Company Analysis - Commissioned /

Mixta: Developing the affordability opportunity

    Tracy Kivunyu
    Tracy Kivunyu

    Equity Research Analyst, Telecoms

    Ayodeji Dawodu
    Vahaj Ahmed
    Tellimer Research
    10 July 2019
    Published by

    Mixta Real Estate is a developer specialising in residential housing and serviced plots across Africa. Mixta has undertaken developments across all market segments, but its near-term focus will be on affordable housing as it seeks to capitalise on the opportunity provided by the c50mn African housing deficit. Nigeria accounts for 34% of that estimated deficit and we expect the country’s importance to Mixta’s revenue to continue, as the company works on an affordable housing project in partnership with the Nigerian government – the Family Homes Fund (FHF).

    Revenue upside from affordable housing projects and geographical expansion. Our revenue forecasts, which exclude Mixta’s Ethiopian entry, yield a 65% five-year CAGR to EUR313mn in 2023 (68% to EUR337mn including Ethiopia), driven by affordable housing projects, particularly in Nigeria and Morocco. Nigeria accounts for the lion’s share of the affordable housing opportunity, with over 24,000 units set to be delivered over our forecast period under the FHF. Mixta is also in discussions with the Ethiopian government to develop affordable housing there and is working on opportunities in the mid-market segment in Ivory Coast. We expect revenue diversification to lower Nigeria’s contribution to Mixta’s total revenue to 47% in 2023 from 65% in 2018.

    Margin upside on economies of scale and sturdier revenue recognition. Mixta targets a minimum gross margin of 25% for its projects, but poor access to financing for its customers has constrained its output of homes. The company intends to partner with governments and mortgage financiers to facilitate access to financing to boost revenue recognition. If these partnerships are successful, we expect them to help deliver an average gross margin of 27% over the forecast period (to 2023). 

    Funding requirements for expansion, with opportunity for lower cost of debt. Mixta uses internally generated funds for its land acquisitions and a mixture of debt and pre-sales for construction. Our forecasts show that Mixta will need to raise equity of EUR100mn, based on its cumulative land acquisition over the next five years. To reduce its cost of debt, Mixta intends to refinance its 17% interest-bearing local debt at longer tenors in foreign currency, as well as lower aggregate debt. These initiatives could see Mixta’s cost of funding fall to 6% by 2023.

    Risks to our forecasts. Mixta needs to acquire land in Ivory Coast, Ethiopia and Morocco for its developments, and any delays associated with this could affect our forecasts. Adverse currency movements, competition from other developers and lower-than-expected pre-sales revenue also pose downside risks to our revenue projections.

    This report has been commissioned by Mixta Real Estate and independently prepared and issued by Tellimer for publication. All information used in the publication of this report has been compiled from information provided to us by Mixta and publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Tellimer at the time of publication. The sponsor has had no editorial input into the content of the note, and Tellimer’s fees are not contingent on the sponsor’s approval of the research.