profile – Real estate developer
Price 30.05.2007: 0.945 RON
market Capitalization (Eur mn): 282.1
Net Profit 2006 (Eur mn): 5.2
sales 2006 (Eur mn): 33
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IMPACT Developer & Contractor S.A. is a joint-stock company with fully private equity, operating in the field of developing complex real estate projects. IMPACT SA company is present on the capital market since 1996. In 2006 its shares were promoted to the first tier on the Stock exchange, within the realestate development and construction sector.
In 1995, IMPACT S.A. Developer & Contractor introduced the “residential complex” concept on the Romanian market along with the commencement of the ALFA complex. Over the last 15 years, IMPACT built: 16 residential complexes, over 1700 houses built in accordance with western quality standards and expansion on a national scale: Bucharest, Constanta, Ploiesti.
The main type of services provided by IMPACT include: the construction of dwelling complexes, office buildings, commercial areas and logistic platforms.
In regard to its market share, in 2005, the real-estate developer Impact held 28.7% of the Bucharest construction market. In regard to the dwelling units in progress, the company has a market share of 9.3%. At a national level, IMPACT SA reported a market share of 1.49% referring to dwelling units in progress, and of 2.86% referring to the number of completed dwelling units. (Source: issuer info)
Shareholding Structure
Currently, Impact SA is approaching the next phase of its development, which is noticeable through the presence of several investment funds into its shareholding structure. The General Manager, Mr. Dan Ioan Popp (30.2% stake) and the CFO – Mrs. Carmen Sandulescu (11.3% stake, respectively), cumulate 41.5% of Impact shares. In the past couple of years, two funds were reported with significant stakes in the company: East Capital Asset management (5.35% via East Balkan fund) and Julius Baer (5.02%). The Information made public by the company’s management shows the intention of other prestigious investment funds to enter into the company’s shareholding structure as well.
Impact Shareholding Structure
| Dan Ioan Popp | 30.2% |
| Carmen Sandulescu | 11.3% |
| Julius Baer | 5.02% |
| East Capital Balkan Fund | 5.35% |
| Free-float | 48.1% |
| market value of the free-float (mn EUR) | 135.7 |
Source: issuer info
Financing through the capital market
The company has regularly turned to the capital market for financing – either by share capital increases or by issues of bonds. The last amount of money collected by the company was in 2005 when, through the issue of shares, Impact raised EUR 4 mn. In 2006, there was an intention to issue bonds in amount of EUR 10 mn, however, this operation was not materialized.
Within the last General Meeting of Shareholders, discussions were conducted about a new issue of shares raging between EUR 30 and 100 mn. The matter of co-opting some foreign investment funds and financial groups into the company’s shareholding structure, necessary for the funding of upcoming projects, was also on the agenda.
Residential Projects
Currently, IMPACT has 6 important projects in progress: two in Bucharest, two in Oradea and one in Constanta and Ploiesti. The most important real estate projects that are to be built by Impact in the coming years are: Ghencea and Greenfield II in Bucharest, planned to commence in 2008, and Lomb District in Cluj, construction planned to start in 2007.
The Ghencea project requires an investment of approx. EUR 600 mn, which implies the building of approx. 4200 houses, whereas the Cluj-based project needs an investment of some EUR 300-350 mn, following to be completed in a public-private partnership within which the City Hall of Cluj would offer a plot of land of app. 204 acres.
The main residential projects completed by the company so far are:
- Bucharest: : ALFA, BETA, GAMMA SI DELTA, EPSILON SI ZETA, JUNIOR , CLASS, AZUR 1 , AZUR 2, GREENFIELD, CONSTRUDAVA
- Constanta: Boreal and Zenit.
Forthcoming Projects: Lotus Oradea, Dealul Lomb Cluj
Throughout the years, it has been noticed the fact that this type of projects are being carried out over longer periods of time than the ones initially estimated. For example, in Constanta the Boreal project lasted for app. 5 years, although the initial plan was that in maximum 3 years the project would be completed.
Financial Results
| EUR mn* | 2005 | Q1/2006 | 2006 | Q1/2007 |
| Total assets | 82.1 | 84.0 | 110.1 | 108.9 |
| sales | 35.2 | 5.2 | 33.0 | 5.2 |
| Net Profit | 2.97 | 0.08 | 5.22 | 0.64 |
| Net Profit Margin | 8% | - | 16% | 18% |
| ROE | 7% | - | 11% | 12% |
* according to RAS
Source: Vanguard research
In 2006, the real estate company posted good net financial results. The unadjusted net profit stood at EUR 5.2 mn, almost 2-fold increase vs. 2005, its sales amounting to EUR 33 mn, down by 6%. Last year’s net profit rate was of 16%.
2007 is the first year when the Romanian Standards will allow the direct recognition into the P&L of the surplus stemmed from the periodic revaluation of assets. This is a procedure in compliance with IFRS standards that acknowledges two main components of a real estate company’s profit: the operating profit as a difference operating revenues vs. expenses and the profit stemmed from the increase of the assets’ value.
