EUR 21.46 For Business Accounts Only

Still one of our top picks in the sector; Maintain TP

Improved sales outlook in O-West. We maintain our TP at EGP12.0/share, implying upside of 90%, warranting an Overweight rating. This cements ODE as one of our top picks. We upgrade our 2019 sales estimate by 30% to EGP6.8bn, in line with the company’s target of EGP6.5-7.0bn, with 9M19 sales (EGP5.5bn) already exceeding our previous estimate of EGP5.3bn, on the back of stronger-than-expected sales in O-West (EGP3.5bn in 9M19). We expect the project to be sold in 12 years (18 years previously), with sales over the next five years forecast to generate EGP30bn (EGP19bn previously). This comes as volumes are likely to be at least maintained at current levels (c1k units p.a.) and pricing at a slight premium to inflation, resulting in a 15% increase to our valuation of the project.

Margins pressured by stronger EGP. In 2019, the EGP appreciated by 10%, directly impacting ODE. With ARRs priced in USD, hospitality margins took a hit, impacting the company’s blended margin. That said, we expect the outlook to improve as ARRs grow and the EGP depreciates in the coming years (EGP17.11 expected in 2021). Pricing for El-Gouna real estate was not negatively impacted (+10% y-o-y), with the cap on the USD conversion rate being removed (was capped at EGP15), maintaining our valuation of El-Gouna, with O-West and a better net cash position offsetting the lower valuation of the hotels.   

Current levels assign zero value to O-West, hotels. Current levels imply the market only accounts for the El-Gouna land and recurring income services, as per our valuation, implying that the market assigns zero value to: i) hotels (9M19 EBITDA of EGP1.1bn, +12% y-o-y), ii) O-West (cEGP30bn in sales expected in the next five years), iii) Makadi (EGP7bn sales expected until 2024), and iv) residual land in Byoum and Taba (2.5 mn sqm). That said, the stock currently trades on an EV of EGP450/sqm, in line with the peer average, in a largely undervalued market.

Still the best play on Egyptian tourism. We view ODE as the best play on the recovering Egyptian tourism sector, with no other names providing similar exposure to the segment. 2019 tourist arrivals are expected to increase by 30% y-o-y, reaching c14.5mn arrivals. This compares to pre-2011 levels, which peaked at 14mn arrivals in 2010, signalling that the recovery process is well underway. Further boosting the sector is Germany’s lift of the ban on flights to Taba in July, and the resumption of British flights to Sharm El-Sheikh after a four-year hiatus.