reports
- Alaa Tolba
ALDREES AB | Growth priced in; Remain N, on rising concerns
Recovery surprises, yet with risks ahead. The recovery in stations’ productivity was impressive in 2021e (+c14% y-o-y), surpassing pre-pandemic levels, ahead of our previous expectations by 2024e. But EBITDA margins remain behind, with further cost pressures ahead, as Aldrees hikes its Saudisation to comply with the new Nitaqat. We raise our 12M TP by c35% to SAR71.0/share, as we rollover our DCF with c13% higher volume/station, on average, more than offsetting the higher labour costs. On a 2022...
- Alaa Tolba
ALDREES AB | On path to recovery; Valuation rich, cut to Neutral
On an expansion spree. Aldrees is aggressively expanding its fuel station network, targeting 100 new stations in 2021 (+73 in 2020), with a 2025 target of 1k stations (vs. our forecast of 805 and 544 in 2020). Management is encouraged by the hike in qualified operators’ margins, providing ample room for market share gains (88% are fragmented, unqualified individual players). We roll over our DCF, yet maintain our 12M TP, reflecting an average 1.1pp cut in 2021-24e EBITDA margins for both segment...
- Alaa Tolba
All eyes on fuel segment; Upgrade to Overweight
Long-awaited margin revision to triple 2020e EPS. Aramco adjusted fuel operators’ margins upwards by a sizable c67% for octane to 15 halalas and 43% for diesel to 5 halalas, for the first time since 2007 (+24% in 2007), without setting a date. We raise our 2020-23e EPS estimates by 2.4x, on average, to reflect the higher margins as of 2020e, mitigating pressures stemming from the sector’s rising costs. We, thereby, upgrade our rating to Overweight from Neutral, and raise our 12M TP 2.2x to SAR66...
- Alaa Tolba
Fuel hikes hold benefits, but not a game changer
No short-run catalysts, reiterate Neutral. We update our forecasts to reflect higher fuel prices (+83% for 91 octane, +127% for 95 octane), as of 1 Jan, though station operators’ margins remained unchanged. We lower 2018-19e WC needs by 16%, as Aldrees’ CCC benefits from higher fuel prices, but the 5% VAT on diesel costs (23% of transport CoGS) should pressure transport margins (36% of SoTP EV). We cut our 12M TP by c6% to SAR29.5/share to reflect: i) higher leverage (3Q17 ND +32% q-o-q to SAR60...
- Alaa Tolba
Downgrade to Neutral as valuation turns rich
More troubles in 2018. We believe Aldrees’ earnings recovery will be delayed to 2019 on less support from the 4-yr Ma’aden contract which has been inconsistent (SAR30mn in 9M17 vs. earlier estimate of SAR60mn). As a result of its slow ramp-up, we discount the SAR597mn contract at 34% (20% previously), and reduce 2017-21e EBITDA estimates by 20% also on higher opex (expat fees and station licence fees, effective 2018 at SAR14mn) and unfavourable pricing of existing contracts. We cut our rating to...
Ford Equity International Rating and Forecast Report
Ford Equity International Research Reports cover 60 countries with over 30,000 stocks traded on international exchanges. A proprietary quantitative system compares each company to its peers on proven measures of business value, growth characteristics, and investor behavior. Ford's three recommendation ratings buy, hold and sell, represent each stock’s return potential relative to its own country market.. The rating reports which are generated each week, include the fundamental details behind...
- Alaa Tolba
Upgrade to Overweight on improved risk/reward
2016 EPS seen as bottom. We upgrade our rating to Overweight from Neutral as we believe Aldrees’ valuation is attractive, trading on a 2017e P/E of 11.7x, 37% below peers. We factor in the SAR597mn Ma’aden contract signed in Oct-16, which should help mitigate Aldrees’ struggle to pass on higher diesel costs in existing contracts. We cut our TP by 5% on higher capex for revamping all fuel stations over 2017-19, plus lower transport margins. The government raising station operators’ absolute margi...
- Alaa Tolba
Neutral although focus on fuel stations grows
No catalysts on the horizon, dividend no longer a standout in the market. Takeaways from our meeting with Aldrees in Dec 2015 were positive. We see greater focus on improving traffic for fuel stations, (c71% of our SotP EV) which we prefer given that this segment is highly cash generative. Aldrees trades on a 2016e P/E of 11.4x, c25% below peers; however, we see no catalysts this year. Also, although cash flow reinvestment into the transport division should come at lower rates than in past years...
- Mohamed Zein
Initiate at Overweight; a favourable risk/reward play
New license criteria should reroute traffic to Aldrees. Saudi Arabia currently has 620 fuel stations per 1mn vehicles, 35% higher than our sample average, implying there is room for the market to consolidate, rerouting traffic elsewhere. What should fast-track this trend is new technical standards, issued by the government in Dec 2013, to clamp down on unorganized stations, setting Feb 2016 as a deadline, or else face license withdrawal. Our expectation is that it will prove unfeasible for the v...
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