Aljazira Capital maintains ‘overweight’ on Northern Cement, cuts TP

Aljazira Capital has maintained an “overweight” rating on Northern Region Cement (Northern Cement) and slashed the stock’s target price to SAR 21.10 from SAR 26.80, the brokerage firm said in a report.

The cement producer’s higher domestic sales of clinker led to better performance in the second-quarter of this year. H1-2015 sales jumped 21.4 percent year-on-year to 1.32 million, leading to an increase in its local market share to 4.1 percent during the period, from 3.3 percent in H1-2014.

The company is forecast to see positive growth in 2015, due to an expected rise in the employment rate and improved sales prices. However high transport costs and additional risk from the company’s subsidiary in Iraq may weigh on earnings.

The Wa’ad Al-Shamal City, scheduled for completion by 2016, is likely to be the biggest driver for cement demand in the Northern Region. Moreover, government and civil projects, ministry of housing Initiatives and the private sector’s development in the region are expected to have a positive impact on the sector in the coming years.

However, the investment arm of Bank AlJazira added that Northern Cement’s rising debt was “limiting the attractiveness of the stock.” The company recorded impairment losses of SAR 7 million in Q2-2015 due to a decline in its investment value. Its debt-to-equity ratio rose to 0.53x at the end of the same quarter from 0.27x a year earlier, with total debt at around SAR 1.1 billion.