Alphamena Research

PADICO Other financials / Palestine

Document generated on the 24/07/2018

Backed by PALTEL KEY DATA 12/16A 12/17A 12/18E 12/19E 12/20E Adjusted P/E (x) 14.3 49.3 15.6 15.5 15.2

Dividend yield (%) 4.58 3.72 3.88 3.88 3.88 EV/EBITDA(R) (x) 40.4 25.3 22.1 21.3 19.7

Adjusted EPS ($) 0.08 0.03 0.08 0.08 0.08 Upside potential : 45.6% Buy Growth in EPS (%) -17.6 -64.3 203 1.17 1.72 Target Price (6 months) 1.88 Dividend ($) 0.05 0.05 0.05 0.05 0.05 Share Price $ 1.29 Sales ($M) 92.3 108 114 121 129 Market Capitalisation $M 323 Pretax Results margin (%) 21.3 5.79 17.6 16.7 15.9 Price Momentum UNFAVORABLE Attributable net profit ($M) 19.0 6.79 20.6 20.8 21.2 Extremes 12Months 1.25 1.63 ROE (after tax) (%) 4.32 1.58 4.86 4.87 4.89 Bloomberg ticker PADICO PS Gearing (%) 48.6 53.0 54.9 56.4 55.7

Last forecasts updated on the 23/07/2018

Benchmarks Values ($) Upside Weight NAV/SOTP per share 2.24 73% 55% Dividend Yield Peers 1.05 -18% 20% DCF 1.45 12% 10% P/E Peers 1.63 27% 10% P/Book Peers 2.58 100% 5% TARGET PRICE 1.88 46% 100%

Conflicts of interest

Corporate broking NO Trading in corporate shares NO

Analyst ownership NO Advising of corporate (strategy, marketing, debt, etc) NO Research paid for by corporate NO Provision of corporate access paid for by corporate NO Link between AlphaMena and a banking entity NO Brokerage activity at AlphaMena NO Analyst Client of AlphaValue Research NO Meriem KADDOUR [email protected]

@ www.alphamena.org +216 31 366 360 [email protected]

Contract research, paid for by the above corporate entity. Equity research methods and procedures are as applied by AlphaMena. Target prices and opinions are thus exclusively determined by those methods and procedures.

ALPHAMENA CORPORATE SERVICES PADICO (Buy) Holding Companies / Palestine

Contents Body of research...... 3 Businesses & Trends...... 4 Money Making...... 8 Debt...... 11 Valuation...... 13 DCF...... 14 NAV/SOTP...... 15 Worth Knowing...... 16 Financials...... 17 Pension Risks...... 24 Governance & Management...... 27 Graphics...... 30 Methodology...... 33

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Body of research

July 24 2018 Copyright Alphavalue - 2018 – www.alphamena.org Page 3 ALPHAMENA CORPORATE SERVICES PADICO (Buy) Holding Companies / Palestine Businesses & Trends

Businesses & Trends PADICO’s operations are organised into 5 business units: Industrial and agricultural, Real estate, Securities Market, Tourism and Investment. The group started its operations in the Real estate through Palestine Real estate Investment Company -PRICO in 1994. One year later, the diversification strategy took place via the creation of three other companies: PALTEL, PSE and the Palestine Industrial Investment Company (PIIC). In 2006, the group acquired Jerusalem Development and Investment Co. (JEDICO), the group’s investment arm in the tourism sector.

Restructuring for better focus The Board of Directors decided in 2009 to merge its investments under specialised holding companies, to discard some investments offering low returns, and to control costs. In 2012, PADICO HOLDING completed its restructuring plan through the establishment of three main holding companies: Palestine Real estate Investment Company (PRICO), Jerusalem Development & Investment Company (JEDICO), and Palestine Industrial Investment Company (PIIC). Furthermore, The Palestine Exchange listed its shares for public trading in 2012, completing PADICO HOLDING’s restructuring programme.

The Real estate division: all hopes on the recent projects PADICO operates in the Real estate sector through PRICO, Jericho Gate for Real estate Investment and TAICO for trade and Investment Company. PRICO is the cornerstone of this business unit and operates in three main fields: Real estate development, Real estate management and contracting. PADICO’s Real estate segment has a footprint in Jordan through its subsidiary PRICO Jordan. Jericho Gate was established, in 2011, by PADICO HOLDING, Palestine Telecommunications Company (PALTEL) and Palestine Real Estate Investment Company (PRICO) to execute the largest residential, recreational and entertainment developmental project in Palestine. In 2015, The Supreme Planning Council final approval of the detailed structural plans for the Jericho Gate Project was obtained. One year later, PADICO made great strides in implementing the Jericho Gate project, a huge integrated real estate development project under construction at the southern entrance to Jericho. The Jericho Gate project aims at developing various tourism and leisure facilities including residential villas, resorts and hotels and commercial complexes, as well as the largest aquatic city in the region, among other facilities, tourism and unprecedented entertainment 28 projects in Palestine. The first half of 2016 witnessed rapid construction activity in the Jericho Gate project. In early 2016, the Jericho Gate Company completed the construction of 64 dirt roads as part of the project, which the total length of about 36 km. the road project is completed. Work began on the installation of underground high pressure power lines at the site of the project. The expansion of offices and work units is undergoing process. TAICO directly supervises design, planning, licensing, and implementation of Rabiyat AlQuds Project. This latter is the group’s first residential project with initial plans for 10 buildings in the first stage. We believe that JERICHO Gate and Rabiyat AlQuds are promising projects with a high growth profitability over the next coming years. These investments will contribute significantly to the profitability of PADICO in the medium term future.

This division is the second contributor to the holding’s 2017 top-line (21.4%). We expect a comeback of glamour days from 2018 onwards thanks the recent projects launched by both PRICO and Jericho Gate. Our scenario is based on the increasingly easier access to credit for Palestinians, the high demand for housing and the continuous rise in property prices. Therefore, Real estate’s sales are targeted to reach US$28.2m in 2020.

The Industrial and agricultural division, stunning performance PADICO’s subsidiaries operating in this sector are: The Palestine Industrial Investment Company (PIIC) and The Palestinian Waste Recycling Company (TADWEER). The group’s top line performance has been dominated by revenues generated from the Industrial and agricultural segment and mainly from PIIC (with a contribution exceeding 60%).

PIIC is the industrial arm of PADICO and acts as a holding company. It incorporates several companies, some of them operate in a defensive sector, which benefits from lower vulnerability to economic cycles (the Palestine Poultry AZIZA and AL Pinar for dairy products), and other ones operating in cyclical industries (the Palestinian Plastic Industrial Company and the National Carton Industries Company).

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The year 2015 was a turning point for the division: - PIIC achieve its horizontal expansion move in the food industry through the acquisition of AL Pinar General Trading (a company specialised in the manufacture of cheese and dairy products) with a production capacity of 22-25 thousand liter of milk daily. PIIC seeks to establish a modern dairy farm, to secure the bulk of milk needs, and to expand its production capacity. - PADICO took a bold step when deciding to restructure Palestine Plastic Industries Company which was facing many challenges: the Israeli restrictions and impediments to the industrial sector and tight regulations imposed on raw materials’ import and products’ export. Moreover, the drainage of Israeli and foreign goods into the Palestinian market caused unfair competition.

In 2017, sales amounted to US$71.7m, up by 7.6%yoy. In fact, this division used to post robust results during the period 2013-16, recording a double-digit growth from one year to another. Beyond 2017, this division’s contribution to PADICO’s top-line would remain important as it would establish at 65.8% in 2020.

