PRIME INVESTMENT RESEARCH AUTOMOTIVE |EGYPT GB AUTO – INITIATION OF COVERAGE JANUARY, 14 TH 2016 PRIME INVESTMENT RESEARCH HOUSING|EGYPT PORTO GROUP – INITIATION OF COVERAGE AUGUST, 4TH 2016 WE INITIATE COVERAGE FOR … PORT … ASSIGNING A “STRONG BUY” RATING PORTO GROUP, … IS CURRENTLY TAKING ITS PRIMARY AND SECONDARY HOME DEVELOPMENTS TO EGYPT`S YET UNTAPPED LOCATIONS BY THE COUNTRY`S PREMIUM DEVELOPERS. … IS GROWING ITS REGIONAL FOOTPRINT, WHICH ALLOWS FOR MORE EXPANSION AND FURTHER CO- DEVELOPMENT AGREEMENTS. … THE GROUP CURRENTLY APPLIES ONE OF THE BEST STRATEGIC BUSINESS MODELS, SAVING LAND COSTS AND SPEEDING UP DEVELOPMENTS. WE INITIATE COVERAGE FOR PORTO GROUP AT A FAIR VALUE OF EGP 0.47/SHARE IMPLYING 74.5% UPSIDE POTENTIAL. HENCE, WE ASSIGN PORT A “STRONG BUY” RATING.
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Porto Group - Initiation of Coverage - August 2016
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PRIME INVESTMENT RESEARCH AUTOMOTIVE |EGYPT
GB AUTO – INITIATION OF COVERAGE JANUARY, 14TH
2016
PRIME INVESTMENT RESEARCH
HOUSING|EGYPT PORTO GROUP – INITIATION OF COVERAGE
AUGUST, 4TH 2016
WE INITIATE COVERAGE FOR … PORT … ASSIGNING A “STRONG BUY” RATING
PORTO GROUP, … IS CURRENTLY TAKING ITS PRIMARY AND SECONDARY
HOME DEVELOPMENTS TO EGYPT`S YET UNTAPPED
LOCATIONS BY THE COUNTRY`S PREMIUM DEVELOPERS. … IS GROWING ITS REGIONAL FOOTPRINT, WHICH
ALLOWS FOR MORE EXPANSION AND FURTHER CO-DEVELOPMENT AGREEMENTS. … THE GROUP CURRENTLY APPLIES ONE OF THE BEST
STRATEGIC BUSINESS MODELS, SAVING LAND COSTS AND
SPEEDING UP DEVELOPMENTS.
WE INITIATE COVERAGE FOR PORTO GROUP AT A FAIR VALUE OF
EGP 0.47/SHARE IMPLYING 74.5% UPSIDE POTENTIAL.
HENCE, WE ASSIGN PORT A “STRONG BUY” RATING.
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PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
We initiate coverage on Porto with a fair value of EGP 0.47/share, we valued Porto Group using SoTP valuation, utilizing an average Cost of Equity of 21.3%; resulting in74.5% upside over current trading level. Porto Group is legally a newly formed entity; the company currently carries operations for 12 projects; 9 of which are domestically deployed, while 3 others are located regionally in Jordan, Syria and Morocco. Back in the days, Porto was just an entertainment concept aiming to gather up families in Porto destinations that were fully equipped with all possible amenities, shopping malls, and golf, fountains or lagoons views. However, the concept got bigger and became widely recognized and mature to the extent the company`s management decided to spin it off in an attempt to make its value more apparent. A spin-off resulted in a solely focused real estate developer “Porto Group”, with a business model skewed towards co-development agreements to skillfully maneuver the inflationary environment and competition over scarce premium spots in satellite cities and secondary home premium spots “North Coast”. Such Co-development agreements help speeding up projects set up and construction, benefiting from the absence of land costs. The group`s unified rainbow theme design implemented across all the company`s projects` portfolio helps saving up bulk design costs incurred by peers. Porto also subcontracts the building and construction process to multiple sub-contractors of medium size which also helps speeding up projects` implementation. The group also indicates that development takes place across multiple projects simultaneously according to the managements` analysis of cost-benefit outcome to match the selling and marketing activities. We believe the Real Estate sector is currently suffering from an implicit stress not yet severe enough to shape a trauma but definitely sets a probable downside risk that might be on its way to grow until explosion. There is currently an estimated total of 3mn real demanded housing units surpassing the highly priced offering available, mostly from the middle-to-low income brackets. However, yet from all income classes we see the population putting in more efforts to satisfy their residential needs before its way too expensive to do so, whether such residential need is for immediate use and satisfaction or as an inventory for promising use. Such beliefs are driving prices even higher, which mandates us to warn about a red flag we see; payment defaults might be on its way up already; but still covered by new purchases, which led developers to extend their payment schemes offered up to 10 years in some cases. In addition to that the recent devaluation rounds have led too much to preserve money in real estate, a matter that might even grow more in times