Beltone Financial Research maintained, in a recent study, Six of October Development & Investment (SODIC) (OCDI.CA) FV at EGP 28.53 per share and a "Hold" recommendation. Beltone stated that SODIC FY2013 results were pressured by one-off cancellations related to previously booked revenues related to Solidere and a sub-development sale in July 2010 and the impairment of Syrian investments worth EGP 478 m. Revenue missed Beltone's estimate of EGP 1,564 m and came in at EGP 1,342 m, down 7.2% y-o-y, and gross profit reached EGP 355 m, implying a GPM of 26.8% versus 36.3% in FY2012. On the bottom-line front, SODIC reported a net loss before minority of EGP 447 m compared to a net income of EGP 257 m in FY2012. Meanwhile, on a normalized basis (removing the impact of the one-off items), revenue would have reached EGP 1,566 m, in line with our estimates, with a GPM of 34.2%. On the operations side, SODIC reported robust performance in FY2013 in terms of sales, collections and deliveries. Beltone believed that FY2014 should be a good year for SODIC following the conclusion of its legal disputes with Solidere and on Eastown, removing the overhang on the stock. Beltone viewed the extension in the development timeframe of Eastown and Westown as extremely positive as it will allow the company to stretch the sales launch over a longer period, allowing for more price increases between phases, thus translating to higher revenues. However, Beltone remain concerned about SODIC's outlook beyond the delivery of its existing projects given its limited land bank of 7.5 million sqm, which will be completely utilized over the next five years. Management announced on several occasions plans to replenish their land bank, but nothing has materialized to date. Beltone concluded that it believes that real estate companies will continue to benefit in FY2014 from rising inflationary concerns as investors mark the sector as safe haven and in addition the newly proposed investment law that prohibits third parties from appealing contracts between the government and investors will improve the investment climate in Egypt following three years of ongoing litigations, especially in the sector. If the law passes, Beltone believed this will automatically improve the overall sentiment on the real estate sector and trigger a higher upside in our valuations as we cut our discount rates.