The Palestine Securities Exchange: small but smart PADICO is active in this sector through Palestine Securities Exchange (PSE). PALTEL is the most valuable company (a market capitalisation of US$599m in December 2017) among 48 companies listed on PSE. In 2012, PSE became the second stock exchange in the MENA region to be publicly listed, after the listing of DFM (Dubai Financial market) in 2007. In 2017, the rate of daily trading value increased by 16% yoy as the investment sector accounted for 40.2% of the value of trading. The number of shares traded on PSE during 2017 stood at 271.164 million shares with a total value of US$469.070m. Like all the market venues, PSE’s growth pace is closely linked to several factors: the political situation, corporates’ releases and the economic environment… However, political instability in Palestine persists. According to the Word Bank data, the average ratio (Market capitalisation / GDP) for Arab world in 2016 stood at 54.7% (vs. 42.2% in Palestine). Despite the unstable political situation, the 2017 penetration rate of the securities market in Palestine exceeds other Arab countries such as Tunisia, Oman, Lebanon and Egypt. This rate reflects perfectly the development of the market culture and its significant weight in Palestine.

Beyond 2017, the situation should remain dependent on the factors mentioned above. The persisting instability has negatively impacted the Palestinian economy in 2017 and we believe that it would continue to weigh on the group’s outlook. Therefore, we expect PSE’s revenues to reach US$3.96m by 2020.

The Tourism division: to look beyond the comfort zone Tourism’ investments are managed by PADICO Tourism (ex: JEDICO). PADICO’s investment arm in the tourism sector includes the management of hotels (both in Gaza and West Bank) and tourism properties (clubs). PADICO Tourism manages a number of five-star hotels including Jacir Palace in Bethlehem, AlMashtal Hotel in Gaza and St. George Hotel in Jerusalem. We believe that the tourism sector in Palestine faces many challenges to keep a reasonable occupancy rate and to attract more tourists. In fact, this division is the most vulnerable as the revenue generation depends highly on both economic and political environment.

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The classic forms of tourism are quit tiny in Palestine given the political instability. But, the firm would focus further on both: the event tourism (wedding ceremonies, conferences and workshops…) and the religion tourism to improve its performances. Over the coming three years, the tourism segment’s revenues would grow at a 4% CAGR. Our scenario is supported by the notoriety of the holding’s hotels and their iconic historical value. On the other hand, we remain cautious about tourism’s outlook in Gaza (Al Mashtal Hotel Gaza) because of the border crossings and the persisting power outage.

The Investment division This segment includes the holding’s investments vehicles: Palestine Development and Investment Company Private Shareholding, Rawan International Investment Company, Palestine General Trading Company, Palestine Company for the transfer of Technology, Palestine Company for Canning and Packaging, Palestine Company for Basic Chemical Products and PADICO Services Company.

Geographic presence, Palestine’s Hegemony continues, Jordan slumps The local market’s contribution to the group’s FY2017 revenues reached 93.6%. Regarding the export sales, the main export market for PADICO is Jordan. However, the Jordanian market’s contribution has lost ground over the recent years to reach 1.64% in 2017 vs. 3.87% in 2011, as a result of the good pace of NAKHEEL Palestine (Industrial and agricultural segment)’s export sales. NAKHEEL Palestine (launched in 2010), which is a subsidiary of TADWEER, is exporting its dates to more than fourteen markets worldwide; including Turkey, Qatar, UAE, Indonesia, Malaysia, United Kingdom, Japan, Lebanon, Norway, United States of America and New Zealand. Palestine’s contribution is targeted to remain high (above 93%), taking into account mainly the recent engaged Real estate’s projects. The other export markets’ contribution would further increase as the production capacity would surge following the acquisition of Sultan Fresh Fruit Company (producing the Medjoul dates in Jericho, roughly owning more than 15,100 trees of Medjoul palms).

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Divisional Breakdown Of Revenues Change Change 18E/17 1. Excluding equity associates. Sector 12/17A 12/18E 12/19E 12/20E 19E/18E $M of % total $M of % total 2. Inter-segment revenues. Total sales 108 114 121 129 6 100% 7 100%

Industrial and Food-Misc- (1) (1) (1) (1) 4 58% 5 66% agricultural Diversified 71.7 75.2 79.8 84.9 Property Real estate (1) (1) (1) (1) 1 18% 2 27% Development 23.1 24.2 26.1 28.2 Securities market Market Venues 3.25 (1) 3.73 (1) 3.84 (1) 3.96 (1) 0 8% 0 2% Tourism Hotels & Motels 10.6 (1) 11.0 (1) 11.5 (1) 11.9 (1) 0 7% 1 7% Investment Investment (1) (1) (1) (1) 0 0% 0 0% Companies 0.26 0.27 0.28 0.29 Other -0.55 (2) -0.55 -0.55 -0.55 0 0% 0 0%

Key Exposures Sales By Geography

Revenues Costs Equity Dollar 30.0% 24.0% 65.5% Palestine 93.5% Emerging currencies 70.0% 76.0% 34.5% Jordan 1.5% Long-term global warming 0.0% 0.0% 0.0% Other 5.0%

We address exposures (eg. how much of the turnover is exposed to the $ ) rather than sensitivities (say, how much a 5% move in the $ affects the bottom line). This is to make comparisons easier and provides useful tools when extracting relevant data. Actually, the subject is rather complex on the ground. The default position is one of an investor managing in €. An investor in £ will obviously not react to a £ based stock trading partly in € as would a € based investor. In addition, certain circumstances can prove difficult to unravel such as for eg. a € based investor confronted to a Swiss company reporting in $ but with a quote in CHF... Sales exposure is probably straightforward but one has to be careful with deep cyclicals. Costs exposure is a bit less easy to determine (we do not allow for hedges as they can only be postponing the day of reckoning). How much of the equity is exposed to a given subject is rarely straightforward but can be quite telling In addition, subjects are frequently intertwined. A $ exposure may encompass all revenues in $ pegged currencies and an emerging currency exposure is likely to include $ pegged currencies as well. Exposure to global warming issues is frequently indirect and may require to stretch a bit imagination.

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Money Making The contribution of PADICO’s investment associates to net profit is very significant. In fact, the holding is one of the founding shareholders of PALTEL (30.6%) and Palestine Power Generating Company (20%). Also, PADICO holds stakes in many food companies such as Vegetable Oil Industries Company (32.8%), Golden Wheat Mills Company (19.4%) and Jordan Vegetable Oil Industries (17%). Besides, the group used to be a shareholder of the Arab Hotels Company (21.22%). But, in 2016, PADICO Tourism (the group’s tourism arm) chose to divest its stake in this firm to escape weak profits and reduce financial exposure in the tourism sector. Furthermore, the group holds a 25.02% and a 49% stake in PAL Aqar for Real estate Company and Mawaqef Investment Company in Jordan, respectively.

PALTEL: PADICO’s cash cow PADICO has a specific financial structure as its equity associates are the main contributors to its bottom-line. PALTEL is the group’s most important asset as PALTEL’s contribution to the holding’s net profit has exceeded 85% between 2011 and 2017. In fact, PADICO’s stake in the Palestinian telecom leader’s capital is of utmost importance as it allows not only covering the dividends paid to the group’s shareholders, but also financing a significant part of the holding’s growth plan (both external and organic growth). Therefore, the improvement of PALTEL’s margins and the reinforcement of its cash capacity would significantly and directly impact the dividend and the growth of PADICO.

2014-2016: Shrinking margins… but solid! 2014-2016 was a really difficult period for the Palestinian telecom leader which witnessed squeezed margins and crushed bottom lines. The decline in 2014-2016 net profits is mainly attributed to lower revenues, higher amortisation costs and the increase in the group’s share of associates’ losses.

In 2017, the group’s EBITDA margin caught its breath to reach 12.8% vs. 6.32% in 2016. However, and because of a significant rise of the provisions coupled with a decrease of the income from associates (especially PALTEL), the EBIT margin and the net margin dropped respectively to -12.8% and 6.3% vs. -6.2% and 20.6%n yoy. The drop seen in PALTEL’s performances was because of the renewal of Jawwal and Paltel licenses which led to higher amortisation expenses in addition to the cancellation of Jawwal’s 50% income tax exemption and the expiry of Paltel’s 50% tax exemption starting from the year 2017.

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For 2018-2020, we anticipate a smooth improvement in margins, as we believe that the Palestinian market would remain under intense Israeli pressure. Even with the introduction of 3G services, the Palestinian operators would still be at a competitive disadvantage, as Israeli operators have 3G and 4G capabilities, enabling them to attract higher value customers. Furthermore, the competitive environment will continue to increase following the recent entry of Wataniya Mobile into Gaza in 2017.