the greenback become too scarce to find. Such risk would definitely impact investors’ resale values due to the average citizen being under severe attack from inflation. In brief, dynamics` correction might be fierce, in case pricing upward jumps continues. However, we see Porto Group perfectly benefiting from the current real estate dynamics, being a middle income housing provider with eyes on the high end, through its gated premium quality recent developments in West and East Cairo. The group is also on its way to build a portfolio of recurring revenue streams properties which we value most on a NAV basis as the developments will add heavily to the company`s health while we are not yet fully sure of such developments treatment whether they will be sold to third parties or become operated by Amer Group. Porto Group enjoys an unlevered status, with minimal over draft amounts apparently raised and closed before quarters` ends, to cover up any probable short fall in cash balances and/or advances, due to the accelerated execution that take place by the company. Such aspect remains a key to valuation upgrade, as it would alter the massive cost of capital downward, once Porto decides on shifting its capital structure.
PORTO GROUP … ONE OF EGYPT`S TOP RE PLAYERS, DIVERSIFYING ITS
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PRIME
Porto Group has a rich pipeline of launches expected. The company said it plans launching Porto Heliopolis and Porto Saeed, two major catalysts to the company`s stock before year end; following Porto Pyramids launch in 1Q2016. However, we currently account for Porto Heliopolis launch to take place in 2016, and believe that Porto Saeed launch will not take place before 2017. We considered Porto Heliopolis in our valuation being closer to materialize in our opinion, while Porto Saeed would be added once the company announces further details concerning the master plan, pricing and final launch date as the project is one of the few huge projects the company owns, in addition to that some aspects of the project are still under licensing.
Valuation
From the rich portfolio we see owned by Porto group, we found Porto October to be the largest contributor to the company`s valuation adding 27.7% of total value. We valued the residential and commercial portion of each project using a Discounted Cash Flows methodology, while valuing the land areas dedicated to schools, hospitals, garages, clubs and/or hotels on Net Asset Value basis post contributing the third party share. Although such NAVs are at the more or less relative and/or subjective, we maintained our conservatism to the extent in setting values, in order not to be over optimistic while not neglecting a massive portion of land area unaccounted for. We assumed 2017/2018 to be the range within which the company to decide on such properties destination, whether they will be retained and operated by Amer Group or sold to third parties.
We valued Porto Group using SoTP; the largest contributor to our valuation was the residential and commercial portion of all projects, summing EGP 0.329/share equivalent to approximately 70.1% of our value, while NAV added EGP 0.07/share equivalent to 13.8%. Hence, SoTP yielded a total of EFP 1,801.8mn equivalent to EGP 0.395/share.
Although Porto Group still carries a debt free balance sheet, the adverse impact of discounting cash flow as the cost of equity was partially smoothed through adding a net cash balance to the stock`s value; adding approximately EGP 0.08/share.
We did not add Porto Saeed to the valued projects, as we chose to wait for the announcement of a specific launch date, or a closer guidance to the anticipated pricing levels and planned construction and infrastructure costs. However, we valued the project on a DCF basis fully utilizing our assumptions, which would definitely add at least 6-7% to the company`s valuation. Porto Saeed will become the stock`s upcoming catalyst along with Heliopolis launch.
Porto Group Portfolio
Value - in EGP mn Value/Share SoTP Contribution to Total Value
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
Upside Risks
1) Faster than accounted for selling duration, as we extended most projects` sales duration more than
planned; due to our beliefs is currently suffering from a stressed status.
2) More co-development agreements to follow after the current portfolio`s successful execution.
3) Inflation easing, macro status improvement reflected in disposable income and purchasing power enhancement would definitely be reflected positively on Porto Group being the ultimate gated community targeted by most middle-income youth.
