Undemanding valuation; Recent headwinds pose an overhang to rerating
Government refrains from extending key contract with ATG. On 25 September, ATG announced that its key contract with the Ministry of Higher Education (MoHE) will not be renewed. The contract was instrumental to ATG’s profitability since its inception in 2005, representing 21% of the company’s revenue in 2017, and 17% in 1H18. In our view, the non-extension of the contract with ATG signals imminent loss of other government revenue streams (c16% of 2018e top line on our estimate). Accordingly, we cut our revenue and operating profit estimates by 10% and 31.7% on average over our 5-year forecast horizon.
Decent upside potential, but rerating is likely medium-term. We cut our TP by 11.1% to SAR32.0/share, as we factor the loss of government revenue into our valuation, against which we roll over our DCF. ATG’s share trades on a 2019e and 2020e P/E of 14.2x and 10.7x, respectively, a 4% and 16.7% discount to global peers. We look for 2019 revenue, EBITDA, and recurring net income to drop by 15.7%, 34.4%, and 23.6% y-o-y, respectively, to SAR1.7bn, SAR459mn, and SAR339mn. Negative sentiment over ATG’s corporate governance (ATG’s Founder, Nasser Al Tayyar was arrested in Nov-17 in the Saudi corruption purge) is likely to remain a drag in the short-run.
Receivables collection intact; Expect healthy growth beyond 2019. We expect ATG’s revenue and EBITDA to increase at a 2019-23e CAGR of 5.6% and 14.2%, respectively, reflecting economies of scale and margin improvement. This should be driven primarily by the strong performance of retail and corporate bookings, which benefit from the improving economic dynamics in Saudi Arabia, as well as ATG’s growth initiatives outside Saudi Arabia. ATG’s receivables collection is healthy, with SAR1bn of receivables collected in 2Q18 alone, mostly from the Saudi government. Further collection of government receivables should support the firm’s balance sheet and cash flow dynamics.
Key risks. Every 10% of lower-than-expected revenue for corporate travel or retail travel revenue p.a. would knock 3.1% off our TP, all else constant. We assign no value to ATG’s equity investments, which are either loss-making or offer limited visibility on their future cash flow potential. However, there is risk that ATG’s equity investment could require further cash injection, pressuring the company’s cash flow and dividend potential. On the upside, the Founder’s release, successful exits, or special dividends can improve sentiment and trigger rerating, in our view.
Seera Group Holding, formerly Al Tayyar Travel Group Holding Company SJSC, is a Saudi Arabia-based company engaged in the travel, tourism and transportation sector. The Company's services include reservation, ticketing for domestic, regional and international flights, follow-up and confirmation of reservation, ticketing for land, sea and train transportation facilities, hotel booking, furnished apartments and hotel rooms. In addition, the Company organizes tourism services, such as incentive trips, Hajj and Umrah programs, honey-moon trips, medical and educational programs, as well as conference and meeting services. The Company also provides land, sea and air transportations means to a range of Saudi Arabian urban and rural centers, along with land, marine and air cargo services, issuance of (Triptick) customs pass, international driving licenses, customs clearance for goods and commodities, as well as packing and insurance, among others.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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