WOOD Flash – Echo Investment: 4Q19 – beats vs. both our and consensus estimates, but 2020E may prove challenging
Echo reported its 4Q19 figures yesterday (23 March). The company delivered a substantial beat to both our and the consensus forecasts for 4Q19, and reached net profit of PLN 300m for the year, exceeding our estimate of PLN 249m. With c.PLN 1.5bn of equity, this translates into a ROE of 20%, capping another stellar year for the company. We believe that Echo has sufficient liquidity to see 2020E through, even if it does not sell any of its office buildings this year. There is only one tranche of bonds maturing this year – PLN 100m coming due in November – and management suggested that the company should be able to finance the bulk of its office developments via project loans. That said, against the rapidly deteriorating economic backdrop (we forecast GDP to decline by 2% in Poland in 2020E), we believe the leasing demand may soften and the transaction activity may fall materially this year. This could translate into weaker rents and a temporary yield expansion, meaning that visibility on the 2020E profit – and the dividend – is limited at this stage. With a portfolio of excellent projects, we maintain our view that Echo is an attractive long-term play on the evolution of the Polish real estate market. That said, in the near term, we believe the risks are skewed to the downside.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.
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