EUR 21.63 For Business Accounts Only

Trading around net cash; Catalysts on the horizon

Current levels not to be ignored. Emaar Misr currently trades relatively in line with the company’s implied net cash per share (EGP2.82/share), which we view as unjustified. This implies the company’s entire residual land bank, as well as its outstanding receivables from sold units, has no worth, leading us to believe that there is limited downside from current levels. Adding receivables (cEGP26bn), netted of construction, SG&As, and taxes, discounted at 18% and collected over five years, this would imply a floor valuation of EGP3.48/share. This, in our view, means the stock should be trading at that level at least, assuming the market assigns no value to the company’s residual land bank and future sales, implying a minimum upside of c30% from current levels to reach the floor valuation.

Marassi holds the lion’s share of valuation. Following consecutive years of sales in excess of EGP7bn in Marassi, Emaar Misr has proven its ability to continue to sell in the project, despite the weakness seen in other projects in the North Coast. Accordingly, Marassi is the biggest contributor to our valuation (44% of EV), with presales expected to average at EGP7bn over the coming three years, coupled with cash collections of cEGP36bn over the coming ten years at a margin of c50%. For Uptown Cairo (23% of EV), we assume the project will be sold on an extended timeline of 15 years, while Mivida (20% of EV) is set to be sold out by end-2020e, with only cEGP2bn of sellable inventory remaining in the project.    

West Cairo projects the main catalyst in the near future. Emaar recently agreed with NUCA to pay an EGP880mn fee to convert Cairo Gate to a residential plot. The project is set to be launched in 1H20, marking the company’s first presence in West Cairo, with cEGP1.3bn of sales set to be generated during the year. The 500k sqm project is set to generate total sales proceeds of cEGP15bn over the course of five years, on our estimates. Additionally, Emaar Misr signed an agreement with the government to acquire a 500-feddan plot in West Cairo, for a total cost of cEGP5bn. As per our estimates, the project is set to be sold over a period of ten years, with the launch likely to come in 2021. We expect total sales proceeds of cEGP80bn from the project, with a blended gross margin of c40%.

Risks. The main downside risk we see is any slowdown in Marassi sales, along with continued delay in Uptown Cairo sales. The main upside risk to our valuation is the acquisition of further land, especially in East Cairo.