Share Data
Company Short Name TMG
Sector Housing
Company Traded Market EGX
Report Reason Update
Exchange Rate LE6.77/US$
Stock Currency EGP
Reuters Code TMGH.CA
Outstanding Shares (mn) 2,063.5
Par Value/Share (LE) 10
Financial Year Ending December
Mkt. Cap (LE mn) 8,522
Av. Daily Volume (000) 4,430 Price Low – High (LE) (52Wk.) 3.51-5.7
Shareholders
Owner-shipTMG for Touristic and Real Estate
Invest-ment 49.85%
Misr Insurance Company 4.43%
Banque Misr 2.66%
National Bank of Egypt 0.37%
Other Investors 22.96%
National Insurance company of Egypt 0.23%
Free Float 19.50%
Fiscal Year 2010a 2011a 2012a 2013f 2014f
Revenues (LE billion) 5,339 5,098 4,636 5,143 5,923
Growth 11% -5% -9% 11% 15%
EBITDA margin 22.7% 17.6% 19.3% 20.9% 18.8%
Net Income (LE million) 1,004 530 510 611 656
Net Attributable Income (LE mn) 940 578 546 569 611
EPS (LE) 0.46 0.28 0.26 0.28 0.30 EPS Growth -14.3% -40.1% -5.5% 4.2% 7.4% DPS (LE) 0.00 0.00 0.00 0.00 0.00 BVPS (LE) 12.10 12.09 12.30 12.55 12.83 P/E x 9.07 14.76 15.62 14.98 13.95 Dividend Yield 0.0% 0.0% 0.0% 0.0% 0.0% P/BV x 0.35 0.34 0.34 0.33 0.32
Stock Performance Chart (LE / Share)
Please refer to disclaimer on last page Figures are in LE mn unless stated otherwise Source: Company Historical & Prime Estimates
TMG reported a top line figure of LE4.6 billion, lower than our estimates of LE5 bil-lion, compared to LE5.1 billion in FY11, down by 9% y-o-y. Said decline is attributed to a 13% slump in real estate revenues on the back of delays in deliveries. Despite current economic and political ambiguity, TMG achieved gross new sales of approximately LE4.5 billion netting LE3.4 billion in FY12.
TMG maintained the backlog of sold but unrecognized units at LE18.5 billion offering 4-5 years of earnings visibility. On the other hand, total cancellations are still within normal rates representing 4.5% of total sales backlog under development. Overall, real estate contribution to top line declined from 90% in FY11 to 86% in FY12, whereas, tourism and other services contribution increased to 14% in FY12 from 10% in FY11.
Two appeals were made on the court verdict, which validated Madinaty con-tract: (i) an appeal by TMG on the request to revalue the unutilized land as the dispute relates to pre-contractual legal procedures and not the price of the land. (ii) an appeal by the claimant on the court verdict that the contract is valid. on January 16, 2013 judge accepted the two appeals and transferred the case to another court circuit. The next hearing is scheduled on April 16, 2013.
Regarding profitability, the change in revenues mix led to an increase in gross profit and EBITDA margins from 23% and 17.6% respectively in FY11 to 26.5% and 19.3% respectively in FY12. Below EBITDA, TMG reported capital gains and revaluation of mar-ketable securities amounting to LE36.6 million and LE13.6 million respectively in FY12. In the meantime, the results were negatively impacted by Foreign exchange losses of LE55.9 million in FY12. The above mentioned reasons led to a slump in the bottom line to LE545.7 million compared to E577.5 million, down by 5.5% y-o-y.
On March 4, 2013, TMG BOD approved disengaging from Saudi-based Thabat Real Estate Development. It worth mentioning that TMG and a Saudi company, Al Oula, bought a 3.0 million sqm land plot in Riyadh that they will jointly develop through a 50-50 joint-venture called Thabat. Al Oula is owned by the Al Fawzan and Al Muhaidib families. TMG has paid SAR300 million for the land. In our perspective, the divest will generate cash flows to TMG and will be injected to accelerate construction in Madinaty and Al Rehab projects as well as financing hotel expansions. The company hasn’t yet disclosed the expected price of the land sale.
