Itqan Capital starts coverage of Budget Saudi with ‘Neutral’, TP at SAR 28.50

Itqan Capital initiated coverage of United International Transportation Co. (Budget Saudi), recommending ‘Neutral’ with a target price (TP) at SAR 28.50 per share.

The brokerage firm said in a report that despite significant anticipated headwinds from short-term rental revenues, long-term lease and vehicles sales are expected to provide some resilience for Budget Saudi’s revenues during 2020.

Itqan expects margins to compress during 2020 due to high operating leverage and lower profit from the sale of vehicles in H2 2020 before partially recovering in 2021, indicating the company’s short-term downside risks include drop in tourism and consumer downtrading.

Meanwhile, Budget Saudi’s ability to sell its fleet during times of low lease demand provided flexibility to maintain good margins, the report noted, adding that the recent emergence of alternative car rental services pose considerable risks for the company’s long-term growth prospects.

The brokerage firm expects Budget Saudi to achieve a net profit of SAR 75 million in 2020 and SAR 133 million in 2021.