ALDAR UH | Maintain OW, despite strong stock performance
Solid exposure to AD property market. We raise our TP by 35% to AED3.70/share, primarily on improved outlook for the company’s recurring income portfolio (NOI up c20% in coming five years). Aldar’s property segment posted a strong 9M20, recording sales of AED2.0bn despite no new launches, and revenue of AED3.4bn (+64% y-o-y). This was enough to offset the 16% drop seen in recurring income, with the retail segment primarily impacted by the pandemic. Aldar’s backlog stands at AED3.1bn, recognisable over the coming three years, providing strong earnings visibility. We expect property revenue to comprise c50% of top line over 2021-23e vs. 60% historically, with recurring income also picking up (2020-23e CAGR of 9%), on: i) a lower interest rate environment (125 bps cut y-t-d), ii) removal of rent relief measures, and iii) improving tourism dynamics (potential vaccine + Expo).
Current levels assign zero value to development business. Aldar’s recurring income portfolio holds the lion’s share of valuation (80% of EV), with the current share price equal to our valuation of the company’s operating assets (incl. net debt). This implies that, at current levels, the market is not pricing in the projects (cAED20bn sales in next five years) and the c75mn sqm of infrastructure-enabled land. Aldar trades on a 2021e P/E of 9.4x, implying a c30% discount to regional peers, despite its recent rally (+50% over the past two months).
Recent government deal provides upside to our numbers. On 25 October, Aldar signed a AED30bn MoU with the Abu Dhabi’s holding company, ADQ, to develop and manage government capital projects (mostly national housing), to be executed over 3-5 years. The deal is set to include 25k plots and units to be developed for UAE citizens, with Aldar also managing projects for Musanada (Abu Dhabi General Services). The deal could generate revenue of cAED300mn p.a., assuming a 5% commission on the AED30bn over five years, implying that, upon completion, this deal could potentially increase our TP by c5%.
Positive outlook, with delayed recovery the main concern. Margins and cash flow are set to normalise over the coming few years, reaching 40% and AED2.6bn by 2022e, respectively. That said, the main risk to these assumptions is a delayed recovery, negatively impacting the operating segment (for every 10% change in occupancy, our valuation increases/decreases by c3%, all else constant).
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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