'Hold' on Solidere shares

Blominvest downgrades fair value for Solidere shares to $19.4 each

July 1, 2011- Following Solidere’s publishing of its 2010 financial statements, Blominvest bank updated its rating on the company with a HOLD recommendation and downgraded the fair value to $19.4 per share from an earlier forecast of $31 per share. The bank said it has significantly revised down its financial forecasts for Solidere, anticipating no revenue growth in 2011 due to the company’s diminishing backlog.

Solidere’s revenues reached a new high of $382 million, 14 percent higher than 2009. The company’s revenues exceeded Blominvest’s estimates of $368 million with land sales capturing 88 percent of total revenues. Earnings from rentals increased by 50 percent due to higher utilization of the company’s flagship project, Beirut Souks. Blominvest expected rentals to continue to rise as Solidere inaugurates the Cineplex in 2012 and the North Souks Department Store in 2013.

Solidere posted a net income of $196 million in 2010, a 3.7 percent annual growth from its 2009 reported earnings. The company’s net income was lower than Blominvest’s estimated $224 million. Solidere posted a 51 percent profit margin for 2010, lower than 56 percent in 2009. Blominvest attributed the drop to increased advertising expenses for promoting the newly opened Beirut Souks. Solidere’s cash balance remained unchanged at $170 million, but the company’s debt has almost doubled due to its usage of additional credit facilities to fund the building of its rental properties.

The company’s backlog is estimated at $77.5 million and is only composed of two deals in the reclaimed area, significantly lower than $429 million in 2009. Solidere had earlier announced that its 2010 revenue was recognized from the achievement of contracts signed and approved in the past years with no new contracts taking place since the beginning of 2010.

Solidere’s management was optimistic on new sales concluding in 2011, but Blominvest did not anticipate growth to occur as more than $260 million of new sales are needed for revenues to be at the same level with 2010.
Blominvest downgraded Solidere’s fair value to $19.4 per share due to accounting for additional risk premium. It said the new premium resulted from the political turmoil associated with the Special Tribunal for Lebanon, the regional political shocks that have affected investor sentiment in the region along with high likelihood that the real estate market may have already peaked.