We upgrads our rating on Solidere to an ACCUMULATE with a 6-month target price of USD 14.80. While 2011 presented a challenging year for Solidere, its revenues dropped less than our estimates and we are expecting performance to improve during 2012.
Solidere’s total revenues in 2011 were reported at USD 296 million, 22.5% lower than 2010 revenues but higher than Blominvest’s estimates of USD 273 million. Land sales declined by 28% to USD 242 million in 2011 from USD 337 million in 2010. As for Solidere’s rental portfolio, it captured 17% of total revenues in 2011 growing considerably from USD 41 million in 2010 to USD 50 million in 2011, meeting Blominvest’s estimates of USD 51 million. Solidere’s 2011 Net Income reached USD 163 million, declining by 17% from USD 196 million in 2010 due to less land sales. However, gross margin for land sales in 2011 reached an all-time high of 84% compared to the preceding year reported at 77%.
Blominvest estimates the fair value of Solidere’s share at USD 18.00 using a discount rate of 15%, which represents a fair required return for investing in a Lebanese stock under normal circumstances. However, considering the current instability in the region, Blominvest raised the required return by 5% leading to a 6-month target price of USD 14.80. When comparing Solidere’s valuation ratios, we find that Solidere is slightly undervalued with its stock price currently trading at a Price-to-Earnings (P/E) of 12.3 compared to 14.7 for the regional average.
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Solidere 2011 Results Review and Outlook for 2012