4) Adding Porto Saeed NPV to the stock`s total value once the master plan, pricing and final launch date are announced, would add at least 6-7% per our preliminary figures.
5) Any progress from the morocco government concerning the legal procedures and land allocation for Porto Agadir would act as strong upside to the stock as the project is not accounted for in our valuation.
6) Considering debt financing would add up to the company`s valuation, in case new sales fall short.
Downside Risks
1) In our view, any further EGP devaluation, would adversely impact real estate sales` proceeds from now on, as the pricing level is seen steep upward sloping with un matching income levels able to support the current inflationary environment.
2) Porto Group`s plans for targeting more high-end income related citizens on the cost of losing the middle income client base, might be fatal, due to the high end concentrated market and the middle income affordability obstacles.
3) A Stagnant status to hit the real estate market, on the back of hyper increase in selling prices.
4) Absence of rapid solutions for Egypt`s current economic conditions would adversely affect demand for the real estate sector.
5) Further building materials costs increase beyond our estimations, would negatively affect Porto Group`s margins.
5
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
Debt/Equity NA NA NA NA Presented to match revenues recognition for illustration, contribution is instantly due from contracted sales.
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PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
The Spin-off Story
Back in November 2014, Egypt’s real estate firm Amer Group announced the extraordinary general meeting’s approval of splitting the company into two separate companies; Amer Holding (demerging company) and Porto Holding (demerged company).
The spin off rationale was about the Porto concept getting mature without a matching recognition as expected by the management, as the management believed that through splitting the 2 entities the value implied in Porto projects would become more transparent and clear. While Amer Group pre-split carried revenue streams of property management would then become priced and reflected in the stock`s performance. Hence, the spin off took place to show both companies real intrinsic value.
The two companies joined EGX database on 21 October, and commenced trading on 22 October 2015. The split took place based on the book value as per 9M2015 Financials, hence splitting assets and liabilities at the carrying value at the split date. Amer board decided the split to take place on a 2:1 ratio, cutting down Amer Group par value to EGP 0.2/share to create Porto Group`s EGP 0.1/share worth par value. The capital cut took Amer paid in capital to EGP 911.9mn down from EGP 1,367.9mn, and hence creating Porto Group`s current capital of EGP 455.9mn. Amer group commenced trading at EGP 0.58/share, while Porto group commenced at EGP 0.29/share.
Porto Group became Egypt`s middle income-targeting real estate developer carrying projects locally in primary and secondary residential markets, while taking its successful secondary home concept regionally; through flying to Jordan, Morocco and Syria. Amer Group turned into specializing in hospitality, restaurants, and commercial centers operations in addition to property management.
Porto Group in Focus
Porto Group took over the responsibility of real estate development post the split; the company currently has an impressive portfolio of launched and under-designing/licensing projects. Located in Egypt`s most exclusive locations beside some of the region`s attractive spots in Jordon, Morocco and Syria.
The current projects portfolio indicates a business model skewed towards co-development agreements, to maneuver Egypt`s skyrocketing land prices that threaten the sector`s health along with other aspects that ultimately lead to hammering the end users through unprecedented cost pressures to satisfy their residential needs. Hence, through such revenue sharing skewed business model, Porto is seen performing well through its targeted middle income with an affordable wide ranged offering that guarantees healthy margins.
The group operates through a number of subsidiaries almost fully owned, through which the company supervises
its operations domestically and regionally.
