Riyad Cap initiates coverage of Riyadh Cement with ‘Buy’ recommendation, sets TP at SAR 38

Logo of Riyadh Cement Co.

Riyad Capital initiated the coverage for Riyadh Cement Co. with a “Buy” rating and a target price (TP) of SAR 38 per share.

The rating is backed by rising demand from mega projects and the housing sector, the brokerage said in a new report, expecting demand to remain healthy going forward, particularly in the central region.

The company managed to close all its obligations in 2020 and is debt-free, which is a competitive advantage. Therefore, the cement producer will not be facing interest rate, default and liquidity risks in the near future.

At the same time, the Saudi-listed firm has the capacity to acquire new loans in the future for possible expansion or other growth opportunities.

Riyadh Cement maintains a high level of cash historically, and the same is expected going forward. Therefore, there is a possibility that the firm may give higher dividends in the upcoming five years with an expected average dividend of SAR 1.78 per share through 2025.

The brokerage expects no expansion in the company’s factories in the future for several reasons, since the average utilization rate is at 81% from 2016 to 2020, indicating they can produce more without the need for expansion.

According to the report, most of the company’s revenue depends on three key clients, representing 54% of revenue in 2020 and 53% of revenue in 2019.

In the case the company fails to pursue or acquire new business from its key clients, it will negatively affect business and financial results, which is one of the possible risks in the future.

Riyadh Cement’s net income is likely to increase from SAR 204 million in 2021 to SAR 237 million in 2025, the report noted.