Arabian Cement -Equity Report -28-05-2012

Exciting prospects

Arabian Cement is our top pick in the cement sector. The company has exciting plans to take its growth journey forward capitalizing on its strategic location which provides it a competitive advantage over its peers. Arabian Cement has maintained high utilization rates, on the back of the massive construction and cement demand in the western region. Nevertheless, the company’s strategy of capacity expansion and newly-launched operations in Jordan should enable it to post healthy growth over the next few years. We rate the stock Overweight with a target price of SAR78.0, implying a 34% upside.

Valuation – attractive multiples: Using DEP valuation; we estimate the fair value for Arabian Cement at SAR79. On a comparative multiple valuation, our fair value is estimated at SAR76.2. We arrive at a target price of SAR78.0, assigning a 70% weight to economic profit and 30% to multiples. In our view, Arabian Cement appears undervalued with a 2013 PE of 7.6x and EV/EBITDA of 5.5x. This, combined with a decent dividend yield of 6.0%, makes us believe that Arabian Cement has a healthy upside potential.