 sales forecast of EGP 10.0bn and renders the company’s FY18 sales target of EGP 12.0bn likely to be met, especially in light of the company’s planned launch of Badya’s second phase in the fourth quarter (Q4) of 2018,” the report noted.
“We maintain our ‘overweight’ recommendation of PHDC based on our fair value (FV) of EGP 5.60 per share which is mainly supported by the company’sWest Cairo development portfolio,” it added.
Meanwhile, another research note issued by HC Securities noted that Orascom Development Egypt (ODE) offers a solid growth story with a significant land bank, a strong management team, and a relatively smaller backlog.
“With a proportionate undeveloped land bank of 26.4m sqm, strong management, and a relatively smaller backlog of EGP 2.52bn, ODE offers a solid growth story, in our view. The launch of O West, slated for Q1 of 2019, can generate consolidated sales of some EGP 71.0bn, on our numbers, over 2019–29e (estimated), or EGP 7.10bn annually (assuming an floor area ration of 0.50x, 100% residential component, and a 10-year sales horizon), which would increase annual average net contracted sales to EGP 9.1bn compared to the company’s 2018e sales target of EGP 2.00bn,” the report noted.
It added that ODE’s largest Red Sea destination, El Gouna, which offers 22.9m sqm of undeveloped land,also offers significant growth prospects as the company has managed to transform the project into a destination via the establishment of schools,medical facilities,and a university.
“With concerns of oversupply and lower affordability dominating the uppermiddle real-estate sector,we see minimal effect on ODE due to its limited unit offerings to a niche market and unique locations.We expect the company to report strong 2018e net contracted sales, as we forecast sales of EGP 2.18bn, 49% higher y-o-y.We account only for the launched phases, which yield a net contracted sales figure of EGP 9.34bn over Q4 of 2018–2024e,” it added.
The report expects total collections of EGP 13.6bn over Q4 of 2018–2024e, which includes EGP 4.28bn from existing receivables, in addition to the new sales of EGP 9.34m, while we estimate CAPEX spending of EGP 5.48bn over Q4 of 2018–2024e.
“Our Q4 of 2018–2024e total revenue forecast of EGP 30.6bn and includes EGP 13.8bn in hospitality revenue, EGP 11.9bn in real-estate revenue with town management revenue, and other services (we exclude revenue from Tamweel starting 2019e) to contribute the remaining EGP 4.92bn.”
Hospitality is the largest component of the report 2018–24e revenue forecast at 45%, followed by real-estate activity at 39%, with other components including town management services to contribute 16%. In 2017, the company announced a debt-deleveraging plan financed through the offloading of noncore assets,including ODE’s 86% stake in Tamweel,some 3 hotels in Makadi,along with a land plot.
The asset sale would result in total debt deconsolidation of EGP 1.36bn along with net cash proceeds of EGP 798m.
“We estimate total debt repayment of EGP 3.57bn over our Q4 of 2018–24e forecast period. This should decrease the company’s net debt/equity to 0.74x in 2019e from 1.68x as of Q3 of 2018,” the report concluded.
Meanwhile, Pharos Research has set the FV of 10 lenders listed on the Egyptian Exchange (EGX).
The FV of the heavyweight Commercial International Bank, CIB, was set at EGP 105 per share, with an ‘Equal weight’ recommendation, the research firm highlighted in a note onWednesday.
The Cairo-based company has also recommended ‘overweight’ on each of Abu Dhabi Islamic Bank – Egypt (ADIB), Al Baraka Bank Egypt, and Credit Agricole at FVs of EGP 29,EGP 18.5,and EGP 60, respectively.
Pharos recommended ‘overweight’ on each of Export Development Bank of Egypt (EBE), and Housing and Development Bank (HDBK) at FVs of EGP 18.5 and EGP 75, respectively, and ‘overweight’ on Suez Canal Bank and Qatar National BankAlAhli at FVs of EGP 18.5 and EGP 70, respectively.
Moreover, the Egyptian research firm endorsed an ‘Equal weight’ recommendation on Faisal Islamic Bank of Egypt and Egyptian Gulf Bank (EG Bank) at FVs of EGP 22.5 and $1.1 per share, respectively, according to the research noted.
“All FVs exclude potential 5% industry development tax previously proposed by the CBE,” Pharos noted.
In other researches, Capital Intelligence Ratings (CI) has raised the longterm foreign and local currencies rating of Egypt to “B+” from “B”.
Meanwhile, the Cyprus-based ratings agency has affirmed the North African nation’s short-term currency rating at “B”, CI added in a recent report.
The rating is being reviewed to‘stable’ from‘positive’,the rating services agency indicated.
The most populousArab county’s rating was driven by the above-expectation increase in foreign-currency reserves that allowed a better coverage of total overseas financing and the ability to face external obstacles, CI said.
Egypt’s more sustainable debt levels, in line with the improved financial landscape,have contributed to the rating,the agency highlighted, adding that shortterm financing risks declined.