Madinet Masr (MASR) and Zahraa El Maadi (ZMID) Mutually Terminate Heliopolis Partnership | ~EGP 2.0 per Share in Potential Future Earnings Foregone
Madinet Masr for Housing and Development and Zahraa El Maadi Investment and Development announced the mutual termination of their joint-development agreement, originally signed on October 23, 2024. The agreement covered the development of approximately 42 feddans in New Heliopolis, with targeted sales of around EGP 11.4 billion.
Under the original agreement, Madinet Masr would act as the project developer and receive 64% of project revenues, while Zahraa El Maadi, as the landowner, would be entitled to the remaining 36%. The project was expected to be developed over approximately six years. Accordingly, the termination of the partnership eliminates the opportunity for both companies to realize the project’s expected future revenues and earnings.
To put this into perspective, Zahraa El Maadi was expected to receive approximately EGP 4.1 billion in project revenues, representing 36% of the targeted EGP 11.4 billion in sales over the six-year project period. Applying a discount rate of approximately 23% results in an estimated present value of these revenues of around EGP 2.1 billion. Applying the company’s average net profit margin of approximately 70% implies potential net earnings of around EGP 1.5 billion over the project’s development period, equivalent to approximately EGP 1.48 per share.
On the other hand, Madinet Masr was expected to receive approximately EGP 7.3 billion in project revenues, representing 64% of the targeted sales. Using the same 23% discount rate, the estimated present value of Madinet Masr’s share of project revenues would amount to approximately EGP 3.8 billion. Applying Madinet Masr’s average net profit margin of approximately 25% implies potential net earnings of around EGP 950 million over the project period, equivalent to approximately EGP 0.44 per share.
Accordingly, we view the termination of the partnership as negative for both Madinet Masr and Zahraa El Maadi. Madinet Masr loses the opportunity to benefit from its role as the project developer and capture 64% of project revenues, while Zahraa El Maadi loses the opportunity to generate returns from its land through its 36% share of project revenues.
At the same time, the estimated EGP 0.44 and EGP 1.48 per-share impacts should not be interpreted as direct accounting losses. Rather, they represent an estimate of the future earnings that the two companies could have generated from the project and that will no longer be realized following the termination of the agreement.
These estimates are based on the project’s publicly announced targeted sales, an assumed development and collection period of approximately six years, a discount rate of approximately 23%, and each company’s historical average net profit margin. We have also excluded any potential impact from settlements, advance payments, or outstanding receivables/payables related to the project between the two parties.
Ali Eldegwi - Equity Analyst | Prime Securities
AEldegwi@egy.primegroup.org