The Industrial and agricultural division: a confirmed comeback In 2017, the pre-tax profit surged by 36.3% to US$7.67m vs. US$5.63m a year earlier, thanks mainly to the increase of PIIC’s income from associates by 38%, yoy. Starting from 2018, we expect this segment to continue to improve as the food sector (a defensive sector) benefits from lower vulnerability to economic fluctuations. Also, the couple of acquisitions that took place since 2016 (Al Pinar Diary company and the Sultan Fresh Fruit Company) would start to bear fruits.

The Palestine Securities Exchange: margins moving slowly but surely In 2014, PSE turned profitable for the first time and since then; the net profit has kept an upward trend to reach US$0.684m in 2017 (10.1% of the holding’s net income). PSE has successfully managed to achieve an improvement of the revenues’ recurrence which has obviously led to an improvement in the margins. Indeed, the net margin has been improving from one year to another to reach 24.2% in 2017 vs. 11.1% in 2014. The market venues’ economic model has become more profitable thanks to the size effect mainly in a low competitive context. On the other hand, for the PSE, it is quite difficult to see new IPOs which are the real drivers of the trading volumes in the coming period because of a fragile national context. We expect an average pre-tax result of US$1.65m over the three coming years.

The Real estate division: optimistic signs The Real estate sector in Palestine is one of the key economic activities; representing 7.5% of the country’s 2016 GDP. The cost of residential building was growing since 2011, which can be explained by the scarcity of land plots and the construction materials’ (cement and steel) import restrictions imposed by Israel.

In 2017, PRICO posted a loss of US$-13.63m vs. US$-2.99m a year earlier. The generation of profit was weakened, for the second year in a row, by the progress of the construction works during 2017 such as the expansion of the constructions of the first phase in the industrial city of Jericho and the expansions in the industrial city of Gaza. For the next years, this business unit would turn profitable and start to bear the fruits of its recent engaged investment plans.

The Tourism division: in deep water With a loss of US$-4.68m in 2017, PADICO Tourism is the holding’s second most unprofitable subsidiary. This sluggish performance is understandable taking into account the harsh conditions where the firm operates: seasonal tourism (pilgrimage undertaking), fluctuating political situation and the attractions and cities’ lack of upkeep.

Despite the rise in the number of operating hotels over the last years, the tourism activity’s level remains low and the sector’s main indicators have been slumping since 2015.

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Besides, the tourism industry in Palestine is still rather recent as the development has not yet been completed (hotels under construction, Lands in the process of development…).

In 2016, the holding’s tourism arm took a bold step by divesting its stake in the Arab Hotels Company (the owner of Mövenpick Hotel), recording a loss of US$0.429m. According to the management, this decision was made to escape weak profits and reduce financial exposure in the tourism sector.

The picture is likely to remain gloomy and unclear for the coming years. However, we expect an improvement in the tourism segment’s margins following the disposal of Arab Hotels Company, yet, it would continue to make losses.

Divisional PRETAX RESULTS

Change 18E/17 Change 19E/18E 12/17A 12/18E 12/19E 12/20E $M of % total $M of % total Total 6.27 20.0 20.2 20.5 14 100% 0 100% Industrial and agricultural 7.67 9.59 10.4 10.9 2 14% 1 405% Real estate -17.2 1.72 1.89 2.13 19 138% 0 85% Securities market 0.79 1.58 1.66 1.70 1 6% 0 40% Tourism -4.68 -3.04 -2.89 -2.80 2 12% 0 75% Investment 17.4 25.2 26.5 27.3 8 57% 1 650% Other/cancellations 2.26 -15.0 -17.3 -18.6 -17 -126% -2 -1,150%

Divisional PRETAX RESULTS margin

12/17A 12/18E 12/19E 12/20E

Total 5.79% 17.6% 16.7% 15.9% Industrial and agricultural 10.7% 12.7% 13.0% 12.8% Real estate -74.4% 7.09% 7.22% 7.55% Securities market 24.4% 42.4% 43.3% 42.8% Tourism -44.2% -27.6% -25.2% -23.5% Investment ns ns ns ns

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Debt PADICO’s 2017 consolidated net debt amounted to US$228m vs. US$218m a year earlier. 2017 short-term debts continued to drop, for the second year in a row, to US$38m vs. US$46.2m, yoy. However, the long-term debts increased to US$210m vs. US$201m, a year earlier.

The year 2016 was landmarked by the issue of US$120m worth of bonds with 12 banks and financial institutions. The group used the proceeds to repay the previous Bonds of US$85m that matured in 2015. According to the management, the remainder of the cash proceeds will be injected into the firm’s projects and investments as part of its investment plan.

As a reminder, as part of its plan to fund new projects and improve its liquidity, PADICO issued the first corporate bonds in Palestine at a total value of US$85m in 2011.

In 2017, the holding’s gross debt was smoothly down to US$248m vs. US$249m, a year earlier. The parent company’s FY2017 gross debt amounted to US$166.49m. PRICO, PADICO Tourism and PIIC’s 2017 gross debt amounted, respectively, to US$31.96m, US$12.56m and US$23.88m. The parent company remains the main contributor to the holding’s gross debt with an average contribution of 74% over the 2011-17 period.

At the beginning of 2016, PIIC acquired the shares of Al Pinar General Trading Private Limited Company (Dairy Industry and Milk Products) which was established in Ramallah in 1999 as part of the company’s strategy to expand into the food sector and Integrate production.

Beyond 2017, PADICO’s management intends to increase its investments in the industrial, agricultural, infrastructure and environment sectors. Therefore, we expect the gross debt to increase in the three coming years to reach US$254m in 2020. The holding’s gearing would rise to 55.7% in 2020 vs. 53% in 2017.

The US$120m bullet bonds would allow PADICO to plan its investment programme in the best possible conditions (without worrying about its cash capacity). The expected return outcomes of its investment programme should refund the repayment of these US$120m.

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Funding - Liquidity

12/17A 12/18E 12/19E 12/20E 3. Of which US$120m of issued EBITDA $M 10.3 11.0 11.9 12.7 bonds. Funds from operations (FFO) $M 26.4 21.5 21.8 24.1

Ordinary shareholders' equity $M 421 425 430 435 Gross debt $M 248 254 263 254 o/w Less than 1 year - Gross debt $M 38.0 38.7 39.9 141 (3) o/w 1 to 5 year - Gross debt $M 210 216 223 112 of which Y+2 $M 23.1 19.7 142 (3) 20.2 of which Y+3 $M 19.7 142 (3) 20.2 16.4 of which Y+4 $M 142 (3) 9.02 16.4 0.00 of which Y+5 $M 9.02 16.4 0.00 0.00 o/w Beyond 5 years - Gross debt $M 0.00 0.00 0.00 0.00 + Gross Cash $M 19.5 15.5 16.5 15.1 = Net debt / (cash) $M 228 239 246 238

Bank borrowings $M 128 134 143 134 Issued bonds $M 120 120 120 120 Other financing $M 0.00 0.00 0.00 0.00

Gearing (at book value) % 53.0 54.9 56.4 55.7 Adj. Net debt/EBITDA(R) x 18.2 18.7 18.1 16.7 Adjusted Gross Debt/EBITDA(R) x 20.1 20.3 19.8 18.2 Adj. gross debt/(Adj. gross debt+Equity) % 39.8 39.7 40.2 39.2 Ebit cover x 1.85 1.83 1.81 1.92 FFO/Gross Debt % 9.47 7.68 7.55 8.59 FFO/Net debt % 11.6 9.02 8.88 10.1 FCF/Adj. gross debt (%) % 8.43 1.97 2.97 8.35 (Gross cash+ "cash" FCF+undrawn)/ST debt x 1.13 0.54 0.63 0.27 "Cash" FCF/ST debt x -0.07 -0.53 -0.43 -0.03

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Valuation PADICO is a holding company active in several business fields. The valuation of the group is quite transparent since its listed assets accounted for more than 50% of the holding’s gross assets (as of 12/07/2018). PADICO’s Sum of the Parts (SOTP) is mainly dominated by PALTEL (33.8% as of 12/07/2018) which is listed on the Palestinian Stock exchange. PALTEL was incorporated in our valuation at its market value. According to our model, PALTEL offers an important upside of 55.9% (as of 12/07/2018). Non-listed business units and equity associates are valued by the P/Book multiple which ranges from 1.3x, attributed to PADICO Tourism (the tourism business unit) to 3.5x attributed to Jericho Gate for Real Estate Investment. Our DCF calculation is based on a 15% long-term growth rate for both sales and EBITDA, based on the recent engaged investments (mainly for the Real estate and Industrial and agriculture business units) which are expected to start bearing fruit soon. As regards the peer metrics, the peer group consists of seven holding firms covered by AlphaMena: (Dubai Investments, Poulina Group, Savola Group, Kingdom Holding, SPDIT, Industries Qatar and APIC).

