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Round table with CEO; Meeting minutes

Y-t-d presales already surpass full year estimate. On 18 September, CI Capital hosted a round table discussion for local institutions with TMG’s management team, headed by TMG CEO and Managing Director, Hesham Talaat Moustafa. The main highlight was that sales-to-date reached cEGP18.5bn, already beating our full year estimate of EGP16.5bn by 12%, and 2017 full year figure of EGP13.1bn by 33%.This implies 3Q18 sales-to-date of cEGP5.6bn, up c24% y-o-y. This figure was strongly supported by sales in Celia reaching cEGP10.3bn (EGP7.2bn as of end-1H18) as of mid-August, while we had not factored in any further sales in Celia during 2018, following the 2Q18 launch. These sales were also boosted by the sale of commercial units (mall sold for EGP400mn), coupled with continued residential sales in Rehab and Madinaty (EGP1.5-2bn during 3Q18).

Reasons behind strong performance. Management was asked for the main reasons behind the company’s success over the past 12-18 months, ascribing it to: i) prioritising client needs and facilitating the process for them (i.e. sit-downs with pools of clients to discuss feasibility/affordability of payment plans), ii) the introduction of relatively more back-loaded payment plans, backed by a strong balance sheet, with c47% of sales in Celia being made on these terms, iii) major infrastructure spending in East Cairo, largely driven by the New Administrative Capital, iv) increased services and population in Madinaty (c150k currently, expected to reach c700k by project-end) continuing to drive sales, and v) the sale of non-core assets, improving quality of living and maximising value.  

Solid financial position. TMG currently has a net cash balance of cEGP3.1bn, with a backlog of EGP38bn (the highest in the market), and cEGP27.4bn remaining in collections (cEGP11.4bn net cash proceeds). Additionally, with margins on the sale of commercial units being in the 75% range, cash generation is expected to continue to improve. Management believes that the current sales levels are relatively sustainable in the coming few years, with demand in East Cairo still strong for the coming 15 years, on the back of heavy investment.

Outlook on recurring income. Recurring income currently comprises c25% of the gross profit, with the target being 40-45% by 2020. During 1H18, hospitality comprised c65% of recurring income, with revenue growing 52% y-o-y. As per management, occupancies are now at pre-revolution levels, with 443 keys to be added by 2021 (97 in Four Seasons Sharm El-Sheikh extension in 2019 and 346 in Four Seasons Madinaty by 2021). In addition to hospitality, club memberships are expected to generate EGP20-23bn over the coming 10 years, with each membership costing an average EGP150k. Additionally, 500-700k sqm of retail is expected to be added at The Spine, TMG’s flagship project in Madinaty, with the majority being leased out, potentially generating EGP10bn p.a. in the long-run.