Palm Hills Developments, an Egyptian property firm, is known for its luxury projects, but a shift toward a broader demographic could pay off for its sluggish stock. Palm Hills shares have underperformed the Egyptian EGX 30 Indexon concerns over land disputes in Egypt as well as fears that the country is in the midst of a slowdown in sales of high-end residential and holiday homes. The EGX 30 is down 2.8 per cent this year. Palm Hills closed yesterday at 4.42 Egyptian pounds, leaving it down 21 per cent this year.
But Ahmed Badr, a Credit Suisse analyst, carries an "outperform" rating on the stock with a target increase of 37 per cent. The stock trades at a price-to-book-value of 1.06 times, a discount of 12 per cent to its main competitor, Six of October Development and Investment, he said. Mr Badr forecasts Palm Hills will post a net income of 547.7 million pounds for the second quarter. The company reported a net income of 475.6m pounds for the same period last year. In the first quarter of this year, its sales surged by 86 per cent from the year earlier.
The developer boasts a healthy backlog, particularly in the middle-income segment that should see higher growth this year. As high-end sales slow "we think the shift towards targeting the middle-income housing segment is key for future sales and is underestimated by the market", Mr Badr said. Palm Hills still has some of the widest margins among developers as it enjoys low land costs and has its own construction capabilities.
The company, with a market cap of 4.7 billion pounds, was launched in 2005 and is listed on the Egyptian Stock Exchange with a free float of 35 per cent. One of its more ambitious projects in the pipeline is Palm Hills Sokhna, a resort covering more than 5 million square metres on the Red Sea coast. Palm Hills is also a partner with Burooj Properties, an arm of Abu Dhbai Islamic Bank, on a project in Cairo.