Domestic Subsidiaries Ownership % Country of Establishment Porto for Real Estate Development 96.0% Egypt
Delmar for Eeal Estate Development 99.7% Egypt Porto New Cairo 99.9% Egypt
Porto October 99.9% Egypt Porto Saeed 70.0% Egypt
Porto Pyramids 70.0% Egypt Al Alameen Education and Development 87.5% Egypt
Deals 99.9% Egypt Porto Mediterranean 100.0% BVI
Amer Syria 99.9% Syria
Porto International 95.3% UAE Porto Dead Sea 77.0% Jordan
Porto Agadir 90.0% Morocco
Porto Group Subsidiaries
SOURCE: PORTO GROUP
7
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PORTO GROUP
Operational Overview
In contrary to the norm, the pre-split developer Amer Group primary operations started by the familiar restaurant chain known today. As the group grew back in the days, Real Estate operations became a new target. The group real estate operation started by targeting secondary home destinations, mainly through invading Egypt`s North coast. A move that grew a decent pool of promising clients, encouraging more diversification to target the primary residential market Cairo. Amer introduced its primary housing Porto Concept through multiple promising developments in East and West Cairo; that grew enough for a spin off. Porto is currently in charge of developing 12 projects distributed across Egypt and the MENA region, divided between primary residential destinations and secondary homes. All of the projects are developed on a revenue sharing basis with co-developers who mainly supply needed land plots with the exception of Porto Cairo, whose land is owned and paid by Porto, beside Porto Dead Sea and Agadir whose land payments will be incurred by Porto once certain conditions are met. All of the group`s projects whether targeting primary or secondary housing, enjoy the characteristics of the mixed-use developments; being rich with entertainment destinations, commercial properties including office buildings, hotel chains and healthcare developments in addition to shopping malls and other necessary and/or luxurious amenities. Porto Group is in charge of developing all of the projects` BUA, which is later recognized on the company`s statements as its own revenues. However, the group will not be involved with running the recurring income properties, as the property management duties were transferred to Amer Group co. at the spin off. The Porto concept became a destination for non-residents as well through its seasonal and annual concerts and other musical and entertainment festivals held across the group`s projects that helps in capturing the attention of potential buyers while successfully retaining the group`s current residents interest in future Porto developments as a destination for their children. Such heavy spending on providing the ultimate easy life helped Porto to stand out when it comes to competition over Egypt`s middle income class, as the group offering comes at reasonable prices. The Porto concept was to an extent capable of extending it's offering as well to enlarge its target pool through addressing the high end income class population through its east and west Cairo developments that competes well with other sophisticated developments found there.
Porto currently has access to 4,746.3k Sqm of land area, currently 2.9% is owned by the company representing Porto Cairo`s land while the remaining portion are obtained through Joint Ventures or Co-development Agreements the company joins. As per the company, Porto`s direct ownership will be growing after fulfilling Porto Dead Sea`s and Agadir`s liabilities and conditions. The remaining projects are held on co-development agreements with Amer Group, third parties and KUWAIDCO the largest contributor to Porto`s currently under-development land bank.
Project Launch
Year Project Status Location Type
Land Ownership/Partners
Third Party Share
Land Area - Sqm (`000)
Porto Cairo 2007 Developed East Cairo Primary/Mixed Porto Group - 137.3
Porto New Cairo 2013 In Progress East Cairo Primary/Mixed KUWAIDCO 25% 54.5
Porto October 2013 In Progress West Cairo Primary/Mixed KUWAIDCO 25% 1,381.0
Porto Pyramids 2016 Undeveloped West Cairo Primary/Mixed Third Party 19% 102.0
Porto Heliopolis 2016 Undeveloped Central Cairo Primary/Mixed Amer Group 40% 27.0
Porto Saeed 2016 Undeveloped Port Saeed Primary/Mixed Tower for Tourism &
Investment 15.50% 428.8
Porto Lagoons 2015 In Progress North Coast Secondary/Mixed Amer Group 20% 139.0
Porto Sokhna Islands
2015 In Progress Suez gulf
Coast Secondary Amer Group 20% 152.0
Porto Matrouh 2015 In Progress Matrouh Secondary/Mixed Amer Group 20% 133.0
Porto Tartous 2010 Development
Ceased Syria Secondary/Mixed Anterados 50% 186.0
Porto Dead Sea 2014 In Progress Jordan Secondary/Mixed Jordanian
Development Company - 805.8
Porto Agadir TBA Under
Licensing Morocco Secondary/Mixed
Morocco Engineering Co. Tourist
- 1,200.0
Total 4,746.3
8
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PORTO GROUP
PORTO GROUP LAND OWNERSHIP … FROM C. 3% TO SHOOT UPWARD FOLLOWING AGADIR AND DEAD SEA LAND OWNERSHIP TRANSFER
SOURCE: PORTO GROUP, PRIME
Porto group currently has 8 launched and ongoing projects; Porto Cairo, New Cairo, October, Pyramids, Lagoons, Sokhna islands, Matrouh and Dead Sea; which have resulted in accumulated sales up to 1Q2016 of EGP 7.41bn. Out of which EGP 2.03bn have been recognized as of the end of 1Q2016. The group also has a strong and promising pipeline of project launches with Porto Heliopolis and Porto Saeed indicated to be launched before 2016 year end. Porto Tartous Syria was supposed to be launched in 2010, in which some of the commercial properties were actually established and operated, however the project was halted due to the ongoing security turbulences threatening operations. Porto Group also has interest in Morocco through its secondary home target project "Porto Agadir" which is still under licensing and design with no exact launch date yet announced.
