Upgrade to Overweight on improved outlook
Pricing and timeline behind rating upgrade. Emaar Misr attended our 2nd Annual MENA Investor Conference in Cairo, ending 1 Feb 2018. During a meeting with management, we were able to improve our visibility on several aspects of the company, namely its monetisation plan for the coming years, which led us to: i) hike average pricing by c25% for 2018, and ii) shorten the company’s sales timeline by five years, jointly resulting in a 27% increase to 2018-20e sales forecasts. Consequently, we hike our TP by 25%, implying an upside of 34%, and warranting an upgrade to Overweight from Neutral.
Emaar Misr a market leader in cash generation. Emaar Misr currently has a backlog of cEGP32bn, and receivables of cEGP23bn – making it a market leader in these aspects. This implies an EV to backlog of 0.2x, a c67% discount to peer average. Emaar Misr has been able to charge prices of cEGP50k/sqm on a selection of its products, while maintaining 4-6 year payment plans. Additionally, Emaar Square, in Uptown Cairo, is expected to be launched this year (cEGP2.5bn in 2018e), along with 500-1k apartments in Marassi Marina (cEGP3.9bn in 2018e).
Land acquisition a priority in the near future. During NUCA’s last land auction in January 2018, where 13 plots were offered on a revenue-sharing basis, Emaar Misr bid for three plots in East Cairo (0.4mn, 1.4mn, and 1.7mn sqm), and two in West Cairo (1.7mn and 4.2mn sqm), with the results of the auction not yet disclosed. With a net cash balance of over EGP9bn (55% of market cap), the company is in a strong negotiating position with regards to land acquisitions, with the ability to pay more cash up front. The last phases of Mivida are expected to be sold this year, leaving the company with only Uptown Cairo as primary home exposure, making land acquisition (c4.2mn sqm remaining) vital, in our view.
Concerns and upsides to valuation. Our main concerns for Emaar Misr include: i) any further delays to the launch of Emaar Square, ii) a lack of land acquisitions in the near future, with Mivida expected to be sold out this year, and iii) the inability to capitalise or monetise on significant cash balance (expected to be invested in recurring income assets and land bank expansion). The main upsides to our valuation are: i) the launch of non-residential zones (discounted land valuation), supported by the know-how stemming from sister companies, and ii) higher-than-expected sales pace (8 years) or price growth (avg. of 10% p.a during that period).
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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