Dar Global — Demand underpins high-end branded offering

Dar Global (LSE: DAR)

Last close As at 20/04/2024

USD3.68

0.00 (0.00%)

Market capitalisation

USD663m

More on this equity

Research: Industrials

Dar Global — Demand underpins high-end branded offering

Dar Global’s first full-year results post flotation showed impressive growth driven by a range of positive factors, which bodes well for 2024 and beyond. So far it has sold 72% of launched volume, which highlights the attractions of its locations, developments and brand partners. We anticipate that Dar Global will generate a return on equity in the mid-to-high teens in the medium term and therefore we continue to value the company on a multiple of shareholders’ funds basis at c US$930m (US$5.17/share), implying c 40% upside.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Edison DarGlobal thumb 02

Industrials

Dar Global

Demand underpins high-end branded offering

Preliminary results

Construction and materials

11 March 2024

Price

US$3.7

Market cap

US$662m

Net cash (US$m) at 31 December 2023

113.1

Shares in issue

180.0m

Free float

12%

Code

DAR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.8)

(0.5)

(6.2)

Rel (local)

(1.9)

(2.4)

(3.2)

52-week high/low

US$3.8

US$3.6

Business description

Dar Global is a highly differentiated international real estate business. It focuses predominantly on developing real estate projects comprising second homes for internationally mobile customers, in some of the most desirable locations across the Middle East and Europe, including downtown Dubai, Muscat in Oman and the Costa del Sol region in Southern Spain.

Next events

Q1 trading update

May

Interims

September

Analysts

Andy Murphy

+44 (0)20 3077 5700

Natalya Davies

+44 (0)20 3077 5700

Dar Global is a research client of Edison Investment Research Limited

Dar Global’s first full-year results post flotation showed impressive growth driven by a range of positive factors, which bodes well for 2024 and beyond. So far it has sold 72% of launched volume, which highlights the attractions of its locations, developments and brand partners. We anticipate that Dar Global will generate a return on equity in the mid-to-high teens in the medium term and therefore we continue to value the company on a multiple of shareholders’ funds basis at c US$930m (US$5.17/share), implying c 40% upside.

Year end

Revenue (US$m)

EBITDA
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

P/NAV (x)

12/22

80.0

(6.9)

N/A

N/A

N/A

N/A

12/23

360.6

84.8

0.2

0.0

15.9

1.4

12/24e

309.4

72.9

0.4

0.0

10.5

1.3

12/25e

391.6

94.2

0.5

0.0

7.6

1.1

Note: *EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Initial full-year results exceed revised guidance

Dar Global’s (DAR’s) first set of full-year results since flotation showed impressive growth, and came in materially ahead of our expectations and ahead of DAR’s January guidance. FY23 revenue was US$360.6m, above the top end of the guided range (FY22: US$80.0m), and reported EBITDA was US$83m (FY22: US$6.3m), implying an EBITDA margin of 23% (FY22: 8%). DAR operates an asset-light model and ended the year with net cash of US$113.1m and a development portfolio with a gross development value (GDV) of US$5.9bn, up from US$4.7bn a year ago. Its year-end NAV increased from US$281.4m to US$465.4m, comfortably ahead of our estimate of US$437m.

72% of launched volume sold to date

2023 was a year of material progress for Dar Global, having floated in February on the London Stock Exchange, despite still being in the early stage of its development. Dar Global launched six new projects in the year and now has 12 active projects comprising the US$5.9bn GDV. Customer demand has been strong, at least in part driven by Dar Global’s expanding sales force and global broker network. Of the group GDV, Dar Global has launched for sales of US$2.2bn, representing c 37% of the group total, which amounts to 2,078 units. Of this launched volume, it has sold 1,498 units representing 72% of the total since the first launch.

Valuation: Remains at US$930m, implying 40% upside

We have retained our valuation of Dar Global despite the modest revision to expected margins in FY24 and FY25 as we believe it should generate a return on equity in the mid-to-high teens by FY25, which justifies valuing the company on a multiple of 1.5x estimated shareholders’ funds. Taking our unchanged forecast of FY25 shareholders’ equity of US$620.5m values the group at c US$930m, versus a current market capitalisation of US$662m, implying c 40% upside. Revenue and margin guidance could prove to be conservative, implying further upside.

