Echo Investment: Bigger, better, faster, stronger (upgraded to BUY)
Echo has been left behind by the strong share price performances of the other Polish developers. We believe that the market views – reasonably – the revaluation component of Echo’s earnings as being of weaker quality than the cash earned from apartment sales; while Echo’s higher leverage is likely another factor behind the performance differential, in our view. In addition, we realise that upgrading a developer to a BUY ahead of the start of a rate tightening cycle is an inherently risky call. That said, the two milestone disposals closed this year – the Villa and Malthouse offices – generated net proceeds worth over one-third of Echo’s market cap. They far offset the purchase price for Archicom, and pushed the leverage down from the elevated year-end level. Prices on the residential market continue to rally ahead, and the restrictive permitting situation and the limited availability of landbank are favouring larger developers with pipelines. Echo could sell over 3k apartments this year, and the growing share of resi improves the quality of its earnings. We estimate that the results from the residential business should push the earnings back to c.PLN 300m annually, which could lead to a dividend of around PLN 0.5/share again. If margins exceed our expectations, the earnings could exceed this level. We have upgraded Echo to BUY, setting our new 12M PT at PLN 5.3/share (from PLN 4.2).Echo Investment is a real estate investment and development company based in Poland. Co.'s is engaged in operations in the real estate market, the design, construction and development of shopping and entertainment centers, hotels, office buildings, houses, blocks of flats and apartments. Co.'s operations are organized along three operating segments: Shopping and Entertaining Centers, Offices and Hotels and Residential. Co. also offers general contracting services for third party investors. Co. owns properties throughout Poland, including Szczecin, Poznan, Warsaw, Krakow and Kielce, among others, and abroad, including Ukraine, Romania and Hungary.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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