Saudi mid-cap banks to outperform blue chips: SICO

Saudi Arabia's mid-cap banks will outperform blue chip, as profitability will continue to improve this year, supported by well-managed Opex and decline in provisioning, SICO Investment Bank said in a report on Monday.

"Saudi banks have surged following expectation of MSCI inclusion. Although we expect banks’ profitability to improve, even at current levels, they appear fairly valued compared to other emerging market peer," the report said.

“Since Saudi stocks are in USD pegged (SAR) and may thus witness greater preference from foreign investors,” it added.

The Bahrain-based consultancy said it sees "value in Saudi banks supported by net interest margin (NIM) expansion, Saudization initiatives, change in loan-to-deposit ratio (LDR) calculation rule, strong Opex management and asset quality".

"We have lowered our cost of equity assumption, as we lower illiquidity and disclosure related discount, with the implementation of IFRS 9, Basel III and likely upgrade to MSCI," it added.             

Tadawul's banking index has increased 45 percent over the past one year.

Meanwhile, SICO recommended buy for Saudi British Bank (SABB) at SAR 36, Banque Saudi Fransi (BSF) at SAR 39, Riyad Bank at SAR 17.5 and Arab National Bank (ANB) at SAR 37.5; neutral on National Commercial Bank (NCB) at SAR 51, Al Rajhi Bank at SAR 90 and Samba Financial Group (Samba) at SAR 30 and sell for Alinma Bank at SAR 21.