Project Planned
Launch Year Projected
Launch Date Projected Start of
Delivery Sales up till
1Q2016 Recognized Revenues
Total BUA
Sold BUA to date
in EGP mn in `000 Sqm
Porto Cairo 2007 2007 2010/2015 1,185.33 1,146.43 84.7 74.0
Porto New Cairo 2013 2013 2016 1,895.83 - 207.7 109.2
Porto October 2013 2013 2015 3,611.02 882.21 692.0 269.6
Porto Pyramids 2016 2016 2018 26.83 - 175.5 2.5
Porto Heliopolis 2016 2016 2019 - - 175.8 -
Porto Saeed 2016 2017 2019 - - 328.5 -
Porto Lagoons 2015 2015 2017 175.10 - 138.0 21.3
Porto Sokhna Islands
2015 2015 2017 388.79 - 65.8 38.0
Porto Matrouh 2015 2015 2017 8.38 - 84.0 0.9
Porto Tartous 2010 2010 TBA - - - -
Porto Dead Sea 2014 2014 2017 117.51 - 250.0 5.4
Porto Agadir TBA TBA TBA - - 323.0 - Total
7,408.79 2,028.65 2,525.1 520.8
Strategic Business Model
We see Porto Group`s current business model as a high risk/high return model, as the model mainly depends on land contribution from third parties. The high risk is stemmed from the currently unavailable free land bank owned by Porto Group for other projects deployment beyond its 12 projects` pipeline. While the high reward is mainly due to the ready to move to land plots contributed through the strategic JVs the company enter, which helps in speeding up the infrastructure and construction phases, and lead to sales launch in record time. As most of the contributed projects land, was originally acquired way below the current inflated auctioned land prices; hence, securing rich margins. The group has not yet recognized revenues except from Porto Cairo and Porto October, although it has a respectful sum of sales to date, which promises a strong recognition over the upcoming years. The group has only sold c. 21% of its BUA which help minimizing the downside risk of free land bank unavailability beyond the announced projects.
9.5%
30.2%
15.1%
45.2%
Amer Group
KUWAIDCO
Other Developers/Authorities
Porto Group
9.5%
30.2%
15.1% 2.9%
42.3%
Amer Group
KUWAIDCO
Other Developers/Authorities
Porto Group
Dead Sea & Agadir
9
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PRIME
SOURCE: PRIME
Projects` Analysis
According to our estimated we believe, Porto Group currently has EGP 17.2bn of sales to take place from 2016 to
2023, with revenues to be recognized over 2016-2025 totaling EGP 21.6bn, excluding Porto Saeed and Porto Agadir,
as both projects are still under design and not fully licensed yet. This should act as a strong upside to our numbers
once progress takes place in any of the 2 not included projects, as we roughly estimate Porto Saeed`s sales above EGP
2.7bn, which should strongly add to the company`s promising revenues. We estimated Porto group dues to co-
development partners for their land contribution at c. EGP 4.4bn from contracted sales. The group also still has EGP
9.97bn of development costs to be recognized.
Over the forecast horizon, we see Porto October the highest in contribution to sales and revenues recognition, given
the project size, followed by Porto Dead Sea the company`s first successful attempt in penetrating the MENA region
through its secondary home concept. The average payment duration followed is 4-years for all residential sales,
whether primary or secondary housing, while commercial payment schedules range from 2 to 3 years.
