Saudi Fransi Cap ups Maaden to “buy”, raises EBITDA estimates

Saudi Fransi Capital has raised its rating on Saudi Arabian Mining Co. (Maaden) to “buy” from “hold”, raising the stock’s target price to SAR 57 from SAR 37, on growing confidence that the announced capacity expansion in phosphate and aluminum will go beyond preliminary agreements.

“We upgrade Maaden to Buy from Hold, premised on the view that investors are buying an emerging global mining giant with distinct competitive advantages,” the brokerage firm added.

In addition, a notable rise in profit margins in Q1 2017 led to revising up forecasts for full-year EBITDA to SAR 5.8 billion from SAR 4.5 billion, yielding 43 percent margin.

The memorandums of understanding inked with Mosaic and Alcoa last month at the Saudi-US CEO Forum will raise annual phosphate capacity by 3 million tons (+50 percent) and aluminum by 600,000 tons (+80 percent).

“We believe both projects have a reasonably strong likelihood of advancing given the strong push by the state to develop mining as an engine for jobs and feeder for downstream industries,” Saudi Fransi Capital said.

Meanwhile, the company’s phosphate III and aluminum II projects are expected to add SAR 18 to the target price, the brokerage firm added.

Maaden’s valuation should expand, as the mining firm could emerge as a global giant and will pursue growth undeterred by cyclicality.