National Industrialization Co. (Tasnee) 2018 fiscal earnings are expected to improve following the sale of assets in Cristal, Aljazira Capital said in a note on Thursday.
The petrochemical firm will also see improved margins due to lower financial charges, lower operating expense and cancellation of tax on income, the brokerage said.
Aljazira has maintained an ‘overweight’ recommendation on Tasnee. The target price could increase to SAR 26.5 per share, based on closure of the Cristal deal.
US-based Tronox Limited has signed a definitive agreement to acquire the titanium dioxide (Tio2) business of Cristal, which is 79 percent-owned by Tasnee.
The deal will earn Tasnee SAR 6.3 billion ($ 1.67 billion) cash and 37,580,000 of newly issued Class A shares in New York-listed Tronox Co, representing around 24 percent stake in Tronox.
“We believe that the asset sales of Cristal would directly enhance the company’s performance and financial ratios due to weak margins and performance of Tio2 segment, which has been putting the profitability under pressure due to continued operating and net losses,” Aljazira said.
Going forward, Tasnee will be able to concentrate on its petrochemical sector and creating more value by adding a valuable strategic expansion in the core business, while considerably deleverages its balance sheet, it added.
The deal will also likely result in lowering Tasnee’s finance expenses from SAR 767.1 million in 2016 to around SAR 500 million in 2018.
With Cristal fully repaying its bank debt of SAR 6.3 billion ($ 1.67 billion) outstanding in Saudi Arabia, it would result in the reduction of gross debt of Tasnee, Aljazira noted.
After losing Cristal as a subsidiary, Tasnee would see lower variation on earnings due to lower impact of the minority interest on the company’s total performance.
The transaction will also help deleverage Tasnee consolidated balance sheet and reduce the debt/equity ratio, the brokerage said.
“Expected EPS (earnings per share) in 2018 is subject to strongly improve from 0.38/share in 2016 to 2.1/share in FY2018. This could increase the target price to almost SAR 26.5/share,” it added.
Aljazira also said the deal will positively impact Advance Petrochemical, which holds 6 percent stake in Tasnee.
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