Al Rajhi Capital initiates Saudi White Cement with 'Neutral', TP set at SAR 32/share

Al Rajhi Capital began its coverage of Saudi White Cement Co., listed on Nomu parallel market, placing a “Neutral” recommendation on the stock and setting its target price (TP) at SAR 32 per share, which implies a 6% upside potential to its market price as on Nov. 30.

While the company's growth rates have lagged industry peers in the current year, this trend is expected to change, at the back of the steps taken by the management to make its products more price competitive, Al Rajhi Capital said.

It added that grey cement sales will likely improve in 2021, backed by the increase in home mortgages and higher infrastructure spending.

White Cement sales will likely remain steady, growing at 5% in the medium term.

Al Rajhi Capital added that Saudi White Cement’s volume growth has been flat in 2020 due to the company's reluctance to reduce the cement price, in the face of increasing price competition.

White Cement’ sales volume is expected to grow in 2021, although revenues are estimated to remain unchanged on lower sales. This, in turn, is likely to reduce the company's profitability during the year.

Meanwhile, the research note forecast higher profits by 2022 as revenue growth to pick up as price stabilizes and volume growth recovers.

In addition, it did not expect any major capital expenditure by the company in the coming years, indicating that, this along with the company’s steady cash flow generation, is likely to aid in a steady improvement in dividend pay-out from the current levels.

The brokerage's “Neutral” rating means it expects the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12-month time horizon.