Valuation Summary

Benchmarks Values ($) Upside Weight NAV/SOTP per share 2.24 73% 55% Dividend Yield Peers 1.05 -18% 20% DCF 1.45 12% 10% P/E Peers 1.63 27% 10% P/Book Peers 2.58 100% 5% Target Price 1.88 46%

Comparison based valuation

Computed on 18 month forecasts P/E (x) P/Book (x) Yield(%) Peers ratios 19.7 1.52 4.75 PADICO's ratios 15.5 0.75 3.88 Premium 0.00% 0.00% 0.00% Default comparison based valuation ($) 1.63 2.58 1.05 Industries Qatar 15.7 2.14 5.47 Kingdom Holding 42.9 1.03 5.56 Savola Group ns 2.44 0.00 Dubai Investments 6.31 0.65 6.06 Poulina Group 13.4 1.19 2.73 Arab Palestinian Investment Company 11.2 1.62 3.48 SPDIT 14.9 4.91 5.46

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DCF Valuation Per Share WACC % 8.03 Avg net debt (cash) at book value $M 242 PV of cashflow FY1-FY11 $M 80.7 Provisions $M 6.89 FY11CF $M 32.2 Unrecognised actuarial losses (gains) $M 0.00 Normalised long-term growth"g" % 2.00 Financial assets at market price $M 436 Terminal value $M 534 Minorities interests (fair value) $M 153 PV terminal value $M 247 Equity value $M 361 PV terminal value in % of total value % 75.4 Number of shares Mio 249 Total PV $M 327 Implied equity value per share $ 1.45

Assessing The Cost Of Capital

Synthetic default risk free rate % 3.50 Company debt spread bp 350 Target equity risk premium % 5.00 Marginal Company cost of debt % 7.00 Tax advantage of debt finance % 30.0 Company beta (leveraged) x 1.32 (normalised) Company gearing at market value % 74.2 Average debt maturity Year 5 Company market gearing % 42.6 Sector asset beta x 0.90 Required return on geared equity % 10.1 Debt beta x 0.70 Cost of debt % 4.90 Market capitalisation $M 322 Cost of ungeared equity % 8.01 Net debt (cash) at book value $M 239 WACC % 8.03 Net debt (cash) at market value $M 210

DCF Calculation 4. Dividends received from equity holdings. 12/17A 12/18E 12/19E 12/20E Growth 12/21E 12/28E

Sales $M 108 114 121 129 15.0% 148 394 EBITDA $M 10.3 11.0 11.9 12.7 15.0% 14.6 38.8 EBITDA Margin % 9.55 9.67 9.81 9.85 9.85 9.85 Change in WCR $M 1.40 -11.3 -8.12 4.76 2.00% 4.86 5.58 Total operating cash flows (pre tax) $M 42.9 25.7 29.6 45.3 19.5 44.4 Corporate tax $M -1.31 -1.48 -1.57 -1.67 2.00% -1.71 -1.96 Net tax shield $M -4.14 -4.23 -4.37 -4.51 2.00% -4.60 -5.28 Capital expenditure $M -4.30 -4.56 -4.90 -5.15 1.00% -5.20 -5.58 Capex/Sales % -3.97 -4.00 -4.05 -4.00 -3.51 -1.42 Pre financing costs FCF (for DCF purposes) $M 33.1 15.4 18.8 33.9 7.94 31.6 Various add backs (incl. R&D, etc.) for DCF -26.1 -26.1 -28.1 $M purposes (4) (4) (4) Free cash flow adjusted $M 33.1 -10.7 -7.34 5.84 7.94 31.6 Discounted free cash flows $M 33.1 -10.7 -6.79 5.01 6.30 14.6 Invested capital $ 788 800 815 815 823 883

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NAV/SOTP Calculation In Valuation at Stake Valuation Multiple currency % of gross 1. PALTEL's upside according to % owned 100% valuation technique used per share assets AlphaMena's model (as of ($M) ($M) ($) 12/07/2018). PALTEL 30.6% - Listed - 811 248 1.00 34.3% 2. PADICO's parent company net Jericho Gate For Real... 50.0% P/Book 3.5 203 102 0.41 14.0% debt.

PADICO Tourism 100% P/Book 1.3 57.6 57.6 0.23 7.95% Palestine Industrial I... 56.7% - Listed - 68.2 38.7 0.16 5.34% Palestine Securities ... 74.7% - Listed - 49.5 37.0 0.15 5.11% Palestine Real Estat... 75.7% - Listed - 41.3 31.3 0.13 4.32% TAICO for trade and ... 100% P/Book 1.8 20.5 20.5 0.08 2.83% TADWEER 100% P/Book 2 18.1 18.1 0.07 2.50% Vtel 10.1% P/Book 1 106 10.8 0.04 1.49% Palestine Poultry Co... 11.9% - Listed - 47.7 5.70 0.02 0.79% Palestine Power Gen... 20.0% P/Book 1.5 25.1 5.02 0.02 0.69% Palestine Electric Co... 6.09% - Listed - 78.6 4.79 0.02 0.66% AlphaValue Portfolio 100% 4.00 4.00 0.02 0.55% valuation Jordan Vegetable Oil ... 17.0% - Listed - 10.4 1.77 0.01 0.24% Other 139 (1) 0.56 19.2% Total gross assets 724 2.90 100% Net cash/(debt) by year end -166 (2) -0.67 -23.0% Commitments to pay Commitments received NAV/SOTP 558 2.24 77.0% Number of shares net of treasury shares - year end (Mio) 249 NAV/SOTP per share ($) 2.24 Current discount to NAV/SOTP (%) 42.3

July 24 2018 Copyright Alphavalue - 2018 – www.alphamena.org Page 15 ALPHAMENA CORPORATE SERVICES PADICO (Buy) Holding Companies / Palestine Worth Knowing

Worth Knowing PADICO was established in 1993 and introduced to the Palestinian Stock Exchange in June, 1997. The base of PADICO shareholders has been gradually growing over the years, from 710 shareholders in 1998 to about 7,394 shareholders in 2017. 16.9% of PADICO’s shares are held by PALTEL, 12.7% are in the hands of Sabih Masri and affiliate parties and 12.6% are under the control of Siraj for Investment Funds Group and affiliate parties. PADICO’s shareholder structure is quite deep as the group merges 24 shareholders. Concerning its major shareholder, we note a cross-participation between PALTEL and PADICO as 30.6% of the shares of the pioneer in the telecommunications sector in Palestine are held by PADICO. It’s worth mentioning that Kingdom Holding (the holding firm of HRH Prince Alwaleed Bin Talal Bin Abdul-Aziz Alsaud) used to hold a 2.57% stake in PADICO until the end of 2015. In fact, the Saudi prince started investing in Palestine in 1997 by acquiring a stake in PADICO for an amount of US$10m. And, in 1997, he contributed in the establishment of JEDICO (the group’s tourism business unit) through projects in the fields of housing and hotels. PADICO’s main milestones: • 1993: Establishment in Liberia. • 1994: Creation of the Palestine Real estate Investment Company (PRICO). • 1995: Creation of PALTEL, the Palestine Exchange (PSE) and the Palestine Industrial Investment Company (PIIC). • 1997: Listing its shares on Palestine Exchange. • 2006: Acquisition of Jerusalem Development and Investment Co. (JEDICO), the group’s investment arm in the tourism sector. • 2009: Creation of Nakheel Palestine and Palestine Power Generation (in partnership with a group of Palestinian and regional companies). • 2011: Establishment in partnership with PALTEL of the Jericho Gate Real estate Investment Company. • 2012: Finalisation of the restructuring of investments in Palestine (that early began in 2009) through three major holding companies: Palestine Industrial Investment Company (PIIC), Palestine Real estate Investment Company (PRICO), and Jerusalem Development and Investment Co. (JEDICO). •2012: Listing for trading of the Palestine Exchange’s stocks. •2016: Acquisition of Al Pinar General Trading Company by PIIC (the group’s industrial arm). •2017: Acquisition of the entire stake of SUFFCO (the Sultan Fresh Fruit Company) by Nakheel Palestine.