Robust inaugural results and retained valuation

Dar Global’s inaugural full-year results were well ahead of initial expectations and ahead of its guided range given at the end of January. This was partly driven by solid progress on sales and construction, and partly due to earlier revenue recognition on one particular project. Construction progress is pushing ahead, as is the development of its sales capability, which bodes well for future periods. Revenue guidance suggests a robust period in FY24 and FY25, but we have curtailed our profit margins to reflect guidance. That said, we retain our US$930m valuation for the company, implying c 40% upside.

FY23 results ahead of upgraded guidance

Dar Global’s first set of full-year results since flotation showed impressive growth, and came in materially ahead of our expectations and ahead of the mid-point of DAR’s January guidance (FY23 revenue of US$340–360m, EBITDA of US$80–85m). FY23 revenue was US$360.6m, above the top end of the range (FY22: US$80.0m), and reported EBITDA was US$83m (FY22: US$6.3m), implying an EBITDA margin of 23% (FY22: 8%). DAR operates an asset-light model and ended the year with net cash of US$113.1m and a development portfolio with a GDV of US$5.9bn, up from US$4.7bn a year ago. Its year end NAV increased from US$281.4m to US$465.4m, comfortably ahead of our estimate of US$437m.

Exhibit 1: FY23 results summary

US$m

FY22

FY23

% chg

Revenue

80.0

360.6

350.7%

Gross profit

28.7

146.4

411.1%

Gross profit margin

35.8%

40.6%

13.4%

EBITDA – reported

6.3

83.0

1207.8%

EBITDA margin

7.9%

23.0%

190.2%

PBT

(5.2)

81.2

N/A

Net cash

48.8

113.1

131.6%

Shareholders’ funds

 

281.4

465.4

65.4%

Source: Dar Global, Edison Investment Research

Dar Global made considerable progress in FY23 and is on track to complete and hand over its inaugural project, the Urban Oasis Tower, in Q124, followed by the Da Vinci Tower by Pagani later this year. It launched its largest project in 2023, AIDA in Oman, which accounts for c 50% of the group’s total GDV, and Tierra Viva in Spain, which brings the group closer to the strategic objective of achieving a diverse portfolio with c 50% of projects in the Gulf Cooperation Council (GCC) countries, and 50% in the rest of the world (ROW).

There were a number of positive trends in FY23, including buoyant buyer demand, positive cash collections and progress in construction, all of which make a helpful contribution to revenue recognition. It also aligned its conservative revenue recognition treatment of the Urban Oasis Tower with the rest of the portfolio, bringing forward revenue recognition into 2023, earlier than previously anticipated.

Progress on multiple fronts in FY23

2023 was a year of material progress for Dar Global, having floated in February on the London Stock Exchange. Dar Global launched six new projects in the year including its biggest project, AIDA in Oman, the DG1 project in Dubai and Tierra Viva, the company’s first ultra-luxury project in Marbella in Spain.

It now has 12 active projects with a GDV of US$5.9bn (up from 10 projects with a GDV of US$4.7bn in 2022). Customer demand has been strong, at least in part driven by Dar Global’s expanding sales force and global broker network. It now has over 80 sales professionals in eight locations complemented by a network of brokers in more than 60 cities globally.

Of the US$5.9bn group GDV, Dar Global has launched for sale of US$2.2bn, representing c 37% of the total, which amounts to 2,078 units. Of this launched volume, it has sold 1,498 units, representing 72% since the first launch. In the UAE, it has sold 73% of the launched GDV in 17 months since the first release, while in ROW, where sales began more recently, it has sold 23% of the launched GDV in seven months since the first project was brought to the market.

