Riyad Capital has raised its 12-month target price on Sahara Petrochemicals Company (Sahara) to SAR 16 (from SAR 15) and maintained a ‘buy’ recommendation, on expectations of an earnings revival from this year.
“Sahara posted subdued earnings in 2015 on a bearish oil price environment; however, higher growth of 12 percent earnings per share (EPS) CAGR is expected for 2016-19, driving our conviction for a ‘buy’ recommendation,” analysts at Riyad Capital said in a report.
Among the factors behind the revised outlook is an anticipated uptick in product prices as oil prices improve, while higher operating rates will drive volumetric sales and thereby cost efficiency.
The brokerage said it expects revenue growth of 4 percent CAGR on an increase in polypropylene (PP) prices, which are forecasted to grow at 5 percent CAGR through 2019.
Moreover, demand from Asia is anticipated to drive up volume sales, providing a boost for PP producers in the long run, the report added.
Sahara’s associates are also likely to perform better starting 2017 and propel earnings contribution by 8 percent, from an earlier 2 percent.
The petrochemical firm’s associates Saudi Acrylic Acid Company (SAAC) and Sahara & Maaden Petrochemicals (SAMAPCO) have seen income improve since Q2 2016, while Tasnee & Sahara Olefins Co. (TSOC) also remains a “strong pillar of growth for Sahara,” Riyad Capital said.
In addition, Sahara’s association with global producers such as Lyndoll Basell, Mitsubishi and Dow Chemicals as well as local producers in various projects is likely to enable cost synergies.
“We expect further expansion is easier for Sahara given the integrated nature of its projects,” the brokerage concluded.
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