Orascom Development Egypt (ODE) stock has taken a hit due to its tourism sector projects, despite its impressive real estate operations, according to Mariam Elsaadany, real estate analyst at HC Securities and Investment.
“Tourism exposure has taken a toll on the company’s operations and stock performance, with its exposure standing at about 32% of 2019 revenues and about 30% of 2019 EBITDA,” Elsaadany said.
She added, “This has led to a steep decline in the company’s share price, which is down by about 50% year-to-date (YTD) against only about 26% for EGX30.
Investors perceive it to be amongst the companies most badly hit by the coronavirus (COVID-19) pandemic, and the restrictive measures taken to combat it.
Elsaadany added, “Across our coverage, ODE is the company with the highest tourism exposure, which warrants a significant downward revision in 2020e earnings, in our view.”
She also said, “Accordingly, we expect 2020e hospitality revenues and town management to drop by about 56% y-o-y and about 68% y-o-y, respectively.”
Elsaadany noted that, despite the government decision to reopen hotels and resorts to domestic tourism on 15 May, HC Brokerage remains conservative in its assumptions for 2020e.
This comes in light of hotels only permitted to operate at a maximum capacity of 25% for the remaining months of the second quarter (2Q) of the fiscal year (FY) 2019/20, going up to only 50% by July.
Elsaadamy said that the restriction on hotel occupancy rates justifies the downward revision in HC Brokerage’s 2020 estimates.
HC Brokerage expects the real estate segment to suffer further from weak pre-sales, due to the pandemic, with an upside being the low risk of a steep increase in cancellations.
“We expect demand for the second homes segment to suffer most, in our view, which affects the real estate operations of ODE’s destinations of El Gouna, Makadi and Fayoum,” Elsaadany said, “We perceive O West to be a successful project as it captured EGP 5.31bn in sales since its launch and up to 1Q of FY2020.”
She said that the HC Securities and Investment believes ODE stock’s execution capacity on such a large scale project will be tested in 2020e.
“O West can capture a decent market share because of the developer’s strong name and superior West Cairo location. Despite our general positive outlook for O West, we expect ODE stock’s total real estate sales to drop about 33% y-o-y in 2020e on the back of lower volumes,” Elsaadany added.