Shareholders Of which Of which Name % owned % voting rights % free to float PALTEL 16.9% 16.9% 0.00% Sabih Masri and affiliate parties 12.7% 12.7% 0.00% Siraj for Investment Funds Group and affiliate parties 12.6% 12.6% 0.00% Massar International Group for Investment and affiliate parties parties 8.63% 8.63% 0.00% Munib Masri and affiliate parties 5.25% 5.25% 0.00% Nidal Sukhtian and affiliate parties 2.23% 2.23% 0.00% Sideeq Omar Hashim Abu Sido 1.33% 1.33% 0.00% Apparent free float 40.4%

Key shareholders of shareholders

Shareholders Shareholders of shareholders PALTEL PADICO PALTEL Palestine Investment Fund and related parties

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Valuation Key Data 12/17A 12/18E 12/19E 12/20E Adjusted P/E x 49.3 15.6 15.5 15.2 Reported P/E x 49.3 15.6 15.5 15.2 EV/EBITDA(R) x 25.3 22.1 21.3 19.7 P/Book x 0.79 0.76 0.75 0.74 Dividend yield % 3.72 3.88 3.88 3.88 Free cash flow yield % 7.02 1.72 2.67 7.29 Average stock price $ 1.34 1.29 1.29 1.29

Consolidated P&L 12/17A 12/18E 12/19E 12/20E Sales $M 108 114 121 129 Sales growth % 17.3 5.23 6.16 6.50 Sales per employee $th 104 110 117 124 Organic change in sales % Purchases and external costs (incl. IT) $M -85.0 -89.8 -94.8 -101 Staff costs $M -9.40 -10.4 -11.5 -12.5 Operating lease payments $M -3.53 -2.77 -2.77 -2.77 Cost of sales/COGS (indicative) $M -97.9 -103 -109 -116 EBITDA $M 10.3 11.0 11.9 12.7 EBITDA(R) $M 13.9 13.8 14.6 15.5 EBITDA(R) margin % 12.8 12.1 12.1 12.0 EBITDA(R) per employee $th 13.4 13.3 14.1 14.9 Depreciation $M -8.67 -9.00 -9.32 -9.61 Depreciations/Sales % 8.01 7.89 7.70 7.46 Amortisation $M -1.41 -1.53 -1.61 -1.69 Additions to provisions $M -0.44 -0.41 -0.41 Underlying operating profit $M 0.27 0.05 0.53 0.99 Underlying operating margin % 0.25 0.05 0.44 0.77 Other income/expense (cash) $M 1.76 0.00 0.00 0.00 Other inc./ exp. (non cash; incl. assets revaluation) $M -15.9 0.00 0.00 0.00 Earnings from joint venture(s) $M Impairment charges/goodwill amortisation $M 0.00 0.00 0.00 0.00 Operating profit (EBIT) $M -13.8 0.05 0.53 0.99 Interest expenses $M -13.8 -14.1 -14.6 -15.0 of which effectively paid cash interest expenses $M -13.8 -14.1 -14.6 -15.0 Financial income $M Other financial income (expense) $M Net financial expenses $M -13.8 -14.1 -14.6 -15.0 of which related to pensions $M -0.18 -0.25 -0.28 Pre-tax profit before exceptional items $M -27.6 -14.1 -14.0 -14.0 Exceptional items and other (before taxes) $M 0.00 0.00 0.00 0.00 of which cash (cost) from exceptionals $M Current tax $M -1.31 -1.48 -1.57 -1.67 Impact of tax loss carry forward $M Deferred tax $M Corporate tax $M -1.31 -1.48 -1.57 -1.67 Tax rate % -4.73 -10.5 -11.2 -11.9 Net margin % -26.7 -13.6 -12.9 -12.2 Equity associates $M 33.9 38.1 38.6 39.2 Actual dividends received from equity holdings $M 26.1 26.1 26.1 28.1 Minority interests $M 1.83 -2.01 -2.21 -2.32 Actual dividends paid out to minorities $M Income from discontinued operations $M Attributable net profit $M 6.79 20.6 20.8 21.2 Impairment charges/goodwill amortisation $M 0.00 0.00 0.00 0.00 Other adjustments $M Adjusted attributable net profit $M 6.79 20.6 20.8 21.2

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Interest expense savings $M Fully diluted adjusted attr. net profit $M 6.79 20.6 20.8 21.2 NOPAT $M 23.0 38.3 39.2 40.1

Cashflow Statement 12/17A 12/18E 12/19E 12/20E 5. Of which US$-7.65m related to EBITDA $M 10.3 11.0 11.9 12.7 the acquision of the entire stake of SUFFCO. Change in WCR $M 1.40 -11.3 -8.12 4.76 of which (increases)/decr. in receivables $M -8.67 -3.25 -5.80 7.10 of which (increases)/decr. in inventories $M 4.28 -1.04 -2.74 -2.82 of which increases/(decr.) in payables $M 2.27 0.63 0.42 0.48 of which increases/(decr.) in other curr. liab. $M 3.52 -7.63 0.00 0.00 Actual dividends received from equity holdings $M 26.1 26.1 26.1 28.1 Paid taxes $M -1.31 -1.48 -1.57 -1.67 Exceptional items $M 0.00 0.00 0.00 0.00 Other operating cash flows $M 5.00 -0.18 -0.25 -0.28 Total operating cash flows $M 41.6 24.2 28.0 43.6 Capital expenditure $M -4.30 -4.56 -4.90 -5.15 Capex as a % of depreciation & amort. % 42.7 43.3 44.8 45.6 Net investments in shares $M 4.19 (5) 0.00 0.00 0.00 Other investment flows $M 0.00 0.00 0.00 Total investment flows $M -0.11 -4.56 -4.90 -5.15 Net interest expense $M -13.8 -14.1 -14.6 -15.0 of which cash interest expense $M -13.8 -13.9 -14.3 -14.7 Dividends (parent company) $M -16.1 -16.1 -16.1 -16.1 Dividends to minorities interests $M 0.00 0.00 0.00 0.00 New shareholders' equity $M 0.00 0.00 0.00 0.00 of which (acquisition) release of treasury shares $M 0.00 0.00 0.00 0.00 (Increase)/decrease in net debt position $M 0.49 6.59 8.27 -8.95 Other financial flows $M 0.68 -0.17 0.00 0.00 Total financial flows $M -28.7 -23.6 -22.2 -39.8 Change in scope of consolidation, exchange rates & other $M 1.19 0.00 0.00 0.00 Change in cash position $M 13.9 -3.99 0.98 -1.35 Change in net debt position $M 13.4 -10.6 -7.29 7.60 Free cash flow (pre div.) $M 23.5 5.52 8.58 23.4 Operating cash flow (clean) $M 41.6 24.2 28.0 43.6 Reinvestment rate (capex/tangible fixed assets) % 1.29 1.35 1.43 1.48

