EUR 29.77 For Business Accounts Only

TMG to lead market consolidation; Top pick

Share price not reflective of operational performance. We now view TMG as our top pick among Egypt's real estate stocks on: i) largest backlog in the market (EGP38bn), providing visibility on future revenue, ii) high-margin commercial sales (27% of 2017 sales), capitalising on increasing population, iii) exposure to a strong recurring income portfolio (25% of 2017 top line), guaranteeing sustainable cash flow, iv) strongest footing in East Cairo, with a clear monetisation pipeline, and v) a strong track record and balance sheet (EGP2.7bn net cash as of end-1H18), hedging against imminent headwinds. TMG’s current EV implies EGP1.1k/sqm for its residual land, a 27% discount to the peer average and a 50% discount to the EGP2.2k/sqm paid for Celia’s plot.     

Celia a strong contributor to presales over the next few years. Following strong sales in 2Q18 at Celia (EGP7.2bn), 82% higher than our previous estimate, leading TMG to post its record quarterly sales to date (EGP10bn), we do not expect to see any other major launches in the project during 2H18. As such, we hike our 2018e presales estimate by 18% to EGP16.5bn. That said, we expect the project to be fully sold and constructed/delivered by 2021 and 2025, respectively. As per our estimates, Celia will comprise c34% of the group’s total sales and c46% of total residential sales over the project’s horizon (avg. of EGP6.5bn p.a.).

Look for major non-residential launch during 3Q18. TMG is expected to launch a new commercial phase in Madinaty during 3Q18, which follows the sale of the company’s portfolio of operational schools in Madinaty and Rehab in 2Q18 for a cost of EGP1bn. We forecast commercial sales of EGP4bn (+10% y-o-y) for the full year, with the bulk generated from the upcoming launch. This comes in line with TMG’s strategy to monetise its non-residential assets and allow specialised entities to manage the services portfolio to improve the overall product offering.

Risks and catalysts. Risks include: i) intensified competition in East Cairo, ii) further delay in monetary easing, and iii) short-term pressure from smaller companies providing favourable payment plans. The main catalysts we see are: i) launch of commercial component in Madinaty during 3Q18, ii) sustained strong sales in Celia, Madinaty and final phase of Rehab, and iii) continued improvement in hotels (+52% y-o-y in 1H18) and recurring income (+46% y-o-y) performance.