Thus, for 2007 Impact budgeted operating profit of RON 27.5 mn (RON 8.2 mn), and revaluation profit of RON 65.4 mn, totting up an EBT figure of RON 92.9 mn (EUR 27.7 mn). Moreover, the company aims to double its revenues, up to some EUR 85.5 mn.
| IMP (EUR bn) | 2006 | 2007-Budget |
| Total Revenues | 38.9 | 85.5 |
| Revaluation Revenues | - | 19.2 |
| Operating Profit | 6.9 | 8.1 |
| Revaluation Profit | - | 19.2 |
| EBT figure | 6.9 | 27.3 |
| Net Profit | 5.8 | 23.0 |
Source: issuer info
The company also announced the financial results for Q1/2007. In Q1’2007, Impact made 6-times higher net profit vs. Q1/2006, and sales of EUR 5.2 mn. Within the first quarter of the current year, the company signed 80 contracts for the sale of apartments, with a total value of app. EUR 10 mn.
Impact (IMP) Valuation
On 15.04.2007, the real estate consultancy company DTZ Equinox made a valuation of IMPACT SA. assets. The value of the real estate assets reaches EUR 206.7 mn. Furthermore, the real estate consultant DTZ Equinox, estimated the value of a net asset (NAV) at EUR 200.7 mn.
In April 2006, Impact assets had been assessed at EUR 82.4 mn prior to the merger with Patagonia Invest approved at the beginning of the current year. According to the merger project, Impact Bucharest real-estate trust absorbed the real-estate agency Patagonia Invest SRL by taking over its rights and liabilities. Patagonia Invest SRL will be dissolved through the transfer of its assets to the Impact trust.
The evaluation was carried out based on the principle of the properties final market value, on the premise that these would be sold straight away. Because of the long collection (average cash-conversion cycle of app. 3 years) and completion period of the projects, we believe that the provision of a discount for the lack of asset liquidity would be relevant.
In order to establish a fair value of Impact’s market capitalization we have used the P/NAV method, taking into account some of the real estate competitors with exposure to Eastern-Europe markets: GTC from Poland, Orco and ECM REI from the Czech Republic.
| P/E 06 | P/E 07 | P/NAV 06 | P/NAV 07e | |
| Impact * | 8.8 | 8.0 | 1.4 | 1.2 |
| GTC (Poland) | 8.4 | 7.6 | 2.2 | 1.9 |
| Orco (Czech) | 10.5 | 9.6 | 1.2 | 1.0 |
| ECM REI (Czech) | 12.9 | 11.8 | 2.1 | 1.8 |
* According to IFRS (including revaluation profits)
Taking into account the estimates of the real estate market experts, the net assets of the Eastern European real-estate companies are expected to hike 10- 15% per year, solely from the increase in the properties’ value.
Globe Trade Centre S.A. (GTC) is one of the largest developers in Central and Eastern Europe. GTC is investing in 3 main sectors of the real-estate market: office buildings, entertainment centers and residential property.
GTC is currently developing real estate projects in Poland, Hungary, the Czech Republic, Romania, Serbia, Croatia, Bulgaria, Slovakia and Ukraine.
ORCO is a real-estate company present on the Eastern-Europe market for 15 years. For the following period of time, the company is focusing on expansion and on diversifying its activity portfolio in new countries. The company also wants to start new activities such as: investments and asset management.
Czech Republic-based company ECM REI operates within the same field and, over the past years, became a quite important real estate company. It was listed on the Prague Stock exchange one year ago. The company’s financial data is also positive over the last year, its total assets increasing by 151% y-o-y and its book equity by 148%. The net asset value (NAV) also soared by 199% y-o-y, up to the value of EUR 195 mn.
Impact Multiples
P/NAV 07 is of 1.2 in the case of Impact, slightly below the 1.57 average of the three companies considered as peers. The financial situations of GTC, Orco, and ECM show the steady stream of positive cash-flow due to the lease and exploitation of its assets. Meantime, Impact has a negative operating cash-flow due to the former policy of crediting the clients, this leading to a higher liquidity risk. Therefore, the discount of (IMP) against other real-estate companies is justifiable.
An estimated value of Impact’s market capitalization will be determined by taking into account the following average multiples for its peers: P/NAV 07e = 1.56 and P/E 07e = 9.6, and then applying a final discount of 15% which includes the difference between Impact’s risk and business profile vs. its peers.
| Impact (mln EUR) | 2007e |
| Net Profit | 23.0 |
| NAV | 230.7 |
| market Capitalization1 (P/E = 9.6) | 220.8 |
| market Capitalization2 (P/NAV=1.56) | 357.6 |
| Average Mkt Cap ( EUR bn) | 289 |
| discount 15% | 246 |
| Target Price 12 months EUR/share | 0.246 |
| Target Price 12 months RON/share | 0.812 |
* Vanguard research Estimates
The target price that we estimate for Impact shares for the following 12 months is of 0.812 RON (down by 14% from the current price of 0.945 RON). Our recommendation for (IMP) shares is Hold.
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Copyright: 2007 SSIF Vanguard SA. All rights reserved. For further Information please contact Vanguard, 19 Unirii Blvd. , Bl. 4B, Sector 5, Bucharest, Romania
Tel. +40 21 336 93 25, fax: +40 21 336 92 33, e-mail: office@vanguard.ro, web site: http://www.vanguard.ro
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Impact may2007, 61 Kb
