Edison issues initiation - Palm Hills Developments

London, UK, 28 April 2016

Edison issues initiation on Palm Hills Developments

Palm Hills (PHDC) has capitalised on a period of strong housing demand (which the recent devaluation continues to support) during the economic recovery since the 2011 revolution to accelerate development and grow sales. The balance sheet has been significantly strengthened since and the group is actively pursuing growth of its land bank following a period of optimisation. As operating cash flow improves, the company is investing in recurring revenue streams from commercial properties. Despite these positive developments, the share price has continued to lag the sector and it now trades at one of the lowest price-to-book ratios in the peer group.

Palm Hills' current share price is c 10% below FY15 NAV of EGP2.73/share. However, the land bank is held at cost and there is potential upside from future profits on development projects. Including a mark-to-market value for the land bank and hotels on management's guidance gives an NAV of EGP4.54. We estimate that the NPV of future profits from residential developments and the Palm October Club could add a further EGP1.60, leading to a total potential value of EGP6.14/share.

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