We expect recorded revenues in FY13 to stem from deliveries of residential units. We conservatively assumed that the company will deliver approximately 5,500 units worth LE4.4 billion in FY13. In addition to LE700 million related to hotel and services revenues. Therefore, top line is assumed to come in at LE5.1 billion.
The increase in revenues is expected to push gross profit and EBITDA margins upwards to 27.8% and 20.9% respectively in FY13 from 26.5% and 19.3% respectively in FY11.Taking the above mentioned items into consideration, the bottom line figure is forecasted to report LE568.6 million in FY13, up by 4.2% y-o-y.
Utilizing a risk free rate of 13.6% and market risk premium of 8.3%, our DCF valuation model has yielded a target price of LE5.31/share, illustrating 28.5% upside potential over the current market price of LE4.13/share. Therefore, we issue “ Strong Buy” recommen-dation on the stock.
Analyst Rehab Taha, CFA
Phone +202 3300 5724
Email [email protected]
Target Price
Market Price
Investment Grade
LE5.31
LE4.13
Value
Recommendation
28.5%
Upside Potential
Strong Buy
0 1 2 3 4 5 6 7 8 20-F eb 2-A pr 20-M ay 3-J ul 15 -A ug 30-S ep 14 -N ov 27-D ec 12-F eb 0 3,000 6,000 9,000 12,000 15,000 18,000TMG achieved gross new sales of approximately LE4.5 billion in FY12 com-pared to LE3 billion in FY11.
on January 16, 2013 judge accepted the two appeals and transferred the case to another court circuit. The next hearing is scheduled on April 16, 2013.
Marsa Alam ruling has been postponed to April 30,2013
TMG disengaging from Saudi-based Thabat Real Estate Development
TMG reported a top line figure of LE4.6 billion, lower than our estimates of LE5 billion, compared to LE5.1 billion in FY11, down by 9% y-o-y
Solid Operational Performance
Despite current economic and political ambiguity, TMG achieved gross new sales of approximately LE4.5 billion in FY12 compared to LE3 billion in FY11. The company realized new sales of LE921 million in Q4 FY12, up by 4% y-o-y indicating clients’ confidence in the company’s creditworthiness and the strong de-mand for its products, which serve both middle and upper middle income classes. On the other hand, value of cancellation reached approximately LE1 billion brining net new sales to LE3.4 billion. TMG maintained the backlog of sold but unrecognized units at LE18.5 billion offering 4-5 years of earnings visibility.
Legal Issues
•
On November 22, 2011 the Administrative Court’s final ruling confirmed that Madinaty contract is valid and is in compliance with the Egyptian laws and regulations, consequently rejecting the lawsuit filed to revoke the contract. Later on, two appeals were made on the court verdict: (i) an appeal by TMG on the request to revalue the unutilized land as the dispute relates to pre-contractual legal procedures and not the price of the land. (ii) an appeal by the claimant on the court verdict that the contract is valid. on January 16, 2013 judge accepted the two appeals and transferred the case to another court circuit. The next hearing is scheduled on April 16, 2013.•
Marsa Alam ruling has been postponed to April 30, 2013. Worthy to note that a case was filed against TMG to nullify a land contract that awarded approximately 3 million sqm in Marsa Alam to one of TMG subsidiaries. The mentioned land was purchased at LE3 million planned to build a touristic project that hosts up to 750 hotels rooms and 2500 residential units. The first hearing was held on February 12, 2013 and the next one is scheduled on April 30, 2013.TMG disengaging from Saudi-based Thabat Real Estate Development
On March 4, 2013, TMG BOD approved disengaging from Saudi-based Thabat Real Estate Development. It worth mentioning that TMG and a Saudi company, Al Oula, bought a 3.0 million sqm land plot in Riyadh that they will jointly develop through a 50-50 joint-venture called Thabat. Al Oula is owned by the Al Faw-zan and Al Muhaidib families. TMG has paid SAR300 million for the land. In our perspective, the divest will generate cash flows to TMG and will be injected to accelerate construction in Madinaty and Al Rehab pro-jects as well as financing hotel expansions. The company hasn’t yet disclosed the expected price of the land sale.
