• Set our new FV on 0.5x 2016e NAV, in line with eight-year average discount to NAV Our new fair value for TMG of EGP9.84/share offers 113% upside; hence, we maintain our Buy rating. Despite 38% cut in our fair value, we have lowered our NAV by 14% only, albeit assigning a higher discount of 50% to our calculated 2016e NAV to arrive at our new fair value (versus 30% to arrive at our previous fair value). The assigned discount is in line with the stock’s eight-year average discount to its forward NAVs. We opt to apply the average cycle discount to account for what we think are currently more stable market conditions rather than expectations for further exponential growth in the sector activity, with selling prices growing at annual double-digit rates and contracted sales exponentially increasing annually. Moreover, we believe there are increased uncertainties over the timeline for TMG to monetise its commercial land bank (61% of our valuation).
• Stock price assumes no value for Madinaty and hotel assets The stock has underperformed the general market index in 2015 and YTD, in line with real estate stocks. Despite a relative slowdown in the company’s new sales, we believe the stock performance has been over-penalised, trading at a steep 77% discount to 2016e NAV. Should we assume the net present value of the accounts receivables (as of 2014) discounted at 13% and assuming 35% developer margin and the value of TMG’s Rehab and Rabwa land designated for residential use, this would yield EGP5.12/share, offering c11% upside. Thus, the market price is assuming zero value for Madinaty project, no value for the residual land bank in Sharm El Sheikh and Marsa Alam, no value for commercial land and hotel assets.
• Assume slower sale pace, lagging its peers We have lowered our sales assumptions, where TMG’s contracted sales in 2014-15 have been affected negatively by the difficulties the company has been facing in completing necessary permits for the launch of new phases in both its projects. We also believe TMG’s target market segment, despite having a wide base in Egypt, would feel the negative impact of the currently challenging economic environment. We cut our contracted sales estimate by an average of 30% (2016-18e).

Mai Attia