EUR 46.37 For Business Accounts Only

QGTS QD | Fairly priced; Cut to Neutral post rally

Valuation on par with peers. We raise our 12M TP by 20% to QAR3.54/share to reflect: i) 12% p.a. reduction in direct costs, on average, over our forecast period, thanks to cost optimisation efforts, and ii) 33% p.a. lower SG&A, on digitalisation of operations and better cost management. While this boosts our EPS forecasts by an average of 11% p.a. over 2022-47e, Nakilat’s share price rallied 66% since our last published update. The stock trades on a 2022e P/E of 13.1x, in line with global utility peers. Accordingly, we downgrade our recommendation to Neutral, on limited upside potential.

Impact of North Field expansion on Nakilat remains unclear,… Qatar’s long-awaited North Field expansion faced delays over 2020-21 amid COVID disruptions, pushing the completion date of the first phase to end-2025 (vs. 2023 previously). Moreover, in Oct-21, Qatar Energy commenced fleet orders from shipbuilders with no announced involvement of Nakilat. This, in our view, decreases the potential that the mega North field expansion will carry opportunities for Nakilat. In the event that Naklat is involved, we estimate value accretion of only QAR0.03/share for every wholly-owned fleet unit addition. 

…signalling muted growth ahead. Absent of new fleet additions, we look for growth in 2022e and beyond to be meagre, in the vicinity of 2.8% p.a. on average, driven mainly by deleveraging. Operational stability and steady cash flows should reflect positively on the balance sheet and dividends, with a net debt reduction of QAR1.6bn p,a. on average until full deleveraging in 2036e (2022e net debt of QAR19.5bn, 7x EBITDA). Meanwhile, we look for a dividend yield of 4.6% in 2022e, rising gradually to 5.3% in 2025e.

Operational risks contained. We see limited risks thanks to the company’s long-term contracts, securing profitability and high degree of cash flow visibility (except for some JV operations that are not fully hedged). Nakilat is largely hedged against interest rate changes, due to its long-term interest rate swaps.