Cairo for Investment & Real Estate Development [CIRA]: Head of the Class
A market leader with more room to grow
Cairo for Investment & Real Estate Development [CIRA]
Egypt / Consumer Discretionary / Core Coverage Report
12MPT: EGP20.6/share (+68%)
set on 23 May 2022
Investment Rating: Overweight | Risk Rating: Moderate
Key Insights
A promising sector
The Egyptian government is pursuing a balance between its desire to provide better educational quality and the need to keep its expenditures on check. This is where private educational investors could benefit, capitalizing on: (1) the search for higher quality education, (2) the steady growth in Egypt’s population of 5-24 year-old age group making up c.40% of total population, and (3) the establishment of new cities which will help private-sector providers enter the market – yet regulations will remain somewhat a barrier.
Focusing on underserved areas
Cairo for Investment & Real Estate Development’s [CIRA] earnings grew at a 5-year CAGR of 51% to EGP309mn in FY21, with its higher-ed (+47% y/y) and K-12 (+9% y/y) enrollments outpacing the market’s private segment’s +10% and+5%, respectively. CIRA's strategy focuses on underserved areas with unrivaled faculties at somehow below-peer prices with funding options.
An ambitious plan
Between FY22-FY30, CIRA is set to expand its higher-ed and K-12 segments as well as the nursery segment it recently added. By FY30, we expect CIRA to have five higher-ed institutions, 39 schools, and 28 nurseries vs. one university (i.e. BUC), 24 schools, and three nurseries today. CIRA will finance its expansion through internal resources and debt.
Valuation, Investment Thesis, & Risks
Overweight / Moderate Risk, 12MPT EGP20.6/share (+68%)
We valued CIRA using DCF model, reaching a fair value of EGP17.0/share. This implies a 12MPT of EGP20.6/share, hence our Overweight rating. Our DCF assumes a terminal WACC of 16% and a perpetual growth rate of 7%.
Investment thesis
(1) A promising sector with a lot of untapped potential for private-sector providers. (2) One of the lucrative sectors for foreigners to invest in, reflecting a positive outlook for the sector. (3) CIRA is a well-managed company with revenues and earnings expected to grow at 8-year CAGRs of 27% and 35% to EGP11.2bn and EGP3.8bn by FY30, respectively. (4) Growth from CIRA’s aggressive expansion plan and wider diversification.
Risks
(1) Licensing delays due to rigid regulations. (2) Competition from international public schools and non-profit “Ahleya” universities at more affordable prices, targeting the middle class. (3) A potential decline in the number of higher-ed enrollments due to the new electronic admission system and higher inflation. (4) Execution risk of CIRA’s intensive expansion plan. (5) Higher construction costs and expected interest rate hikes.
Nada Wagdy
Equity Analyst
T +202 3300 5726