TMG Financial Performance
TMG reported a top line figure of LE4.6 billion, lower than our estimates of LE5 billion, compared to LE5.1 billion in FY11, down by 9% y-o-y. Said decline is the combined effect of the following:
1) Real estate revenues declined by 13% y-o-y recording LE3.9 billion in FY12 compared to LE4.6 billion in the same comparable period last year. We attribute the decline in revenues to delays in deliv-eries of pre-sold units in prior years.
2) Revenues from hotels improved by 21% to LE421.3 million in FY12. The decline in hospitability revenues is attributed to the drop in tourism activi-ties.
3) Revenues from services improved by 50% to record LE215 million in FY12 backed by providing new services in Madinaty Project
Figure 1 Source:TMG
Hotels Operations
Occupancy Rate Average Room Rate (US$) GOP %
FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12
Four Seasons Nile Plaza 30% 37% 246 220 38% 40% 30% 32%
Four seasons Sharm 35% 43% 326 303 22% 31% 12% 20%
Four seasons San Stefano 43% 52% 234 248 22% 31% 9% 23%
NP %
Kempinski Nile Hotel 30% 39% 162 144 n/a 16% n/a 11%
86% 90% 86% 11% 9% 2% 5% 7% 3% 75% 80% 85% 90% 95% 100%
FY10a FY11a FY12a
The change in revenues mix led to an increase in gross profit and EBITDA margin from 23% and 17.6% respectively in FY11 to 26.5% and 19.3% re-spectively in FY12
bottom line declined to LE545.7 million compared to E577.5 million, down by 5.5% Y-o-Y.
Low financially leverage firm with debt/equity ratio of 13.6%
A 5.5% y-o-y slump in net income
The change in revenues mix led to an increase in gross profit margin from 23% in FY11 to 26.5% in FY12. SG&A expenses increased to LE333.2 million in FY12 compared to LE290.3 million in FY11, up by 14.7% y-o-y. The decline in COGS lead to a minor decline in EBITDA recording LE894.5 million in FY12 from LE896 million in FY11 leading to EBITDA margin of 19.3% in FY12 compared to 17.58% in FY11. Below EBITDA, TMG reported capital gains and revaluation of marketable securities amounting to LE36.6 million and LE13.6 million respectively in FY12. In the meantime, the results were nega-tively impacted by foreign exchange losses of LE55.9 million in FY12. The above mentioned reasons led to a slump in the bottom line to LE545.7 million compared to E577.5 million, down by 5.5% y-o-y.
Strong liquidity position and low gearing
TMG has strong liquidity position with cash and cash equiva-lent of approximately LE2.1 billion. In addition, the company recorded LE12.9 billion as accounts receivables. On the other hand, total debt increased by 12.5% to reached LE3.6 billion in FY12 with debt/equity ratio of 13.6%, illustrating low gear-ing. Figure 3 Source:TMG Figure 2 Source:TMG 15,183 17,222 14,064 12,944 4,239 4,122 15,394 15,406 0 10,000 20,000 30,000 40,000 50,000 60,000 FY11a FY12a
WIP (LE mn) Receivables (LE mn)
Net fixed Assets (LE mn) Goodwill (LE mn)
3,226 3,635 4,178 4,280 16,369 15,756 0 5,000 10,000 15,000 20,000 25,000 30,000 FY11a FY12a
Total Debt (LE mn) Long term Liabilities (LE mn) Advance payments (LE mn)
Composite of TMG’s total assets Composite of TMG’s total liabilities
Table 4 Source:TMG 895 896 1,213 546 578 940 22.7% 19.3% 17.6% 0 200 400 600 800 1,000 1,200 1,400
FY10a FY11a FY12a 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
EBITDA (LE mn) Net income (LE mn) EBITDA margin
The depreciation of the Egyptian pound along with high inflation will work in favor of real estate sector
TMG is predicted to witness a solid pre-sales level in FY13 amounting to LE5 billion.