Exhibit 2: Project portfolio update

UAE

ROW

Global

Number of projects

4

8

12

Total DGV (US$m)

1,033

4,877

5,910

Months since launch (average)

17

7

-

Launched GDV (US$m)

1,033

1,181

2,214

Launched GDV sold (%)

73%

23%

46%

Number of units launched

1,158

920

2,078

Number of units sold

1,019

479

1,498

Source: Dar Global

Forecast adjustments

Our FY24 and FY25 revenue estimates are unchanged post the FY23 results, despite the earlier pull-through of recognised revenue from the Urban Oasis Tower from FY24 and FY25 and into FY23, as other projects in the portfolio are progressing faster than expected, and therefore back-filling revenue. Furthermore, Dar Global guided the market to total revenue of ‘at least US$700m’ over the two forecast periods. However, EDITDA margin guidance was to a similar level to that achieved in FY23 of 23% and we have therefore reduced our FY24 and FY25 EBITDA estimates as we had anticipated EBITDA margins progressing to c 27–28%.

That said, in the period since flotation, Dar Global has so far comfortably beaten guidance and we think it possible that both revenue and EBITDA guidance could prove to be conservative, especially considering the current early stage in the two-year guidance period.

Exhibit 3: Revised estimates

2023

2024e

2025e

Actual

Old

New

% chg

Old

New

% chg

Revenue (US$m)

360.6

309.4

309.4

0.0%

391.6

391.6

0.0%

Y-o-y % change

350.7%

-14.2%

-14.2%

-

26.6%

26.6%

-

EBITDA - reported pre IFRS 16 (U$m)

83.0

85.3

72.9

-14.5%

109.8

94.2

-14.2%

Y-o-y % change

1234.0%

2.7%

-12.2%

-

28.7%

29.2%

-

Reported operating profit (US$m)

81.6

85.1

72.7

-14.6%

109.6

94.0

-14.3%

Y-o-y % change

N/A

4.3%

-10.9%

-

28.8%

29.3%

-

PBT (Reported) (US$m)

81.2

87.1

70.4

-19.2%

116.7

96.7

-17.2%

Y-o-y % change

N/A

7.2%

-13.3%

-

34.0%

37.3%

-

EPS – basic (US$)

0.2

0.4

0.4

-20.0%

0.6

0.5

-16.7%

Y-o-y % change

N/A

90.7%

52.5%

-

31.8%

37.3%

-

DPS (US$)

0.0

0.0

0.0

N/A

0.0

0.0

N/A

Y-o-y % change

N/A

N/A

N/A

-

N/A

N/A

-

Net (debt)/cash (pre IFRS 16) (US$m)

113.1

396.0

305.7

-22.8%

674.2

611.4

-9.3%

Y-o-y % change

131.6%

250.1%

170.2%

-

70.3%

100.0%

-

Net asset value (US$m)

465.4

515.3

528.8

2.6%

620.4

620.5

0.0%

Y-o-y % change

65.4%

10.7%

13.6%

-

20.4%

16.5%

-

Source: Dar Global, Edison Investment Research

Dar Global ended FY23 with a net asset value of US$465.4m, better than our expectations by nearly US$30m. This higher starting point, but pared back EBITDA margins, have resulted in an unchanged FY25 net asset value of US$620.4m.

Valuation unchanged at US$930m, c 40% upside

Despite the reduced profit forecasts mentioned above, we maintain our existing valuation as the higher-than-expected FY23 shareholders’ funds offset the modest reduction in guided profits. We continue to value Dar Global on a multiple of net asset value/shareholders’ funds basis as we believe the company will generate a return on equity in the mid-to-high teens, well in excess of its cost of capital. This approach implies a group equity value of c US$930m based on FY25 estimates, which offers c 40% upside from the current share price.

The company’s conservative revenue recognition policy implies this approach arguably understates the profit potential in the forecast years, thus hiding potential value. It also gives no credit for the value of non-residential assets in the portfolio, nor the company’s plans to expand into hospitality, thus suggesting further upside potential.

Exhibit 4: Revised valuation table

2023

2024e

2025e

Shareholders’ funds - year end (US$m)

465.4

528.8

620.5

Return on average shareholders’ equity

22.3%

12.7%

15.9%

Assumed multiple of shareholders’ funds (x)

-

-

1.50

Implied valuation of Dar Global (US$m)

-

-

930.7

Implied valuation per share (US$)

5.17

Current market capitalisation (%)

662.4

Upside to implied valuation (%)

40.5%

Source: Dar Global, Edison Investment Research


Exhibit 5: Financial summary

$'m

2022

2023

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

80.0

360.6

309.4

391.6

Cost of Sales

(34.3)