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Balance Sheet 12/17A 12/18E 12/19E 12/20E Goodwill $M 3.52 3.52 3.52 3.52 Contracts & Rights (incl. concession) intangible assets $M 30.1 28.5 26.9 25.2 Total intangible $M 33.6 32.1 30.4 28.8 Tangible fixed assets $M 259 255 250 246 Financial fixed assets (part of group strategy) $M 432 444 456 467 Other financial assets (investment purpose mainly) $M 5.21 5.21 5.21 5.21 WCR $M 39.4 50.7 58.8 54.1 of which trade & receivables (+) $M 60.5 63.7 69.5 62.4 of which inventories (+) $M 31.7 32.8 35.5 38.3 of which payables (+) $M 20.1 20.7 21.2 21.6 of which other current liabilities (+) $M 32.6 25.0 25.0 25.0 Other current assets $M of which tax assets (+) $M Total assets (net of short term liabilities) $M 769 786 801 801 Ordinary shareholders' equity (group share) $M 421 425 430 435 Minority interests $M 99.1 101 103 105 Provisions for pensions $M 6.45 6.89 7.31 7.71 Other provisions for risks and liabilities $M Deferred tax liabilities $M 1.03 1.03 1.03 1.03 Other liabilities $M 13.3 13.3 13.3 13.3 Net debt / (cash) $M 228 239 246 238 Total liabilities and shareholders' equity $M 769 786 801 801 Average net debt / (cash) $M 223 233 242 242

EV Calculations 12/17A 12/18E 12/19E 12/20E EV/EBITDA(R) x 25.3 22.1 21.3 19.7 EV/EBIT (underlying profit) x ns ns ns ns EV/Sales x 3.24 2.67 2.58 2.36 EV/Invested capital x 0.45 0.38 0.38 0.37

Market cap $M 335 322 322 322 + Provisions (including pensions) $M 6.45 6.89 7.31 7.71 + Unrecognised actuarial losses/(gains) $M 0.00 0.00 0.00 0.00 + Net debt at year end $M 228 239 246 238 + Leases debt equivalent $M 24.7 19.4 19.4 19.4 - Financial fixed assets (fair value) & Others $M 333 436 436 436 + Minority interests (fair value) $M 90.2 153 153 153 = Enterprise Value $M 351 304 312 305

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Per Share Data 12/17A 12/18E 12/19E 12/20E Adjusted EPS (bfr gwill amort. & dil.) $ 0.03 0.08 0.08 0.08 Growth in EPS % -64.3 203 1.17 1.72 Reported EPS $ 0.03 0.08 0.08 0.08 Net dividend per share $ 0.05 0.05 0.05 0.05 Free cash flow per share $ 0.09 0.02 0.03 0.09 Operating cash flow per share $ 0.17 0.10 0.11 0.17 Book value per share $ 1.69 1.71 1.73 1.75

Number of ordinary shares Mio 250 250 250 250 Number of equivalent ordinary shares (year end) Mio 250 250 250 250 Number of shares market cap. Mio 250 250 250 250 Treasury stock (year end) Mio 0.39 0.36 0.36 0.36 Number of shares net of treasury stock (year end) Mio 249 249 249 249 Number of common shares (average) Mio 249 249 249 249 Conversion of debt instruments into equity Mio Settlement of cashable stock options Mio Probable settlement of non mature stock options Mio Other commitments to issue new shares Mio Increase in shares outstanding (average) Mio 0.00 0.00 0.00 0.00 Number of diluted shares (average) Mio 249 249 249 249

Goodwill per share (diluted) $ 0.00 0.00 0.00 0.00 EPS after goodwill amortisation (diluted) $ 0.03 0.08 0.08 0.08 EPS before goodwill amortisation (non-diluted) $ 0.03 0.08 0.08 0.08 Actual payment $ Payout ratio % 183 60.6 59.9 58.9 Capital payout ratio (div +share buy back/net income) % 237 78.3 77.4

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Funding - Liquidity 12/17A 12/18E 12/19E 12/20E 3. Of which US$120m of issued EBITDA $M 10.3 11.0 11.9 12.7 bonds. Funds from operations (FFO) $M 26.4 21.5 21.8 24.1

Bank borrowings $M 128 134 143 134 Issued bonds $M 120 120 120 120 Other financing $M 0.00 0.00 0.00 0.00

ROE Analysis (Dupont's Breakdown) 12/17A 12/18E 12/19E 12/20E Tax burden (Net income/pretax pre excp income) x -0.25 -1.46 -1.48 -1.51 EBIT margin (EBIT/sales) % -12.8 0.05 0.44 0.77 Assets rotation (Sales/Avg assets) % 14.1 14.7 15.2 16.1 Financial leverage (Avg assets /Avg equity) x 1.79 1.84 1.86 1.85 ROE % 1.58 4.86 4.87 4.89 ROA % -4.16 0.02 0.16 0.30

Shareholder's Equity Review (Group Share) 12/17A 12/18E 12/19E 12/20E Y-1 shareholders' equity $M 437 421 425 430 + Net profit of year $M 6.79 20.6 20.8 21.2 - Dividends (parent cy) $M -16.1 -16.1 -16.1 -16.1 + Additions to equity $M 0.00 0.00 0.00 0.00 o/w reduction (addition) to treasury shares $M 0.00 0.00 0.00 0.00 - Unrecognised actuarial gains/(losses) $M 0.00 0.00 0.00 0.00 + Comprehensive income recognition $M -6.42 0.00 0.00 0.00 = Year end shareholders' equity $M 421 425 430 435

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Staffing Analytics 12/17A 12/18E 12/19E 12/20E Sales per staff $th 104 110 117 124 Staff costs per employee $th -9.06 -10.00 -11.1 -12.0 Change in staff costs % 11.7 10.3 10.8 8.74 Change in unit cost of staff % -11.4 10.3 10.8 8.74 Staff costs/(EBITDA+Staff costs) % 47.6 48.5 49.2 49.6

Average workforce unit 1,037 1,037 1,037 1,037 Europe unit 0.00 0.00 0.00 0.00 North America unit 0.00 0.00 0.00 0.00 South Americas unit 0.00 0.00 0.00 0.00 Asia unit 1,037 1,037 1,037 1,037 Other key countries unit 0.00 0.00 0.00 0.00

Total staff costs $M -9.40 -10.4 -11.5 -12.5 Wages and salaries $M -9.40 -10.4 -11.5 -12.5 of which social security contributions $M Equity linked payments $M Pension related costs $M 0.00 0.00 0.00

Divisional Breakdown Of Revenues 12/17A 12/18E 12/19E 12/20E 1. Excluding equity associates. Total sales $M 108 114 121 129 2. Inter-segment revenues. Industrial and agricultural $M 71.7 (1) 75.2 (1) 79.8 (1) 84.9 (1)

Real estate $M 23.1 (1) 24.2 (1) 26.1 (1) 28.2 (1) Securities market $M 3.25 (1) 3.73 (1) 3.84 (1) 3.96 (1) Tourism $M 10.6 (1) 11.0 (1) 11.5 (1) 11.9 (1) Investment $M 0.26 (1) 0.27 (1) 0.28 (1) 0.29 (1) Other $M -0.55 (2) -0.55 -0.55 -0.55

Divisional Breakdown Of Earnings 12/17A 12/18E 12/19E 12/20E PRETAX RESULTS Analysis Industrial and agricultural $M 7.67 9.59 10.4 10.9 Real estate $M -17.2 1.72 1.89 2.13 Securities market $M 0.79 1.58 1.66 1.70 Tourism $M -4.68 -3.04 -2.89 -2.80 Investment $M 17.4 25.2 26.5 27.3 Other/cancellations $M 2.26 -15.0 -17.3 -18.6 Total $M 6.27 20.0 20.2 20.5 PRETAX RESULTS margin % 5.79 17.6 16.7 15.9

Revenue Breakdown By Country 12/17A 12/18E 12/19E 12/20E Palestine % 93.6 93.5 Jordan % 1.64 1.50 Other % 4.80 5.00

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ROCE/CFROIC/Capital Invested 12/17A 12/18E 12/19E 12/20E ROCE (NOPAT+lease exp.*(1-tax))/(net) cap employed adjusted % 3.23 5.02 5.04 5.15 CFROIC % 2.98 0.69 1.05 2.87

