Alert on FY 2013 – Maintaining a Hold on Solidere with a fair value of USD 15.87 but a lower 6-month target price of USD 13.31 due to company’s struggle amidst the deteriorating investment climate

We maintain a HOLD rating on Solidere with a 6-month target price of USD 13.31, a 4.1% premium over today’s closing price of USD 12.79. Solidere’s revenues came in at USD 155 million in 2013, up from 2012’s revenues of USD 111 million, as the company succeeded in selling 3 plots during 2013 and ended the year posting earnings of $40 million. The company also took measures to preserve its cash and focused on finishing current projects to limit CAPEX and expenses.

We view Solidere’s repositioning to focus on immediate priorities and postpone investment-demanding projects to be necessary in light of the penalized investment sentiment in Lebanon. This strategy has narrowed future cash flows and foregone additional income that were included in our previous forecasts, leading the share’s fair value to decrease from USD 16.10 to USD 15.87. As for the 6-month target price, we estimate it at USD 13.31 using a discount rate of 18% to reflect the weight of reigning uncertainty in the country. Although we believe that 2014’s results will be positive but rather lower than 2013’s, we expect Solidere’s share price to retain an upside potential, depending on whether the uncertainty regarding the political status of Lebanon unfolds. In such case, the unknown-risks’ premium would be waived and the share price would appreciate. On a side note, the company will abstain from paying dividends in 2013, similar to 2012 in order to retain its profits under its cash preservation current policy.

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Solidere Aug 2014

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