Building a solid Foundation
To kick things off, this week's featured firm is residential developer Dom Development, which plans to raise zł.220 million from the floor to purchase plots for new investments.
Dom Development, the second-biggest residential developer in Warsaw, is planning to debut on the Warsaw bourse on October 25. According to the company's issue prospectus, which was recently approved by the Polish Securities and Exchange Commission (KPWiG), subscription for shares for both individual and institutional investors will be held from October 17 to 19. The price and number of shares sold will only be known on subscription day, but it seems the debut will be the largest on the Warsaw Stock Exchange (WSE) so far this year.
After the IPO, covering 3.27 million new F-series shares and part of the shares currently held by Dom Development BV, the free float will account for 18 to 23 percent of the company's total shares. Dom Development wants to raise zł.220 million from the new issue, but with the sale of the majority shareholder's shares, its IPO value could reach as much as zł.400 million.
"The funds raised from the new issue of shares will be spent on the purchase of plots of land for new developments and increase the number of projects carried out. Some zł.10 million will also be earmarked to pay back a loan granted by the majority shareholder - Dom Development BV," says Jarosław Szanajca, CEO of Dom Development.
So far, the company has finalized 43 construction projects, selling 8,000 flats. Fifteen projects are currently under construction and 33 more are planned. Through these, Dom Development wants to focus and strengthen its position on the Warsaw market.
"Warsaw and its metropolitan market have no competition on the national scale at the moment. They will definitely continue to develop dynamically. We can also observe very positive migration trends towards the capital," Szanajca said. He also didn't rule out future expansion in other locations.
Szanajca believes that while the rising prices of flats in Warsaw - currently at zł.6,200 per sqm on average - will slow down, demand should remain high thanks to the growing popularity of mortgage loans.
"Mortgage loans are a brand new value for the Polish market, opening up great prospects for it. While more and more people are taking mortgage loans, Poland is still far behind the rest of Europe, with mortgage indebtedness against GDP amounting to a mere 5.5 percent. The EU average is 46.4 percent," Szanajca stressed.
Jacek Radziwilski, the managing director at brokerage house CDM Pekao, which is preparing the offer, believes Dom Development should join the WIG20 group within a year of its presence on the WSE. However, BDM PKO analyst Michał Sztabler is much more cautious.
"I'd say it will be difficult - it depends of course on the capitalization and liquidity but I'm afraid that the free float at the level of 20 percent might not be enough for Dom Development to make it to the WIG20," Sztabler told WBJ.
Among Dom Development's strengths, Sztabler names the boom on the real-estate market, which he believes is likely to last for at least two more years, and the high margins the company can charge. But he also points to possible difficulties with land supply.
"As long as the boom is on, the company will post good results. But one has to bear in mind the cyclical nature of the business. As for the difficulties it might face, I'd name the land regulations. Only a fraction of Warsaw's area is covered by spatial-development plans and it's around the capital where Dom Development's activities are centered," Sztabler said.
The market will surely compare Dom Development with other listed companies from the sector. These include Globe Trade Center (GTC), the office-space and commercial-center developer, currently valued at some zł.6.5 billion, and Michał Sołowow's Echo Investment, which started off as a residential developer and later widened its scope of operations to office buildings and hotels.
Last year Dom Development posted a net profit of zł.52.2 million with revenues at zł.537.2 million. In H1 2006, Dom Development's net profit already reached zł.58 million and revenues equaled zł.349.1 million. The company did not provide a financial prognosis.