Goodwill $M 3.52 3.52 3.52 3.52 Accumulated goodwill amortisation $M 0.00 0.00 0.00 0.00 All intangible assets $M 30.1 28.5 26.9 25.2 Accumulated intangible amortisation $M 9.57 11.1 12.7 14.4 Financial hedges (LT derivatives) $M 0.00 0.00 0.00 0.00 Capitalised R&D $M 0.00 0.00 0.00 0.00 PV of non-capitalised lease obligations $M 24.7 19.4 19.4 19.4 Other fixed assets $M 259 255 250 246 Accumulated depreciation $M 75.0 84.0 93.3 103 WCR $M 39.4 50.7 58.8 54.1 Other assets $M 432 444 456 467 Unrecognised actuarial losses/(gains) $M 0.00 0.00 0.00 0.00 Capital employed after deprec. (Invested capital) $M 788 800 815 815 Capital employed before depreciation $M 873 895 921 933

Divisional Breakdown Of Capital 12/17A 12/18E 12/19E 12/20E 6. Estimated by AlphaMena. Industrial and agricultural $M 146 154 (6) 161 (6) 169 (6)

Real estate $M 210 214 (6) 219 (6) 223 (6) Securities market $M 13.2 13.2 (6) 13.2 (6) 13.2 (6) Tourism $M 74.6 73.9 (6) 73.1 (6) 72.4 (6) Investment $M 617 617 (6) 617 (6) 617 (6) Other $M -273 -272 -268 -280 Total capital employed $M 788 800 815 815

July 24 2018 Copyright Alphavalue - 2018 – www.alphamena.org Page 23 ALPHAMENA CORPORATE SERVICES PADICO (Buy) Holding Companies / Palestine Pension Risks

Pension matters The staff expenses amounted to US$9.4m in 2017 vs. US$8.41m, a year earlier. In 2017, the number of employees reached 1,037 persons. The consolidated headcount of 1,037 persons is spreaded as follows:

The staff expenses/revenues ratio dropped from 9.1%, in 2016, to 8.7% in 2017. This ratio should stand at 9.1% in 2018. Beyond 2018, we do not expect the staff number to increase as the group does not plan to set up a medium term (2 to 5 years) recruitment plan.

Summary Of Pension Risks 12/17A 12/18E 12/19E 12/20E Pension ratio % 1.64 1.59 1.67 1.74 Ordinary shareholders' equity $M 421 425 430 435 Total benefits provisions $M 7.00 6.89 7.31 7.71 of which funded pensions $M 7.00 6.89 7.31 7.71 of which unfunded pensions $M 0.00 0.00 0.00 0.00 of which benefits / health care $M 0.00 0.00 0.00 Unrecognised actuarial (gains)/losses $M 0.00 0.00 0.00 0.00

Company discount rate % 0.00 0.00 0.00 0.00 Normalised recomputed discount rate % 2.50 Company future salary increase % 0.00 0.00 0.00 0.00 Normalised recomputed future salary increase % 2.00 Company expected rate of return on plan assets % 0.00 0.00 0.00 0.00 Normalised recomputed expd rate of return on plan assets % 0.00 Funded : Impact of actuarial assumptions $M 0.67 Unfunded : Impact of actuarial assumptions $M 0.00

Geographic Breakdown Of Pension Liabilities 12/17A 12/18E 12/19E 12/20E US exposure % 0.00 0.00 0.00 0.00 UK exposure % 0.00 0.00 0.00 0.00 Euro exposure % 0.00 0.00 0.00 0.00 Nordic countries % 0.00 0.00 0.00 0.00 Switzerland % 0.00 0.00 0.00 0.00 Other % 100 100 100 100 Total % 100 100 100 100

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Balance Sheet Implications 12/17A 12/18E 12/19E 12/20E Funded status surplus / (deficit) $M -7.00 -9.85 -10.4 -11.0 Unfunded status surplus / (deficit) $M 0.00 0.00 0.00 0.00 Total surplus / (deficit) $M -7.00 -9.85 -10.4 -11.0 Total unrecognised actuarial (gains)/losses $M 0.00 0.00 0.00 0.00

Provision (B/S) on funded pension $M 7.00 6.89 7.31 7.71 Provision (B/S) on unfunded pension $M 0.00 0.00 0.00 0.00 Other benefits (health care) provision $M 0.00 0.00 0.00 Total benefit provisions $M 7.00 6.89 7.31 7.71

P&L Implications 12/17A 12/18E 12/19E 12/20E Funded obligations periodic costs $M 0.00 -0.18 -0.25 -0.28 Unfunded obligations periodic costs $M 0.00 0.00 0.00 0.00 Total periodic costs $M 0.00 -0.18 -0.25 -0.28 of which incl. in labour costs $M 0.00 0.00 0.00 0.00 of which incl. in interest expenses $M 0.00 -0.18 -0.25 -0.28

Funded Obligations 12/17A 12/18E 12/19E 12/20E Balance beginning of period $M 0.00 7.00 9.85 11.1 Current service cost $M 0.00 0.00 0.00 Interest expense $M 0.18 0.25 0.28 Employees' contributions $M Impact of change in actuarial assumptions $M 0.67 0.00 0.00 of which impact of change in discount rate $M -2.73 of which impact of change in salary increase $M 3.40 Changes to scope of consolidation $M Currency translation effects $M Pension payments $M Other $M 7.00 2.00 1.00 1.00 Year end obligation $M 7.00 9.85 11.1 12.4

Plan Assets 12/17A 12/18E 12/19E 12/20E Value at beginning $M 0.00 0.00 0.66 Company expected return on plan assets $M 0.00 0.00 0.00 Actuarial gain /(loss) $M 0.00 0.00 0.00 Employer's contribution $M 0.00 0.00 0.66 0.70 Employees' contributions $M 0.00 0.00 0.00 0.00 Changes to scope of consolidation $M Currency translation effects $M Pension payments $M 0.00 0.00 0.00 0.00 Other $M Value end of period $M 0.00 0.00 0.66 1.35

Actual and normalised future return on plan assets $M 0.00 0.00 0.00 0.00

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Unfunded Obligations 12/17A 12/18E 12/19E 12/20E Balance beginning of period $M 0.00 0.00 0.00 0.00 Current service cost $M 0.00 0.00 0.00 Interest expense $M 0.00 0.00 0.00 Employees' contributions $M Impact of change in actuarial assumptions $M 0.00 0.00 0.00 of which Impact of change in discount rate $M 0.00 of which Impact of change in salary increase $M 0.00 Changes to scope of consolidation $M Currency translation effects $M Pension payments $M Other $M Year end obligation $M 0.00 0.00 0.00 0.00

July 24 2018 Copyright Alphavalue - 2018 – www.alphamena.org Page 26 ALPHAMENA CORPORATE SERVICES PADICO (Buy) Holding Companies / Palestine Governance & Management

Governance & Management PADICO’s Board of Directors is chaired by Mr. Munib RASHEED AL-MASRI (its shareholder: up to 5.25%). The Board is composed of 13 members (nine Palestinians and four Jordanians); five of them are independent. No female presence has been reported in the Boardroom. The compensation for the Board of Directors of PADICO HOLDING and its subsidiaries amounted to US$0.479m in 2017; US$ 0.180m of this amount was allocated to PADICO HOLDING’s Board of Directors.

Concerning the management, we note the presence of a woman within the group’s Management Board, Mrs. Rasha MITWALLI as a manager of the administrative department. The salaries and benefits of the top management of PADICO HOLDING and its subsidiaries amounted to US$4.035m; US$1.403m of this amount was allocated to the upper management of PADICO HOLDING itself.

The Board created two specialised committees to execute its functions and to ensure transparency, the Executive and Audit Committees, in addition to several interim committees mandated to perform certain tasks at specific times.

Board members are required to hold a minimum of 100,000 shares of the company’s common stock. Neither the Chairman nor the other Board members hold executive management positions within the company or any of its subsidiaries, in accordance with best governance practices.

