Most real estate stocks have been on the rise over the past four months, recording various high rates. This rise came as a result of the recent economic developments that affected investors and their savings instruments, especially real estate, after the Central Bank of Egypt (CBE) devalued the Egyptian pound from EGP 7.73 to EGP 8.85 against the US dollar.
The trading sessions revealed that the CBE’s decision pushed real estate stocks to rise as they became a safe savings instrument after the currency devaluation, as the dollar surpassed EGP 11 on the informal market.
The situation of real estate stocks was supported by the strong financial performance of real estate companies. They injected new investments to accelerate housing delivery, buy new land, or enter into partnerships to develop lands owned by other companies for a share of the revenue.
Mohamed Al-Assar, head of the technical analysis department at the National Bank of Kuwait (NBK), said the real estate stocks in the EGX-30 index showed good performance in general. Many estate stocks became the main EGX-30 index constituents thanks to their higher trading values.
Six October Development and Investment (SODIC) has performed very well in the stock market, recording a rise of 76.34% since the devaluation of the pound on 13 March with shares rising from EGP 7.33 to EGP 12.94, according to the Sunday session.
Al-Assar pointed out that SODIC stock performed remarkably among other real estate stocks. SODIC continued to rise in the stock market since the devaluation of the pound without being influenced by the turmoil experienced throughout the Egyptian economy. SODIC aims to continue the rise in its share to reach EGP 16 by the end of this year.
However, in terms of financial performance in the first quarter (Q1) of 2016, SODIC’s net profit declined from EGP 79.31m in Q1 of 2015 to EGP 54.65m. That decline came as a result of the decrease in the company’s revenues from EGP 207m to EGP 139.6m in the period of comparison.
On the other hand, the company has a positive indicator: registering new sales contracts worth EGP 674m, knowing that the company’s plan is to achieve sales of EGP 4.9bn in 2016 compared to EGP 4.4bn in the last year.
Relying on the financial and technical performance of SODIC’s stock, the research centre of Prime investment bank recommended buying the stock and determining its fair value at EGP 16.6.
As for Emaar Misr’s stock, it did not manage to benefit a lot from the CBE’s decision; it moved from EGP 2.32 to EGP 2.40 only, according to the closing price of the last Sunday session.
The research centre of Mubasher Securities International decreased the target price of Emaar from EGP 4.20 to EGP 4.04, given the decline in sales. Nevertheless, Mubasher recommended buying the stock.
Al-Aasar’s explanation for that recommendation is that there is a strong chance that Emaar’s stock will increase in value during the next period and compensate the weak performance it showed during the last four months. The stock is targeting EGP 2.9/3 before the end of the year, an increase of at least 25%.
Emaar succeeded in increasing profits during the first three months of this year despite the decline in revenues from EGP 751.5m to EGP 597.5m.
However, the net profit increased from EGP 172.7m to EGP 254.5m thanks to the marked decline in costs from EGP 522.8m to EGP 355m during the comparison period.
In terms of the share of Madinet Nasr for Housing and Development (MNHD), it has achieved a limited increase since the CBE’s decision to devalue the pound, seeing the share increase from EGP 13.78 to EGP 14.06.
Al-Assar agreed with the results reached by the research unit in Pharos Investment Bank that the MNHD share represents the best investment option amongst real estate shares, where its current price does not express the real value of the land and projects portfolio.
Al-Assar explained that the share aims to reach EGP 15 within a few sessions before increasing to EGP 16.5 by the end of the third quarter.
MNHD achieved sales worth EGP 201.4m during Q1 of 2016, compared to EGP 83.3m during the same period in 2015. This coincided with an 89.6% increase in profits, reaching EGP 68.6m.
Direct investment expert, Mohamed Salem, said that the way investors see real estate shares means that the sector has gained its vitality thanks to the CBE’s decision to devalue the pound on the one hand, and the coping of companies with the needs of investors and customers on the other.
He explained that companies have allowed more facilities provided to customers through offers that include no advance payment amount or an increase in the payment period to range between seven and eight years.
Salem noted that investors have treated the real estate shares as reflectors of the performance of the real estate sector, benefiting from the citizens’ view that there is still a continuing devaluation of the Egyptian pound and an increase in inflation, while real estate keeps achieving increases in the their value by an average of 20% annually.
In terms of the performance of the real estate shares in the stock exchange, Palm Hills’ share has increased by 9.17% since the CBE’s decision to devalue the pound, increasing from EGP 2.29 to EGP 2.5.
This comes as the research centre at Beltone investment bank recommended buying Palm Hills stock gradually after determining the fair value to be about EGP 3.93.
The head of the technical analysis department at the NBK nominated those Palm Hills stock targets to register EGP 2.7 during July, which makes it closer to registering at EGP 3 by the end of 2016.
Palm Hills’ net profit declined in Q1 of 2016 at a rate of 43.19%, registering EGP 105.43m, compared to EGP 185.59m year-on-year (y-o-y).
The company registered total sales of EGP 2.2bn which is the highest sales record in the company’s history, an annual increase of 62% compared to 2015.
Talaat Moustafa Group’s (TMG) stock increased since the devaluation of the pound was officially announced from EGP 5.19 to EGP 5.60, despite the fact that the stock reached its highest level on 20 April at EGP 6.79.
Al-Assar considered TMG to be a slow-moving stock; however, it targets to increase to EGP 7 by the end of 2016.
The company’s financial performance is what strengthens the stock. The net profit of Q1 of 2016 showed an 11.5% increase, registering EGP 207.81m compared to EGP 186.4m y-o-y.
In addition to this, the company’s total sales increased to EGP 2.275bn, compared to EGP 1.825bn y-o-y: a growth rate of 124%.
On the other hand, Heliopolis stock performed well since the devaluation of the pound. The stock increased from EGP 43.16 to EGP 50.91.
The revenues also increased during the first nine months of fiscal year 2015/2016 to EGP 468.5m, compared to EGP 337.2m y-o-y, accompanied by the net profit increase to EGP 280.5m compared to EGP 153.7m y-o-y.
Al-Aassar pointed out that the stock moves very slowly and the volume of trade on it has been limited, which reduces the chances of selling.
Amer Group shares recorded a poor performance, compared to other real estate stocks. It dropped from EGP 0.36 to EGP 0.29 since the devaluation of the pound. Shortly before that, the stock had reached its highest record in 2016 registering EGP 0.43 pounds on 3 April 2016.
This comes despite the rise in net profit at an annual rate of 36% during Q1 of 2016, recording EGP 68m, thanks to real estate revenues, which contributed about 81% of the total revenue.
Al-Aassar said that the optimistic outlook indicates an opportunity for the stock to increase to as much as EGP 0.40 by the end of the year. “This is, however, hindered by the slow pace of trading since the division of the company into Amer Group and Porto Group,” he added.