Itqan Cap maintains ‘Neutral’ on Budget Saudi, raises target price to SAR 41.90

A branch of United International Transportation Co.

Itqan Capital maintained its “Neutral” recommendation on United International Transportation Co. (Budget Saudi), but raised the target price per share to SAR 41.90 from SAR 36.50.

The brokerage attributed its recommendation to higher-than-expected profit margins but remained “Neutral” on the company in light of persistent medium-term risks.

“Budget’s resilient business model and diversified fleet enabled the company to report higher profits in Q1 2021, despite lower revenues, as it continues to benefit from the sale of used vehicles at high margins, which are currently in high demand,” the report said.

The high contribution of long-term lease, which was less impacted by COVID-19 measures than short-term rentals, supported Budget’s revenue and cash generation over the past quarters.

However, the key short-term catalyst is the partial short-term rental recovery in H2 2021.

“Budget is expected to start witnessing some recovery in its short-term rental revenue starting the second half of Q2 2021 as Saudi Arabia re-opens its borders in mid-May, yet the impact should fully reflect in Q3 2021 results,” the brokerage said.

Recovery is likely to be slow, given continued restrictions on entrance and exit eligibility and continued travel ban from some countries.

The key downside risks lie in long-term leasing business (comprising nearly 50% of revenues) weakness, which continues to struggle amid market share losses and lower demand from corporates, Itqan Capital noted.