Egypt real estate | 2020 off year for developers amid COVID-19 outbreak, paves way for recovery in 2021
Real estate sector fares better than previously indicated signs. Stocks across the board were impacted by COVID-19, especially in the real estate sector (-25% y-t-d vs. -20% for the EGX). The impact on the ground, however, has not been as negative as early signs indicated. Stronger-than-expected 1H20 performance and improved access to financing (300bps cut), along with earlier-than-expected removal of state banks’ 15% CDs (maturing Mar-21, potential flows into RE sector) are all pillars for the sector’s recovery starting 2021, in our view. That said, sales and cash flow have been heavily impacted in 2020e, with the lower base likely resulting in a trickle effect in the coming years, leading to an average 25% cut to our TPs. Nonetheless, we look for improvement in 2H20, with early signs already seen over the past two months. On an annual basis, we expect 2020e sales to fall by c30% y-o-y vs. the 50% drop we had initially expected.
Current valuations are unjustified, in our view. We believe some names have reached largely unjustified levels (average cash + receivables coverage at 80% of market cap), with some attractive entry points arising. Emaar currently trades at par with its net cash position, making it the most defensive name within our coverage. TMG and SODIC both trade near their floor valuations (net cash + receivables), and their earnings visibility and stock dynamics would allow them to rerate faster than Emaar, in our view. ODE could continue to feel the pressure, given its relatively high dependence on tourism (c20% of TP). MNHD’s lack of land commitments helps its cause, but has limited triggers in the short run.
Positive sector outlook beyond 2020. Once the storm passes, we believe there will be less competition in the market, with smaller, less established names set to drop out of the market amid current pressures, while lower interest rates should pave the way for improved cash flow dynamics for the sector in 2021 (lower discount rates, improved CoF). The main risk for companies, in our view, is the cost overruns that may arise from the current conditions, along with potentially lower spending power for end-users if the pandemic persists, leading us to believe that the recovery could potentially be gradual rather than V-shaped.
TMG and SODIC our top picks, ODE a longer term play. We believe TMG and SODIC are best-positioned to take advantage of the surrounding weakness in the market post-pandemic, on: i) strong enough balance sheets, to weather the current storm, ii) ability to expedite construction and achieve delivery targets, iii) recent access to sizeable funding (including the EGP4bn land sale for TMG that implies a land valuation of EGP11.7k/sqm and the recent EGP2.6bn loan acquired by SODIC), and iv) strong sales pipelines to absorb pent-up demand and liquidity. ODE could also be viewed as a favourable long-term play, with tourism recovery likely set to take more time, in our view, despite some positive signs of potential, gradual recovery seen recently.
Madinet Nasr for Housing and Development is engaged in the development of land and buildings and facilities including acquisition of land and real estate sale and rental, dividing it and providing all types of facilities necessary for reconstruction and connected to it in Nasr City and other areas nationwide, the purchase and development, utilization, leasing and sale of all buildings and land. Co. can establish, manage and invest in all residential, administrative, touristic, recreational and all projects, and all real estate operations, financial, commercial and entertainment, as well as carrying out design, and engineering consultancy, and supervision of the execution by others.
Orascom Development Egypt SAE Formerly known as Orascom Hotels & Development. Orascom Hotels and Development SAE (OHD), a member of Orascom Group, is an Egypt-based company engaged in the hotel and tourism development sector. The Company focuses on developing a 3,356 million squire meter area for tourism purpose, and providing it with utilities and infrastructure to develop El Gouna area in Al Gardaqa, Red Sea Governorate, on the basis of 50% hotels and 50% tourist accommodations. The Company is active, along with its subsidiaries, in a range of sectors, including hotel, car rental, real estate and development, hospital, education, real estate mortgage, town management, leasing, agriculture, housing and tourism, among others. As of December 31, 2011, the Company's subsidiaries included, among others, Taba Heights Co., Orascom Limousine Co., Misr El Fayoum for Touristic Development Company SAE and El Gouna Hospital Company.
Sixth of October Development and Investment Co SAE. Sixth of October Development and Investment Company SAE (SODIC) is an Egypt-based company engaged in real estate development projects and operations. The Company is specialized in lands acquisition and subdivision for the purpose of properties development, selling or leasing; construction and integrated construction activities and operations as well as other supplementary works; building, selling and leasing all various kinds of real estate properties; urban communities development; working in the field of tourist development and in all tourist establishments field including building , managing , selling or utilizing hotels, motels, restaurants and tourist villages, as well as sporting, entertainment, medical and educational buildings. The Company's subsidiaries include, among others, SODIC Real Estate Services Company, Sixth of October for Development & Real Estate Projects and Move-In for Advanced Contracting Co SAE.
Talaat Moustafa Group is the a community real estate developer in Egypt, with a land bank of 50 million square meters. Co. is engaged in "community development" through establishing self-sustained residential city and community complexes for the upper and middle classes. Co.'s prominent development projects include Al Rehab City, East of Cairo, and the "Madinaty" project spanning over 33.6 million sqm of land with 600,000 target residents. Co.'s developments also include compounds such as May Fair in Al Shourouk, East of Cairo and Al Rabwa I & II in Six of October City, West of Cairo. Co.'s activities also extend to the hotels and resorts.
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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