Debt and turmoil take their toll on Palm Hills

The troubles at Palm Hills Developments Companyare growing as Egypt's political unrest worsens, analysts have warned, advising clients to cut their holdings of the stock.

Beltone Financial initiated coverage of the stock on Thursday with a "sell" rating and a target price of 1.33 Egyptian pounds.

"Palm Hills' balance sheet remains the biggest concern for us, with debt of 1 billion pounds and outstanding land liabilities of 4 billion pounds," analysts said in a research report. Constrained access to liquidity is slowly bringing many projects to a halt, the report added. "It's a vicious circle for the company when it comes to construction and collection," the report added.

"Clients want to see the construction progress first before paying money, and on the other hand, the company needs money from clients in order to execute construction."

Delays in construction and handovers have been the consequence, resulting in a 68 per cent plunge in revenue for the third quarter compared with the corresponding period a year earlier.

Palm Hills' appointment of Orascom Construction Industries as part of a US$93 million project with Abu Dhabi's Burooj Properties may go some way towards restoring investor confidence.

The shares have lost 81.3 per cent of their value since the start of the year to close at 1.18 Egyptian pounds yesterday.

Analysts from CI Capital trimmed their target price 39 per cent to 1.40 pounds each in a research report last month.

"[Palm Hills] is expected to continue experiencing systematic risk from lower demand for housing units and lower occupancy rates for the hotels segment over the next two years on the back of current unrest," the report said.

Tourism remains sluggish in post-revolution Egypt, with hotel occupancy at 54.6 per cent for October, a 33.2 per cent decrease on the same period on a year earlier, according to STR Global.

ghunter@thenational.ae