Lamda Development: a bet on the transformation of Athens (BUY - initiation of coverage)

We initiate coverage of Lamda Development (Lamda) with a BUY, and we set our 12M price target (PT) at EUR 7.5/share (c.EUR 3.8/share attributable to the existing assets, and EUR 3.8/share to Hellinikon). Lamda owns and manages a portfolio of four shopping centres and two marinas in Greece. These have a GAV of EUR 1.2bn, a NAV of EUR 0.7bn and a LTV of c.50%, and generate stable income, with FFO of c.EUR 30-40m p.a. In 2014, Lamda won a tender for the privatisation and development of the old Athens airport, Ellinikon, a long-disused site roughly three times the size of Monaco. Lamda kicked off the ground works last year. There should be a big park, a beach, a marina, a number of residential buildings (both leafy low-rise neighbourhoods and tall towers), and two shopping centres, two office districts, hotels, an Integrated Casino Resort, and various sports and public facilities. Frontloaded infrastructure and land capex, and high overhead costs mean that Lamda’s net debt may increase by c.EUR 0.8-1.0bn by 2027E. Afterwards, Ellinikon should turn cash positive, opening up the room for dividends (on our estimates, in the 2030s). The key risks include yield expansion, delays, cost overruns, and a failure to monetise the assets. The initial projects have been received enthusiastically by clients. If the GPM exceeds c.20-30% on the Ellinikon project sales, there could be tangible upside for our PT. With the stock trading c.15% below its NAV, the current levels could be a good entry point for long-term investors willing to bet on the success of one of the biggest European urban regeneration initiatives.