KEY THEMES
Last Thursday, we mentioned three key market drivers, namely potential natural gas cut, M&A, and IPOs. Here is a link in case you missed it. Yesterday, the market received news of an imminent sale of land owned by Arab Co. for Asset Management & Development [ACAMD] that could fetch some EGP1.5bn, a value close to ACAMD’s current market cap. Somehow, this could be part of the second driver (M&A). However, investors need to take a few points into consideration. First, the land sale is not final yet. Second, the down payment of only EGP10mn as a show of seriousness is less than 1% of the total sale value. Third, the EGP1.5bn of cash proceeds will be received over a four-year period, which implies a net present value of only EGP1.1bn at an average discount rate of 17%. Fourth, there is still a probability that such a deal may not be finalized. Everyone knew that ACAMD has long had a valuable land bank since it was spun off Arab Cotton Ginning Co. [ACGC], but what really triggered the stock performance of late is talks—and more recently news—about unlocking the value of that land bank. That said, ACAMD is not the only company listed on the EGX with mispriced land banks. Many real estate developers and some industrial companies already have much larger land banks that are not properly valued in the market. Heliopolis Housing & Development [HELI], Egyptian Iron & Steel [IRON], and PACHIN [PACH] are just a few names that have land bank waiting to be unlocked. However, all they are missing is catalysts. If one were to believe that ACAMD’s deal could be a prelude to similar deals with other companies, then other undervalued stocks with mispriced land banks could be worth looking at, but one has to wait for their catalysts to come around.