Are we witnessing a real estate stock bubble in Morocco?

Are we witnessing a real estate stock bubble in Morocco?


[symple_box]hicham bennani Hicham Bennani Holds an MBA degree in Finance. He has an extensive experience in the fields of Finance, Investment, and Project Management in the USA, Kuwait and Morocco. Hicham Bennani teaches business courses to undergraduate and graduate students in Morocco. He can be reached at: [/symple_box]

Are we witnessing a new positive run for Addoha, Résidences Dar Saada and Alliances?

Just few months ago, Addoha was trading at 23 DH/share, Dar Saada at 130 DH/share, and Alliances at 35 DH/share. Today, Addoha is hovering around 40 DH (73% increase), Dar Saada at 180 DH (38% increase), and Alliances at 66 DH (88% increase).

Many people are concerned now, should they be buying real estate stocks? Should they surf on the wave?

A Moroccan saying goes “If you have been bitten by a snake, ropes will always scare you.” In this line of reasoning, many individuals, institutions and funds that lost huge amounts of money in the latest Casablanca stock market crash after the speculative bubble burst, seems to be left stranded.

Why have the prices of all the listed real estate companies rocketed? Have the market fundamentals improved?

There seems to be no plausible reason for the hike for the three companies. Market fundamentals are the same, and the economic situation of Morocco is not improving at a pace that can explain the boom in the prices of these stocks. Moreover, theses companies have not announced any mega projects with lucrative returns that can boost their future earnings, and thus increase their valuations.

The PE ratio for the three companies might look within the acceptable range (10 to 15 times) compared to the benchmark in other developing stock markets. However, one should keep in mind that the real estate in morocco is in a deep crisis, characterized by a high level of leverage. In fact, the debt-to-equity ratio for the listed real estate companies is high, which makes the aformentioned companies vulnerable to downturns in the business cycle.

I recommend selling the three listed stocks because the outlook is not clear, and because they outperformed the MASI and MADEX indices for no valid or logical reason.