• Upgrade FV to reflect new USD/EGP exchange rate; maintain Neutral We raise our FV 18% to EGP0.87/share, implying 8% downside; hence, we maintain our Neutral rating. Our calculated 2016e NAV is EGP2.9/share (from EGP2.5/share); the upgrade is driven by the translation impact of the new USD/EGP exchange rate; however, we maintain the assigned discount to NAV unchanged at 70%, the highest discount within our coverage, along with Heliopolis Housing, to reflect our continued concern over the timeline at which the company would realise the value of its land bank, along with the lack of long-term visibility, given the company’s current limited land bank.
• Return of phase III land: the main driver for our bull case We introduce bull-bear scenarios, to gauge the sensitivity of our fair value to different market conditions. Under the bull case (FV: EGP5.45/share), we assume: i) the phase III land is returned (contributes c90% of the differential between our base and bull case fair values); ii) higher selling prices to ERC’s land bank; and iii) assign a lower discount-to-NAV of 60%. Our bear case (FV: EGP0.48/share) assumes lower selling prices to the company’s land bank and a higher discount-to-NAV of 80%, on increased concerns over the monetisation of value.
• A less attractive investment proposition versus peers We believe ERC offers a less attractive investment opportunity compared to its local peers, given: i) that it is a one-project company, with limited land bank (3.2 million sqm); ii) the nature of its business model, as a master-developer, limiting its ability to fully leverage on the increased demand on secondary homes; iii) its high-risk-profile, given its association with the vulnerable tourism segment; vi) reduced activity since 2H2015, on the back of the slowdown witnessed in Egypt’s tourism activity, triggered by the Russian plane crash last October; and v) the absence of positive signs/indications regarding the reversal of the TDA’s decision to withdraw the phase III land. We note that the return of the phase III land would improve the company’s outlook significantly - even if returned at a higher price - as this would multiply ERC’s residual land bank, making the long-term story more compelling and offering higher potential for growth with more room for land sales and development projects.

Mai Attia
Sara Boutros