FFA revises down Solidere share valuation to $20

Tough two years ahead for Solidere as land sales revenues expected to dip

FFA Private Bank has revised down its valuation and recommendation for Solidere share price from $22 to $20 per share, the bank’s head of research, Nadim Kabbara, announced today. The company stock was given an overweight rating by the bank.

The announcement comes in light of weaker revenues from land sales in 2011 of $242 million compared to $337 million in 2010. Land sales still make up 82 percent of Solidere revenues.

“We think its good value for the longer term investor, but weaker market sentiment and weaker investor sentiment puts pressure on Solidere share price that does not realize its full share value of $20 per share but remains at $13 per share,” said Kabbara.

FFA’s research team reached its valuation of Solidere shares by considering the value of its 1.9 million square meter land bank, priced at $3,900/m2, as well as the value of the company’s investment properties and property management services. It valued Solidere International based on its liquid assets in light of the early stages of the underlying projects.

Kabbara said the company is not flexible on prices but may be flexible on terms. “We may see a year or more of no land sales but Solidere will have to keep investing in infrastructure,” he said. In fact, FFA predicts 2012 and 2013 would be difficult years for Solidere, as land sales are expected to dip to 68 percent of the company’s total revenue.

The company’s total debt reached $555 million last year, compared to $481 million in 2010. The bank estimates the company’s total debt to capitalization ratio to reach 27.8 percent by 2014, up from 13.4 percent in 2010, but still considered ahead of its regional peers, Kabbara said, whose debt to capitalization wavers in the mid-30s.

The bank estimates that should the company sell its remaining 1.9 million square meter land bank it would get $7.41 billion for it.

Reported by Hani Bathiche