SEERA AB | Headwinds ahead; Cut to Neutral
Downgrade to Neutral post COVID-19. We cut our TP by 36% and downgrade our rating to Neutral, as we: i) reflect major pressures over 2020-21e due to the impact of COVID-19 on the company’s operations and cash flows, and ii) raise our equity risk premium by 1% to 8% to account for the heightened risk aversion. Our Neutral call is long-term, as Seera Group trades on a 2023e normalised P/E of 11.9x, in line with the industry’s historical average levels.
Deep in losses over 2020-22e; Gradual recovery beyond. The mix of falling travel and hospitality revenue due to travel-related restrictions (we expect the restrictions to remain throughout 2020 and start to ease near year-end) and waning economic activity, coupled with Seera’s c100% operating leverage (despite assuming a 27% cash cost decrease in 2020e on work force reduction), should put the company deep in losses over 2020-21e. We expect Seera to incur SAR697mn in losses (on a recurring basis) in 2020e (the company already incurred SAR123mn losses in 1Q20, and we expect losses to widen in the following quarters of 2020e) and SAR494mn in 2021e. Beyond 2021e, we look for revenue to gradually recover to pre-pandemic levels over 2022-25e, resulting in similar recovery in profitability.
Strong balance sheet thanks to Careem stake sale. Seera Group completed the sale of its 15.3% stake in Careem Inc. in 2020 for a total consideration of SAR1.78bn (recorded at a nearly nil book value). The sale should reflect positively on Seera’s balance sheet, leaving the company with 2020e net cash of SAR0.68bn, on our estimate. This reduces balance sheet pressures despite substantial operating headwinds over 2020-21e. Nevertheless, we expect Seera to refrain from distributing dividends over at least 2020-22e, while it uses its strong balance sheet to fund losses and weather the storm.
Valuation most sensitive to retail travel revenue. Every 5% lower/higher-than-expected retail or corporate bookings reduce/increase our TP by 1.7% and 0.9%, respectively, all else constant. Meanwhile, every 5% lower/higher-than-expected occupancy rate and ADR for the hospitality segment lower/raise our TP by 0.6%, all else constant.
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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