Undervalued market leader; Initiate with OW
Abu Dhabi economy on the rise. Higher oil prices (+14% y-t-d) and the announcement of a 3-year AED50bn stimulus package in Jun-18, with 40% earmarked for 2019, have contributed to an improved economic outlook for Abu Dhabi. This has reflected on the ADX performance (+11% y-t-d, +6% since Jun-18), but not real estate sector, be it on a sector level (real estate indicators still pointing downwards through 3Q18) or for real estate stocks in Abu Dhabi (Aldar: -20% y-t-d). Higher government spending, triggered by improved oil prospects and the front-loaded stimulus package, should translate into improved real estate demand, in our view, with the market starting to show signs of recovery in 2019.
Aldar provides exposure across real estate market. We initiate coverage on Aldar Properties with a TP of AED2.75/share, implying 62% upside and warranting an OW rating. Aldar primarily operates in two segments, namely real estate development and asset management. It recently diversified its real estate portfolio, targeting the underserved middle-income segment, with projects such as The Bridges and Water’s Edge (c25% of 2018e sales). Aldar also continues its high-end launches (new Yas Acres phase in Oct-18), keeping its off-plan market share in Abu Dhabi at c50%. Aldar operates assets in the retail, residential, commercial, and hotels segments, providing exposure to all corners of the real estate sector.
Market only pricing in operating assets. Aldar’s recurring income portfolio holds the lion’s share of valuation (70% 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 projects (cAED16bn sales in next five years) and the c75mn sqm of infrastructure-enabled land are free. Aldar trades on a 2019e P/E of 5.4x, implying a c50% discount to regional peers, while trading below its 5-year avg. P/NAV of 0.7x, reaching 0.6x – the lowest since Feb-16.
Emaar Dev. still our top pick. Although we believe Aldar is strongly undervalued, Emaar Dev. remains our top pick in the UAE, providing a more favourable dividend yield (10% vs. 7.6% for Aldar for 2018e) in the coming three years and a clear delivery pipeline, highlighted by its cAED38.5bn backlog. An AED5bn net cash balance (AED3.3bn net debt for Aldar) shields Emaar Dev. from the UAE’s current high interest rate environment.
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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