ORHD EY | Hedge against any EGP weakness; Triggers await
Merits of EGP weakness. The benefit comes in three forms: enhanced value of El Gouna’s pending collections, higher hotel revenue and profitability, and an upward revaluation of FCY assets. ODE’s FCY debt partially offsets the positivity, albeit with a delayed cash flow impact – in the absence of significant debt repayments until at least 2024e. Any EGP weakness, however, would be net income/valuation-neutral, in our view, considering the net negative balance sheet revaluation impact.
Growing FCY resources, against stable needs. Foreign guests typically account for c75% of total hotel guests, while hotel revenue contributes c25-30% of ODE’s top line. This implies c20-25% in FCY revenue. Moreover, USD-linked El Gouna contracts account for c50% of sales and real estate revenue. These come against a full EGP-cost base and a shrinking FCY debt. ODE’s 2023-24e FCY hotel revenue stands at c5x its FCY debt requirements through 2024e, implying a growing FCY cash balance.
Cheap on almost every metric. ODE trades on an EV/sqm of cEGP260, at an unjustified c60% discount to peers and c25% discount to its historical five-year average. The stock is also cheap on more typical multiples, including P/E (2022e: 2.4x, vs. 5.5x for peers, and 10.7x for historical average). We adjust our TP to EGP8.70/share, as we apply a 40% discount to NAV – in line with the stock’s historical average. We flag the resolution of the overhang from El Gouna’s penalty as one of the main stock triggers.
Largely mitigated risks. ODE’s hotel segment is structurally vulnerable to external factors affecting international travel. This came into test post the COVID-19 outbreak, whereby local guests only partially compensated for lower international flow. A sharp EGP depreciation may temporarily interrupt demand for El Gouna units and hurt earnings if it exceeds the prevailing USD cap rate for real estate (currently at EGP22/USD). ODE’s real estate operations have proven to be solid, with an evident ability to sell, raise prices, and deliver timely, while maintaining healthy OCFs.
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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