We expect top line figure to come in at LE5.1 billion and conservatively as-sumed that the company will deliver approximately 5,500 units worth LE4.4 billion in FY13.
the bottom line figure is forecasted to report LE568.7 million in FY13, up by 4% y-o-y.
DCF valuation model has yielded a target price of LE5.31/share
TMG outlook in FY13
Despite lack of economic clarity, we have a positive sentiment on real estate sector and believe that the following factors work in favor of real estate sector in 2013:
1) The depreciation of the Egyptian Pound.
2) The expected increase in commodities prices following the government decision to amend current tax system (higher inflation rate)
3) The decline in residential units prices couples with attractive payment facilities provided by the devel-opers.
4) Strong real estate fundamentals (with two third of the population under the age of 30).
Therefore, we believe that TMG, the largest listed real estate developers targeting middle income class, will benefit from the robust demand on residential units. Accordingly, TMG will continue introducing products that target the middle income class, where there exists a real demand. it will also maintain offering schemes of up to 15 years to meet affordability of new potential buyers. Consequently, TMG is predicted to witness a solid pre-sales level in FY13 amounting to LE5 billion.
Although the company witnessed a further delays in deliveries, we believe that TMG decision to disengage from Saudi-based Thabat Real Estate Development will provide adequate liquidity to accelerate construction and deliveries. In addition, we believe that the tourism sector in Egypt will not rebound until political stabil-ity takes place. Therefore, we expect recorded revenues in FY13 to stem from deliveries of residential units. We expect top line figure to come in at LE5.1 billion and conservatively assumed that the company will de-liver approximately 5,500 units worth LE4.4 billion in FY13.
The increase in revenues is expected to push gross profit margin upwards to 27.87% in FY13 from 26.5% in FY11. We maintain SG&A/revenues ratio at 7% similar to FY12 levels. Therefore, EBITDA is estimated to come in at approximately LE1 billion in FY13 up from LE894.5 million in the same comparable period. In addition, EBITDA margin is assumed to record 20.87% in FY13 up from 19.3% in FY12. Taking the above mentioned items into consideration, the bottom line figure is forecasted to report LE568.7 million in FY13, up by 4% y-o-y.
Valuation
Utilizing a risk free rate of 13.6% and market risk premium of 8.3%, our DCF valuation model has yielded a target price of LE5.31/share, illustrating 28.5% upside potential over the current market price of LE4.13/ share. Therefore, we issue “ Strong Buy” recommendation on the stock.
Figure 5 Source: TMG 5,143 5,923 569 585 20.87% 18.75% 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 FY13f FY14f 17.50% 18.00% 18.50% 19.00% 19.50% 20.00% 20.50% 21.00% 21.50%
FINANCIAL S UM-MARY
(Figures in LE million))
Income Statement 2010a 2011a 2012a 2013f 2014f
Revenues 5,339.43 5,098.11 4,636.26 5,143.01 5,922.96
Growth 10.73% -4.52% -9.06% 10.93% 15.17%
COGS 3,817.06 3,911.56 3,408.43 3,709.54 4,397.56
S,G & Admin. Expenses 309.70 290.40 333.27 360.01 414.61
EBITDA 1,212.67 896.15 894.56 1,073.46 1,110.79
Growth -14.70% -26.10% -0.18% 20.00% 3.48%
EBITDA Margin 22.71% 17.58% 19.29% 20.87% 18.75%
