Sitting astride a €1.2 billion pipeline of Central and Eastern European property, Israeli-run Engel East Europe is one of the major residential property developers in the region. Finance director Nir Netzer reckons Engel may even be the biggest: ‘we are involved in developing around 15,000 residential units and I’m not aware of many with even 10,000.’

This helps to explain why it is winning some of the choicest slices of land. For example, Engel won the municipality of Belgrade’s bidding round to develop the massive Marina Dorcol project. This will see a prime spot in the city’s crowded Old Quarter on the banks of the Danube developed into a mixed-use development of 600 residential units, a shopping mall, restaurants, cafés, offices and a marina. Sales of €160 million are estimated, with remarkable margins of around 60 per cent. ‘This is the jewel in the crown of Serbia, so why did the municipality come to Engel? Because we can deliver! From the municipality’s point of view it is risky as they don’t know the market and their currency is not the most stable. They needed a developer with a track record.’

Led by executive chairman and 66 per cent shareholder Jacob Engel, who has 30 years’ experience in the industry from building his Israeli business into one of the country’s major players, EEE is capitalised at not much more than £100 million and operates in the Czech Republic, Poland, Hungary, Bulgaria, eastern Germany, Romania, Serbia and even, strangely, Canada.

Most of these European economies are growing at rates of around five per cent and developers are benefiting from urbanisation and the desire of their more prosperous citizens to move into better housing. In some regions, inflation is driving up house prices too.

The company has secured ten new projects since arriving on AIM, to add to its existing projects, with combined sales on these amounting to around €500 million
(£336 million).

Cash levels stood at €36.1 million at the end of June, although non-bank loans of €12 million have to be repaid. ‘We’re using our cash slowly and wisely,’ says Netzer, ‘trying to buy land in return for a percentage of sales – so we’re not paying too much [up front].’

The Belgrade Marina project also demonstrated one of Engel’s techniques for leveraging its own cash and minimising its risk, especially for tying up bigger deals. It sold a 30 per cent stake in the project for €11.9 million to a ‘prestigious’ emerging markets fund, which Engel estimates will produce pre-tax profits of €9 million. For other large projects Engel has been working with joint venture partner Heitman, a large US investment fund, which has poured in large amounts of money usually in exchange for 50 per cent of sales. Says Netzer: ‘We like them as we’re not as exposed – we’re booking profits from the first day.’ Heitman is currently collecting cash for its third fund – so more joint ventures could materialise in the future.

Revenues for the first half were up 147 per cent to €23.2 million as the group completed the first phase of projects in Budapest and Warsaw and received the equity investment from the second Heitman joint venture. Profits before tax arrived at €12.1 million, above forecasts because profits were made on apartment sales that were not anticipated until the second half. The group even paid an interim dividend of 0.21c. Future payments may be withdrawn if a ‘special opportunity’ arises where the company chooses to put a much larger chunk of its own cash into a project, meaning ‘shareholders will get a much greater share price,’ says Netzer.

Upgraded estimates for the full year from house broker KBC Peel Hunt, 46 per cent ahead of forecasts at the time of flotation last December, point to pre-tax profits of €19 million. Netzer boasts that current projects in development, even if not added to, would still easily justify investment in the company – and Mike Foster at KBC agrees. Engel is going to buy more choice parcels of land, moving wherever the margins are best and according to KBC, expanding ‘on a hugely cash-efficient basis’.

The shares are languishing not much above the float price, which is too low considering the growth delivered and promised. Buy.