16 Nov 2016 15:57
London, UK, 16 November 2016
Edison issues research update on Palm Hills Developments (PHDC)
The continued strength of the Egyptian residential property market has supported strong Q3 sales for Palm Hills and further residential project launches to come in Q416 are expected to keep the sales pipeline full in the medium term. Commercial real estate has contributed 10% to net profit over the year so far, a growing share of which is now recurring, and three commercial construction projects are due to be completed in FY17. Management plans to securitise up to EGP2.5bn of receivables to help accelerate construction and possibly to repay the syndicated loan earlier than scheduled. We have decreased our 2016 EBIT forecasts to reflect the accounting changes and delivery mix; our overall valuation is only slightly lower due to the reduced scope of three residential projects.
We maintain our previous valuation approach, where we take Q316 reported NAV of EGP2.58 per share and add the potential uplift of EGP1.81 (unchanged) in valuation of undeveloped land and the hotel assets, and then add the NPV of future profits from residential development of EGP1.33 (was 1.60). The decrease in the last component is due to the reduced scale of certain projects and using a slightly higher discount rate. The resulting total valuation is EGP5.73 (was EGP6.14).
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