Cairo - Mubasher: Beltone Financial has iinitiated the coverage of Porto Group with a fair value (FV) of EGP 0.44 per share, with a Buy rating, according to a research note issued on Tuesday.

Beltone estimates Porto Group sales to reach EGP 2.8 billion in 2017, with an increase of 33% year-on-year.

Sales for 2018 and 2019 are expected to reach EGP 3.4 billion and EGP 3.8 billion, respectively.

The growth in sales revenues is driven by new sales from existing projects.

The research firm also expects a 3-year earnings compound annual growth rate (CAGR) of 56% and an average dividend payout ratio of 50%.

Beltone’s valuation for Porto Heliopolis adds EGP 0.06 to 0.07 per share to its fair value (FV) estimation, an additional upside of 14% to 16%.

Porto Heliopolis is located close to Cairo Airport and between two fully developed areas in Egypt, namelt Nasr City and Heliopolis, where almost no competition exists.

“We highlight this project as the main trigger to boost sales after 2019, as we believe the inventory available for sale should be mostly sold by that time.”

“We expect most of the launched inventory in the existing projects to be finalized in two to three years; hence, we foresee no growth starting 2020 unless new projects are launched,” the report noted.

Other regional projects are Porto Dead Sea and Porto Agadir, are key value additions to the current FV once more guidance is provided. Interest rate cuts will be another trigger as more liquidity should be driven into the sector.

Beltone Financial expects gross profit margin to reach 40% in 2020 from 32% in 2017e.

Egyptian expats, who earn their income in foreign currency, have become a target client for developers post floatation as they find real estate now cheaper by at least 50%, the report highlighted.

The report has also praised the management as it has increased the contribution to sales from mixed-use family homes, which is less prone to seasonality, to reach 69% by the end of September 2017, versus historically at 40% before the split from Amer Group.

The company has generously distributed dividends during 2016 with a payout ratio of 77%. However, Beltne forecasts a decrease to 50% as the company is in dire need to expand its land bank.