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LAMDA DEVELOPMENT | Ellinikon ‘unlocked’

Ellinikon finally underway … – Following the signed share transfer agreement and the payment of the first instalment for the land ownership rights in June 2021, Lamda has officially started the Ellinikon project development. The project is broken into 2 phases, with the first encompassing projects in high-end tourism, residential development, shopping malls and commercial areas for offices (along with necessary infrastructure works and part of the metropolitan park area) and the second phase dedicated mainly to mainstream residencies, a business district and education/leisure.

€6.5 per share post-tax value by 2025 – Valuing Ellinikon based on combined cash flows/exit yield assumptions, we estimate an €8.4 per share (pre-tax) NAV creation from the project in 2025, namely at the end of Phase 1 when landmark projects are to be completed. This translates into post-tax value of €6.5 in 2025e, or €5.2 on a 12mth forward basis (using an 8% discount rate). Our estimated pre-tax value of €8.4 lies at the low end of the value range provided by Lamda management (€8.2-10.5 per share), mainly as our cost assumptions sit at the high-end of the target range, especially for the residential projects. Our key assumptions for investments sum up to c€2.5bn in Phase 1 (of which c€1bn for land & infrastructure and €1.5bn for development capex) and c€5.3bn in Phase 2 (10yrs post 2025), of which c€0.9bn for land & infra.

Residential assumptions key for project value – With the residential project accounting for more than half of the value creation on our estimates, we lay out in detail our key assumptions in this note. Flexing our forecasts for residence prices by 1,000€/NSA in Phase 1 and 500€/NSA in Phase 2, we estimate a €0.7-1.2 NAV impact per share post tax respectively in our 2022e value.

Recalibrating forecasts for Ellinikon consolidation; modest changes to retail EBITDA – We have recalibrated our model consolidating Ellinikon while updating our FY21e for the rent discounts/lockdowns during the year. Looking ahead to FY22e, we project a 36% yoy increase in retail EBITDA (c2% below 2019 levels) followed by 8% growth in 2022e driven by recovery of footfall/base rents. At group level, our updated forecasts reflect higher Ellinikon operating costs and increased financial expenses partly offset by revaluation gains, thus leading to a slight net loss of €9m in FY’22e but material cash inflows post 2023e. Given the different timing of cash inflows and revenue booked, we expect cash flow to become the overriding driver of stock performance.

Valuation – We use a SOTP methodology, valuing separately Ellinikon (DCF of net flows) and the existing asset base (blended exit yield of c6.6% on 2022e). Our SOTP returns a 12-month PT of €10.3, indicating a c30% premium to 2022e NAV in anticipation of Ellinikon value creation. We thus estimate that the current share price attaches only a portion of the Ellinikon value, due to the long-term horizon of the project and the related uncertainties over the timing/size of cash flows. We expect the shares to move higher in the valuation spectrum as project implementation rolls over and execution quells investor concerns.