x Abu Dhabi, UAEMonday 22 January 2018

Palm Hills faces uphill struggle for recovery

Palm Hills fell sharply on the first day of trading on Egypt's market yesterday but analysts are wary on the future performance of the stock

Palm Hills was one of a host of stocks that fell sharply on Egypt's resumption of trade yesterday, as foreign investors frantically sold off positions.Shares in Egypt's second-biggest property developer fell 9.8 per cent to 4.39 Egyptian pounds, almost at the 10 per cent limit permitted by the exchange.

But while other companies are eventually expected to benefit from investors buying cheap shares, Palm Hills is likely to struggle to rebound. It faces a legal challenge contesting its purchase of a plot of land from the state.

A judicial panel concluded this month the sale was illegal because it was priced too cheaply and was not publicly auctioned.

A court date has been set for next month, when an Egyptian court will rule whether the sale of state land should be dropped, offering some clarity to investors. But analysts are still wary.

"The market was not really differentiating with the regime connection or not [yesterday] but especially in terms of Palm Hills, the stock is expected to remain among the weakest among its peers," said Ankur Khetawat at HC Securities, who covers the stock.

Mr Khetawat has an "underperform" rating and a price target of 4.6 pounds. He added the company owes a "considerable amount" in land liabilities, putting it in an even weaker position than its peers.

Yasseen Mansour, the company's chairman and chief executive, is also among those facing criminal charges of wasting public money, adding to concerns about the stock. "I think the risk related to land cases and uncertainty regarding the legal framework means it's really difficult to predict an outcome for the company," Mr Khetawat said.

Palm Hills is the second developer to face such a court decision, after a court ruled last year that a land deal with Talaat Moustafa Group, Egypt's biggest developer, for its US$3 billion Madinaty project should be scrapped.