Solid growth but margins under-pressure
Solid growth but margins under-pressureEARNINGS/SALES RELEASES
H1 2018 revenue growth exceeded our expectations thanks to a progression in construction steel’s sales. However, the EBITDA margin decline is in line with our forecasts. Sanad released a solid H1 2018 set of figures, but the market is expecting an update on its ongoing projects.
FACT
Amid a lasting tough context, Sanad has succeeded to strengthen its market share. Furthermore, the construction steel operations also showed solid growth. Sanad’s H1 2108 revenues were increased by 19.0% yoy reaching US$96,250m. Sales’ pace has been accelerated especially during Q2 2018, posting 21.9% growth.
This revenue growth was also backed by the volumes as market share in cement was maintained at 61% (446 KT of bagged cement and 264 KT of bulk cement) and steel reached 48 KT in H1 2018 vs. 36 KT during 2017. In addition, sand’s sales reached 101 KT while Sanad sold 172 KT throughout the previous year.
However, margins continued their downward trend during Q2 2018. The oil prices recovery and the return of volatility in main currencies have negatively impacted Sanad’s margins. H1 2018 EBITDA amounted to US$7m, a 12.5% decline compared to H1 2017. The EBITDA margin decreased by 262 bps to 7.3%. Despite the US$3.619m gains on assets revaluation, H1 2018 attributable net profit fell by 55% to US$2.595m. Sanad’s H1 2018 results were affected by FX losses of US$2.7m.
The capex reached US$2.8m, of which US$1.9m was allocated to under construction projects. According to our calculations, net financial debt has increased by US$25.8m in 2017 to US$49.5m as of 30/06/2018.
ANALYSIS
We have factored H1 2018 figures into our model. Thus, we have revised 2018 revenue growth to 14.4% vs. 5.29% in the previous model. The outlook upgrade is mainly due to upward adjustment of Steel sales. However, we reiterated our cautious stance on Cement’s sales, the largest contributor to Sanad’s revenues. According to our calculations, the US$18m upgrade of sales outlook in 2018 would add US$0.78m to 2018 EBITDA. 2018 adjusted net profit would fall by 74.4% to US$3.01m. Regarding Sanad’s industrial projects, we have maintained both the timeline and the financing structure already announced by the company. However, we have slightly downgraded 2019-2020 EBITDA margin on the current tough cost environment.
IMPACT
The impact of model update resulted in a 3% reduction in our Target Price.
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