Depreciation & Amortization 112.90 144.36 131.09 144.98 154.59
Operating EBIT 1,099.15 749.54 763.46 928.49 956.21
Interest Income 27.89 19.51 18.63 35.80 48.41
Investment Income 51.90 35.40 33.99 33.53 33.34
Interest Expense 174.62 185.40 157.98 182.80 162.72
Non-Operating Revenues 18.48 62.43 35.71 0.00 0.00
Pre Tax Income 1,021.31 621.34 693.30 815.02 875.23
Pre Tax Income Growth -31% -33% -6% 19% 7%
Income Tax 199.06 74.43 181.16 203.76 218.81
Effective Tax Rate 19.5% 12.0% 26.1% 25.0% 25.0%
NPAT 822.26 546.91 512.14 611.27 656.42
Growth -31.20% -33.49% -6.36% 19.36% 7.39%
Net Income 1,003.96 530.49 510.24 611.27 656.42
Net Attributable Income - NAI 940.01 577.51 545.73 568.74 610.75
Growth -15.02% -38.56% -5.50% 4.22% 7.39%
ROS 17.61% 11.33% 11.77% 11.06% 10.31%
Balance Sheet 2010a 2011a 2012a 2013f 2014f
Cash & Marketable Securities 1,710.2 1,257.1 1,235.0 1,752.2 1,998.9
Trade Receivables-Net 15,522.4 14,063.9 12,943.9 11,063.9 10,963.9
Inventory 13,834.5 15,214.8 17,251.5 18,427.0 18,677.0
Other Current Asset 2,920.8 2,412.1 2,481.7 2,571.5 2,369.2
Total Current Asset 33,987.9 32,947.9 33,912.1 33,814.6 34,009.0
Net Fixed Assets 4,341.2 4,238.9 4,122.4 4,603.7 4,706.3
Projects Under Implementation 189.9 299.3 1,249.1 624.5 562.1
Total Assets 54,873.3 53,889.3 54,964.2 54,725.1 54,930.8
Short Term Bank Debt 31.7 559.3 949.2 372.9 382.4
CPLTD 752.3 608.8 829.4 858.8 1,108.8
Accounts Payable 1,033.1 1,998.5 2,464.8 2,314.4 2,073.0
Dividend Payable 16.5 14.9 14.3 0.0 0.0
Total Current Liabilities 22,962.0 21,351.6 22,453.7 21,329.2 21,556.0
Long-Term Debt 2,020.5 2,058.0 1,856.3 1,949.2 1,340.3
Provisions for Deferred Taxes 26.4 0.0 26.7 0.0 0.0
Provisions 0.5 0.0 0.0 0.0 0.0
Total Shareholders' Equity 24,357.5 24,952.2 25,389.4 25,898.4 26,480.9
Total Liab.& Shareholders' Equity 54,873.3 53,889.3 54,964.2 54,725.1 54,930.8
Source: Company Financials, Prime Projections
Free Cash Flow Statement 2010a 2011a 2012a 2013f 2014f
NOPLAT 912.0 625.4 577.8 654.1 698.8
Non-Cash Items 113.5 146.6 131.1 145.0 154.6
Gross Cash Flow 1,025.5 772.0 708.9 799.1 853.3
Gross Investments 358.3 1186.8 1863.8 -600.8 185.5
Non -Operating Cash Flow 160.0 -12.4 24.6 0.0 0.0
Free Cash Flow 827 -427 -1,130 1,400 668
Financing Flow
Interest Income After-Tax -27.3 -19.3 -18.1 -34.9 -47.2
Investment Income After-Tax -50.9 -35.0 -33.1 -32.7 -32.5
Increase in Excess Cash & M. Sec. 1113.9 -100.8 -128.7 746.1 231.1
After-Tax Interest Expense 140.6 163.2 116.7 137.1 122.0
Decrease in Debt & Bonds -698.0 -421.6 -408.8 454.0 349.3
Dividends Paid 49.3 -45.4 -34.9 56.9 45.7
Recommendation Target-to-Market Price (x) Strong Buy x > 25% Buy 15% < x <25% Accumulate 5%< x <15% Hold -5% < x < 5% Reduce -15% < x < -5% Strong Sell x < -25%
Stock Recommendation Guidelines
Sell -25% < x < -15%
Investment Grade Explanation
Growth 3 Yr. Earnings CAGR > 20%
Value Equity Positioned Within Maturity Stage of Cycle
Income Upcoming Dividend Yield > Average LCY IBOR
Speculative Quality Earnings Reflect Above Normal Risk Factor
Prime Research
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ESEARCHMohamed Seddiek Head of Research/Strategist +202 3300 5720 [email protected]
Rehab Taha, CFA Acting Head of Research +202 3300 5724 [email protected]
Ahmed Hindawy Senior Analyst +202 3300 5719 [email protected]
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Lara Ahmed, CFTe, CETA,
