Room for growth despite recent rally; Overweight
Buy on growth in El Gouna, cheap valuation. We reinitiate on ODE with a TP of EGP32/share, implying an upside of c29%, warranting an OW rating. Despite the c300% share price rally witnessed in 2017, we still see further value stemming from: i) increasing real estate pricing in El Gouna (+33% y-o-y in 9M17, 10-15% p.a. going forward), with pricing in USD at an FX rate ceiling of 13.75 (c25% discount to spot rate), ii) continued improvement in El Gouna hotels, with current occupancy (77%, +21pp y-o-y) expected to reach 85% and growing ARRs (+45% y-o-y) and, iii) ODE’s 2018e EV/EBITDA, P/E and P/B all trading at a c60% discount to global peers (c25% discount to ERC’s EV/sqm).
El Gouna main TP contributor. El Gouna is still only c40% developed, leaving c22mn sqm of undisputed residual land. This, along with El Gouna hotels, are the main contributors to our TP (c85% of EV). We assume monetisation for the residual land (c25 years), with management voicing its intentions to cut out land sales for residential projects and focus more on development, with stable volumes expected during the next five years (220 units p.a.).
Debt rescheduling takes pressure off strained BS. Following the devaluation of the EGP, ODE’s net debt currently stands at cEGP3.4bn, implying a ND/E of c1.9x, with c82% of its debt in foreign currency. However, ODE was able to reschedule its debt, by repaying EGP430mn up front and being granted a three-year grace period, with repayments over c5 years commencing in 2019. That said, even with a more fluid schedule, further extensions are expected to be made next year. Accordingly, we believe that a cut in interest rates would be beneficial, with cEGP800mn (18%) of debt obtained locally.
North Coast project main upside to our valuation. Management recently voiced its intentions to expand its land bank by acquiring a c400-feddan plot in the North Coast through a co-development agreement. With this plot still not under ODE’s umbrella, we choose not to include it in our valuation. That said, this plot could potentially add cEGP6/share to our TP, positioning it as arguably the biggest upside to our valuation. Other upsides include: i) more rooms available in Taba, and ii) real estate sales in Makadi and Byoum.
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.
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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