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 July 24 2018 Copyright Alphavalue - 2018 – www.alphamena.org Page 2 ALPHAMENA CORPORATE SERVICES PADICO (Buy) Holding Companies / Palestine 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). July 24 2018 Copyright Alphavalue - 2018 – www.alphamena.org Page 4 ALPHAMENA CORPORATE SERVICES PADICO (Buy) Holding Companies / Palestine Businesses & Trends 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