Reiterate Overweight as top tourism exposure
Improving tourism outlook positive for ODE. We maintain our TP at EGP9.00/share, implying 68% upside. We reiterate our Overweight call, supported by the improving tourism outlook, which is expected to reflect positively on the stock. Last week, Hurghada received its first EasyJet flight in three years, while Russians have started arriving at Sharm El-Sheikh, albeit through Kazakhstan. We expect the EasyJet news to reflect positively on El Gouna operations, with an increase in Hurghada prices and occupancies expected to have a trickle-down effect on El Gouna. Russians returning to Sharm El-Sheikh may bode well for the long-term story of Taba, previously a strong attraction for Russian tourism.
O-West launch a short-term catalyst. ODE’s long-awaited O-West project, the company’s first project in the primary market in Cairo, looms large, with a soft launch for the project expected in December (cEGP150mn on our estimates). Marketing for the project is already underway, and the major launch is expected early-2019 (cEGP1.7bn during 2019). We view this launch as a strong catalyst for the stock and expect the project to generate presales of cEGP14bn over the next five years (45% of sales). We forecast presales of EGP2.3bn during 2018, primarily driven by El Gouna, with support coming from the aforementioned launch and EGP200mn sales in Makadi.
Sale of non-core assets not in our numbers. ODE’s OGM approved the sale of Tamweel in June, and is currently in the process of selling its three hotels in Makadi. These transactions are expected to generate net proceeds of EGP800mn, with a one-time gain on the income statement of cEGP450mn, and cEGP260mn of unconsolidated debt. We await on more details regarding the timeline before including in our valuation. Once completed, these transactions would increase our TP by c10% (EGP0.95/share), all else constant. That said, we do not account for any revenue from Makadi hotels or Tamweel starting 2019.
ODE trading at a discount to less favourable Egyptian Resorts. ODE trades on an EV of EGP380/sqm, a c45% discount to ERC [Underweight | TP EGP1.50]’s EGP680/sqm. We find this unjustified, as ODE is significantly better operationally positioned (17a OCF of EGP700mn vs. EGP4mn for ERC), with clearer earnings visibility (18e ROE 35% vs 18% for ERC) and a more diversified portfolio. Accordingly, we view ODE as the cheapest entry point for touristic exposure.
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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