(214.1)

(179.4)

(227.1)

Gross Profit

45.7

146.4

129.9

164.5

EBITDA

 

 

(6.9)

84.8

72.9

94.2

Normalised operating profit

 

 

(7.7)

81.6

72.7

94.0

Share-based payments

0.0

0.0

0.0

0.0

Operating profit - Underlying

(7.7)

81.6

72.7

94.0

IAS 19R Pension scheme expenses

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Impairment and acquisition related costs

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Reported operating profit

(7.7)

81.6

72.7

94.0

Net Interest

2.5

(0.3)

(2.3)

2.7

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(5.2)

81.2

70.4

96.7

Profit Before Tax (reported)

 

 

(5.2)

81.2

70.4

96.7

Reported tax

0.0

2.0

(7.0)

(9.7)

Profit After Tax (norm)

(5.2)

83.2

63.4

87.0

Profit After Tax (reported)

(5.2)

83.2

63.4

87.0

Net income (reported)

(5.2)

83.2

63.4

87.0

Basic average number of shares outstanding (m)

N/A

361

180

180

EPS - basic normalised ($)

 

 

-

0.23

0.35

0.48

EPS - basic reported ($)

 

 

-

0.23

0.35

0.48

Dividend ($)

-

0.00

0.00

0.00

Revenue growth (%)

N/A

350.7

(-14.2)

26.6

Gross Margin (%)

57.2

40.6

42.0

42.0

EBITDA Margin (%)

-8.6

23.5

23.6

24.1

Normalised Operating Margin

-9.7

22.6

23.5

24.0

BALANCE SHEET

Fixed Assets

 

 

316.9

246.6

399.6

502.4

Tangible Assets

308.4

231.1

389.6

492.4

Investments & other

8.5

15.5

10.0

10.0

Current Assets

 

 

241.0

520.7

816.3

1,192.8

Debtors

40.6

221.9

324.8

391.6

Cash & cash equivalents

112.6

228.5

421.1

726.7

Other

87.8

70.4

70.4

74.5

Current Liabilities

 

 

(206.8)

(176.6)

(561.7)

(949.4)

Creditors

(30.7)

(25.7)

(95.9)

(321.1)

Tax and social security

(4.0)

(6.8)

(16.8)

(26.8)

Short term borrowings

(2.1)

(1.2)

(1.2)

(1.2)

Advances from customers

(94.5)

(57.5)

(363.1)

(515.6)

Development property liabilities and other

(75.5)

(85.2)

(84.6)

(84.6)

Long Term Liabilities

 

 

(69.7)

(125.4)

(125.4)

(125.4)

Long term borrowings

(69.7)

(125.4)

(125.4)

(125.4)

Shareholders' equity

 

 

281.4

465.4

528.8

620.5

CASH FLOW

Retained profit for year

(4.3)

83.2

63.4

87.0

Depreciation and amortisation

0.0

3.2

0.2

0.2

Working capital

(73.6)

(107.1)

65.9

155.4

Exceptional & other

11.4

(3.0)

0.5

(1.8)

Net operating cash flow

 

 

(66.5)

(23.7)

130.0

240.8

Capex

(0.7)

(4.4)

(4.4)

(4.4)

Acquisitions/disposals

(10.3)

(2.8)

(2.8)

(2.8)

Net interest

0.0

3.8

(2.3)

2.7

Equity financing

0.0

72.0

0.0

0.0

Other

173.7

70.0

72.1

69.4

Net Cash Flow

96.3

114.9

192.6

305.7

Opening net debt/(cash)

 

 

130.6

48.8

113.1

305.7

FX

(176.1)

0.0

0.0

0.0

Other non-cash movements

(2.0)

(50.5)

0.0

0.0

Closing net debt/(cash)

 

 

48.8

113.1

305.7

611.4

Source: Dar Global accounts, Edison Investment Research


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This report has been commissioned by Dar Global and prepared and issued by Edison, in consideration of a fee payable by Dar Global. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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General disclaimer and copyright

This report has been commissioned by Dar Global and prepared and issued by Edison, in consideration of a fee payable by Dar Global. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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London, WC1R 4PS

United Kingdom

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