Usually, real Estate developers launch their commercial and retail allocated areas for sale earlier than residential
launch, to add value to their properties and execute sales at a fast tracked time line. Such methodology is not strictly
followed by Porto Group; that often launch Amer featured chains first.The group is known for its fast tracked
construction process and committed delivery dates. We believe units’ delivery usually takes 3 years for the first patch
of sales, followed by an average of 2 years. Mainly due to the group construction methodology of contraction trusted
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PORTO, PRIME
SOURCE: PRIME
SOURCE: PRIME
SOURCE: PORTO, PRIME
4- Porto Pyramids The company most recent launch that took place in 1Q2016, to record contracted sales of EGP 26.8mn for 14 units at an average area of 180 Sqm per unit. The project is planned over 101.9k Sqm over which a total BUA of 175.5k Sqm will be developed, mostly residential in addition to a planned 5-stars hotel and a sports club beside a garage available to the commercial area. We project the total project sales at EGP 1.59bn with costs estimated at EGP 0.73bn. The project is developed in cooperation with a third party contributing the land area in return for 19% of contracted sales leaving around EGP 1.29bn of sales for Porto Group, according to our estimates.
We see sales smoothing beyond 2017 and extended it to 2021; however, we believe the development will be relatively less priced in comparison with Porto New Cairo and Porto October. We expect deliveries and recognition to start by 2018.
Porto Pyramids Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -
The group`s anticipated launch for 2016, probably taking place in 4Q2016; to raise the Porto flags in Heliopolis district, to an extent away from the deadly competition over the East and West. The project will be mostly apartment buildings, planned over 27k Sqm, over which 132.6k Sqm will represent the residential BUA, 23.2k Sqm for the commercial developments and other Service BUA of 20k Sqm including Hospital and other offices. The project`s land was provided by Amer Group co. in return for 40% revenue share.
We believe Porto Heliopolis will be more than welcomed from a large tranche of Cairo`s residents who are not looking to shift to the outskirts while searching for the amenities provided by today`s modern gated live communities. We see 2016 residential sales at 10% of the BUA, and then set a pyramid shaped scheme. Concerning the project pricing, we launch sales at approximately EGP 10k/Sqm and do not exceed EGP 11.5k/Sqm over the sales duration. As the project is mainly apartment buildings, in one of Egypt`s over crowded districts; however, we see an upgrade potential for the pricing scheme if the company was actually able to set higher prices.
Porto Heliopolis Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -
26,957
BUA Area 132,560 23,187 20,083 175,830
Total Project Sales EGP 2.15bn Total Development Costs EGP 1.45bn
7- Porto Sokhna islands A secondary home project, complementary to Porto Sokhna, constructed over a land area of 152k Sqm, and a BUA of 65.8k Sqm. The project has no commercial or other services allocated area, as an incentive to Porto Sokhna commercial operations, while saving extra development costs. The project`s land is one of Amer Group`s properties in return for a 20% share. We estimate the project`s total sales at EGP 0.71bn out of which EGP 0.35bn remains unrealized. We set the project`s costs equivalent to EGP 0.42bn, considering the rough nature of lands in such location, requiring higher infrastructure and construction costs. The project is also planned to include a 50 beds hospital, in process over an 8k Sqm land area with a total BUA of 6.2k Sqm which we valued at EGP 16.1mn. The hospital construction would add a strong upside potential to Porto Sokhna islands valuation, as the project`s location is known for its scarce medical care destinations, especially if Porto Group decided on retaining the property to be operated by Amer Group instead of selling it.
Porto Sokhna islands Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -
152,000
BUA Area 65,830 0 0 65,830
Total Project Sales EGP 0.71bn Total Development Costs EGP 0.42bn
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PRIME
SOURCE: PORTO, PRIME
8- Porto Matrouh The project is considered Porto’s one step forward ahead of Egypt`s real estate developers, being the first sophisticated developer to apply the secondary home concept in Marsa Matrouh. The city is currently getting more attention as the government keeps on extending better infrastructure. We estimate the project total sales to come north to EGP 0.76bn, with almost 1% of which being already sold up to 1Q2016. The project is the 4
th
collaboration with Amer Group, contributing the land area for 20% of the project collected sales value. We estimate development cost to reach EGP 0.42bn, which stills leaves a healthy margin after considering Amer group`s share. We set the project`s delivery at 2-years, with minimal deliveries taking place in 2017 and speeding up from 2018, we also set the project`s average payment schedule at 4-years; and remain conservative in pricing the project until the group proves its pricing power over Matrouh. The sellable residential component represents 6.5% of BUA, while the remainder will mainly be operated on a time-share basis. The project also contains around 6.2k Sqm of commercial area, believed to include the group`s featured cuisines and shopping experience.
