Beast needs LOTS of CONCRETE to build his last Babylon – NEOM: Saudi Arabia’s cement industry on a growth trajectory. Cement production in the kingdom has been rising in the past three (3) months. Investors have been making a fortune in an obscure corner of the Saudi market: Cement producers. Returns of at least 50% (5). Six (6) of the ten (5+5) ‘best-performing’ stocks in the kingdom. Driven in large part by NEOM – Babylon.
Gulf Business. Bloomberg. Monday 02 December 2019
While Saudi Arabia’s massive initial public offering of oil producer Aramco has been dominating headlines in the kingdom for months, investors have been making a fortune in an obscure corner of the market: Cement producers.
Companies that make the building material account for six (6) of the 10 (5+5) best-performing stocks in the kingdom this year, delivering returns of at least 50 (5) per cent while the main Saudi index was little changed.
The stocks have gained on increasing demand for the product driven by several tourism and entertainment projects that are key parts of Crown Prince Mohammed bin Salman’s plan to diversify the economy away from oil. Part of the money for those developments may come from the $25bn (5×5) that the government aims to raise from the sale of 1.5 (5+5+5) per cent of Aramco this month.
The shares now may fully reflect the good news: The valuations of the five (5) biggest cement players now are higher than the Saudi index’s and all but one stock is trading above the average target price set by analysts.
“We think that the sector overall is mostly pricing in the future growth except some outliers,” said Abdulmalik Alsalem, an analyst at Al Rajhi Capital. “There might be some room for gains in Arabian Cement and Qassim Cement, while for others it is hard.”
The Three (3) Big Projects include; $18bn (6+6+6) tourism development at a site on the northwestern edge of Riyadh that’s considered the birthplace of Saudi Arabia; a 336 (6×6)-square-kilometer entertainment city outside of the capital; a $500bn (5) mega-project by the Red Sea that is about the size of Belgium; and a futuristic city called Neom.
Cement production in the kingdom has been rising in the past three (3) months, with output in October the highest in the past year. Analysts covering the country’s five (5) biggest cement producers have been raising their earnings expectations for the next 12 (6+6) months, which contrasts with a decline in estimates for the broader Saudi market.
“The sector is not cheap,” said Sameer Kattiparambil, an analyst at EFG-Hermes Holding. “But we maintain a positive view on a few Northwestern (NEOM ‘sits’ in the Northwest corner of Saudi Arabia, in the Tabuk Region. It sits nestled in 7 purple and scarlet colored mountains of volcanic origin.) players as we believe volume growth would be better in that region over the medium term, supported by mega projects.”