Governance parameters Existing committees Yes / No Weighting Audit / Governance Committee One share, one vote 25% Compensation committee Chairman vs. Executive split 15% Financial Statements Committee Chairman not ex executive 5% Litigation Committee Nomination Committee Independent directors equals or above 50% of total directors 10% Full disclosure on mgt pay (performance related bonuses, pensions and non Safety committee 10% financial benefits) SRI / Environment Disclosure of performance anchor for bonus trigger 10% Compensation committee reporting to board of directors 10% Straightforward, clean by-laws 15% Governance score 55 100%

Management Compensation, in k$ (year) Name Function Birth date Date in Date out Cash Equity linked Ziad TURK M General Secretary 1947 Nihad KAMAL M Deputy General Manager 1973 2017 (2017) Amjad HASSOUN M CFO 1966 1999 (2017) Nimer ABDEL WAHED M Senior Executive 1968 2016 (2017) Samer AL SAFADI M Senior Executive 1970 1995 (2017) Said DWIKAT M Senior Executive 1979 2016 (2017) Rasha MITWALLI F Senior Executive 1975 2008 (2017) Jihad ZAMARI M Senior Executive 1956 2011 (2017)

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Board of Directors Completion Birth Fees / indemnity, Value of holding, Name Indep. Function of current Date in Date out date in k$ (year) in k$ (year) mandate Munib RASHEED AL-MASRI M President/Chairman of th... 1934 1995 (2017) Nidal SUKHTIAN M Deputy Chairman 1941 1995 (2017) Ammar AL AKER M Member 1966 2011 (2017) Omar AL BITAR M Member 1963 2015 (2017) PALTEL GROUP M Member 2015 (2017) Jamal HOURANI M Member 1971 2011 (2017) Zahi KHOURY M Member 1938 1995 (2017) Bashar MASRI M Member 1961 2015 (2017) Yazeed MUFTI M Member 1953 1995 (2017) Iyad NABIH M Member 1947 2015 (2017) Kamil SAAD EDDIN M Member 1951 1998 (2017) Nabil SARRAF M Member 1940 1995 (2017) Sabih TAHER AL-MASRI M Member 1937 1995 (2017)

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Human Resources Accidents at work Human resources development Pay Job satisfaction Internal communication 25% Of H.R. Score 35% Of H.R. Score 20% Of H.R. Score 10% Of H.R. Score 10% Of H.R. Score

HR Breakdown Yes / No Rating Accidents at work 25% 25/100 Set targets for work safety on all group sites? 40% 10/100 Are accidents at work declining? 60% 15/100 Human resources development 35% 28/100 Are competences required to meet medium term targets identified? 10% 4/100 Is there a medium term (2 to 5 years) recruitment plan? 10% 0/100 Is there a training strategy tuned to the company objectives? 10% 4/100 Are employees trained for tomorrow's objectives? 10% 4/100 Can all employees have access to training? 10% 4/100 Has the corporate avoided large restructuring lay-offs over the last year to date? 10% 0/100 Have key competences stayed? 10% 4/100 Are managers given managerial objectives? 10% 4/100 If yes, are managerial results a deciding factor when assessing compensation level? 10% 4/100 Is mobility encouraged between operating units of the group? 10% 4/100 Pay 20% 20/100 Is there a compensation committee? 30% 6/100 Is employees' performance combining group performance AND individual performance? 70% 14/100 Job satisfaction 10% 10/100 Is there a measure of job satisfaction? 33% 3/100 Can anyone participate ? 34% 3/100 Are there action plans to prop up employees' morale? 33% 3/100 Internal communication 10% 10/100 Are strategy and objectives made available to every employee? 100% 10/100 Human Ressources score: 93/100

HR Score

Other financials H.R. Score : 9.3/10 PADICO

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Momentum

Momentum analysis consists in evaluating the stock market trend of a given financial instrument, based on the analysis of its trading flows. The main indicators used in our momentum tool are simple moving averages over three time frames: short term (20 trading days), medium term (50 days) and long term (150 days). The positioning of these moving averages relative to each other gives us the direction of the flows over these time frames. For example, if the short and medium-term moving averages are above the long-term moving average, this suggests an uptrend which will need to be confirmed. Attention is also paid to the latest stock price relative to the three moving averages (advance indicator) as well as to the trend in these three moving averages - downtrend, neutral, uptrend - which is more of a lagging indicator. The trend indications derived from the flows through moving averages and stock prices must be confirmed against trading volumes in order to confirm the signal. This is provided by a calculation based on the average increase in volumes over ten weeks together with a buy/sell volume ratio.

: Strong momentum corresponding to a continuous and overall positive moving average trend confirmed by volumes

: Relatively good momentum corresponding to a positively-oriented moving average, but offset by an overbought pattern or lack of confirmation from volumes

: Relatively unfavorable momentum with a neutral or negative moving average trend, but offset by an oversold pattern or lack of confirmation from volumes

: Strongly negative momentum corresponding to a continuous and overall negative moving average trend confirmed by volumes

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Moving Average MACD & Volume

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€/$ sensitivity

Sector Other financials

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Methodology

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Fundamental Opinion

It is implicit that recommendations are made in good faith but should not be regarded as the sole source of advice.

Recommendations are geared to a “value” approach.

Valuations are computed from the point of view of a secondary market minority holder looking at a medium term (say 6 months) performance.

Valuation tools are built around the concepts of transparency, all underlying figures are accessible, and consistency, same methodology whichever the stock, allowing for differences in nature between financial and non financial stocks. A stock with a target price below its current price should not and will not be regarded as an Add or a Buy.

Recommendations are based on target prices with no allowance for dividend returns. The thresholds for the four recommendation levels may change from time to time depending on market conditions. Thresholds are defined as follows, ASSUMING long risk free rates remain in the 2-5% region.

Low Volatility Normal Volatility High Volatility Recommendation 10 < VIX index < 30 15 < VIX index < 35 35 < VIX index Buy More than 15% upside More than 20% upside More than 30% upside Add From 5% to 15% From 5% to 20% From 10% to 30% Reduce From -10% to 5% From -10% to 5% From -10% to 10% Sell Below -10% Below -10% Below -10%

There is deliberately no “neutral” recommendation. The principle is that there is no point investing in equities if the return is not at least the risk free rate (and the dividend yield which again is not allowed for).

Although recommendations are automated (a function of the target price whenever a new equity research report is released), the management of AlphaMena intends to maintain global consistency within its universe coverage and may, from time to time, decide to change global parameters which may affect the level of recommendation definitions and /or the distribution of recommendations within the four levels above. For instance, lowering the risk premium in a gloomy context may increase the proportion of positive recommendations.

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Valuation

Valuation processes have been organized around transparency and consistency as primary objectives.

Stocks belong to different categories that recognise their main operating features : Banks, Insurers and Non Financials.

Within those three universes, the valuation techniques are the same and in relation to the financial data available.

The weighting given to individual valuation techniques is managed centrally and may be changed from time to time. As a rule, all stocks of a similar profile are valued using equivalent weighting of the various valuation techniques. This is for obvious consistency reasons.

Within the very large universe of Non Financials, there are in effect 4 sub-categories of weightings to cater for subsets: 1) 'Mainstream' stocks; 2) 'Holding companies' where the stress is on NAV measures; 3) 'Growth' companies where the stress is on peer based valuations; 4) 'Loss making sectors' where peers review is essentially pointing nowhere (ex: Bio techs). The bulk of the valuation is then built on DCF and NAV, in effect pushing back the time horizon.

Normal Growth Holding Loss Valuation Issue Bank Insurers industrials industrials company runners

DCF 35% 35% 10% 40% 0% 0%

NAV 20% 20% 55% 40% 25% 15%

PE 10% 10% 10% 5% 10% 20%

EV/EBITDA 20% 20% 0% 5% 0% 0%

Yield 10% 10% 20% 5% 15% 15%

P/Book 5% 5% 5% 5% 15% 10%

Banks' instrinsic method 0% 0% 0% 0% 25% 0%

Embedded Value 0% 0% 0% 0% 0% 40%

Mkt Cap/Gross Operating Profit 0% 0% 0% 0% 10% 0%