Porto Matrouh Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PRIME
SOURCE: PORTO, PRIME
9- Porto Dead Sea The group`s most successful regional journey to date, the second most value additive project following Porto October. The project is planned over 805k Sqm, provided by the Jordanian development company in return for JOD 21mn equivalent to EGP 260mn according to our estimation, mainly on the back of the planned payment scheme and the estimated EGP status versus the JOD. The land liability is payable over 4 years, with the remaining portion paid as a one shoot in the fifth year; the project`s land ownership will be transferred to Porto Group then. the project is planned over a BUA of 250k Sqm subject to increase, as the project is an all apartments project on Jordan Eastern shore. Currently Porto Group is developing approximately 250k Sqm of the project`s land as a first stage, the company will receive the remaining area once the first stage is developed as a sort of development guarantee from the authority there. The land was subject to several conflicts; however, Porto Group is not part of such conflicts and was promised by the Jordanian government that the project will progress as planned with no risks seen over the horizon. The project total estimated sales is close to EGP 5bn, with development costs expected to reach EGP 2.7bn, due to the rocky nature of the land provided which requires heavy infrastructure installation costs; yet the project offers an average margin of 44.5% over the recognition period. Out of the total project estimated sales, EGP 117.5mn were recorded in 2015, with no sales recorded in 1Q2016. We set deliveries according to the company`s guidance, to start by 2017, with the commercial component deliveries to start by 2019. The project is planned to include a 5-stars hotel, entrainment allocated BUA mainly for a Cinema and water park establishment in addition to Porto`s featured restaurants chain owned by Amer in addition to third parties as well.
Porto Dead Sea Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -
805,774
BUA Area 183,306 24,673 42,021 250,000
Total Project Sales EGP 4.94bn Total Development Costs EGP 2.70bn
PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
SOURCE: PORTO, PRIME
SOURCE: PRIME
SOURCE: PRIME
10- Porto Saeed (not included in valuation) The group`s entry to Port Saeed, a promising value additive project not included in our valuation yet. Once launch take place we will instantly revise our preliminary estimates, as we believe the project is still missing some details on the final master plan, in addition to the pricing level suitable to Port Saeed known for a relatively well-being citizens. The project is planned over a total land area of 428.8k Sqm contributed by a third party in return of 15.5% of the project`s contracted sales. The project`s preliminary announced BUA stands at 328.5k Sqm, of which c. 70% represents primary housing area. The project is also planned to feature a hotel, club and school once the group receives the required licenses.
The project was preliminary set for launch by 2016 year end; however, we anticipate such launch to show up in 1H2017. We estimate the project`s payment schedule over 4 years with deliveries to start taking place by 2019. We subjectively estimate the project`s total sales at EGP 2.76bn contracted from 2017 to 2021, and development costs at EGP 1.1bn.
Porto Saeed Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -
428,777
BUA Area 229,834 36,003 62,649 328,486
Total Project Sales EGP 2.76bn Total Development Costs EGP 1.1bn
11- Porto Agadir & Tartous (not included in valuation) Porto Agadir is the 2nd largest land area in the group`s portfolio, Porto Group will have be the sole owner of such land area after receiving the go-ahead approvals and licenses. Porto group already paid a 5% down payment, and will pay 15% once the license is received and the remaining 80% over 4 installments.
Porto Agadir Residential BUA Commercial BUA Services BUA Aggregate Area Land Area - -
1,200,000
BUA Area 130,380 12,940 179,720 323,040
We did not include both projects in Tartous and Agadir, as both projects destiny remains uncertain; however, we see potential that Porto Agadir will get its license in the short term, as the process is currently under usual inspection from the Morocco government.
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PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
AUGUST, 2016
Stock Recommendation Guidelines
Recommendation Target-to-Market Price (x)
Buy x > 15%
Accumulate 5%< x <15%
Hold -5% < x < 5%
Reduce -15% < x < -5%
Sell x < -15%
Strong Buy x > 40%
Investment Grade Explanation
Growth 3 Yr. Earnings CAGR > 20%
Value Equity Positioned Within Maturity Stage of Cycle
Speculative Quality Earnings Reflect Above Normal Risk Factor
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PRIME INVESTMENT RESEARCH PORTO GROUP - INITIATION OF COVERAGE
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